Real Estate: IMF Sounds The Alarm On The Hong Kong Housing Bubble (PART 1)
High-rise residential buildings in Hong Kong. The International Monetary Fund has warned that Hong Kong could see an abrupt fall in property prices after years of dramatic increases in one of the world’s most expensive housing markets. Home prices in the Asian financial hub have skyrocketed 90 percent since 2009.
Home prices in the Asian financial hub have skyrocketed 90 percent since 2009 due to an influx of wealthy mainland Chinese buyers, pushing home-ownership beyond the reach of many of its seven million people.
“The sharp run-up in house prices raises the risk of an abrupt correction,” the IMF said in its annual review of Hong Kong’s economy.
“A sharp price correction would lead to falling collateral values and negative wealth effects, which could trigger an adverse feedback loop between economy activity, bank lending, and the property market.
“The property sector is the main source of domestic economic risk,” the Washington-based organization said.
It however said the chances of a price correction that is large enough to generate a major macroeconomic and financial consequences is “fairly low in the near term”.
It also said the city’s government recent bid to slap new taxes on residential properties “should help dampen housing demand” but urged Hong Kong to ensure sufficient supply in order to boost home affordability.
Hong Kong announced a 15-percent stamp duty on non-permanent residents and corporate buyers as well as a higher stamp duty on the resale of property within three years in late October in an attempt to rein in soaring prices.
With the global economic weakness continuing to impact domestic economy, the IMF said it expects Hong Kong’s economy to grow 1.25 percent this year, before rebounding to 3 percent next year.
Hong Kong leader Leung Chun-ying had warned last week that the city needed to boost its housing supply and create more living space or risked losing its “best and the brightest” talents.
Copyright (2012) AFP. All rights reserved.
Hong Kong’s population recovered quickly as a wave of migrants from China arrived for refuge from the ongoing Chinese Civil War. When the PRC was proclaimed in 1949, more migrants fled to Hong Kong for fear of persecution by the Communist Party. Many corporations in Shanghai and Guangzhou shifted their operations to Hong Kong.
In the 1950s Hong Kong’s rapid industrialization was driven by textile exports and other expanded manufacturing industries. As the population grew and labour costs remained low, living standards rose steadily. The construction of Shek Kip Mei Estate in 1953 followed a massive slum fire, and marked the beginning of the public housing estate programme designed to cope with the huge influx of immigrants. Trade in Hong Kong accelerated even further when Shenzhen, immediately north of Hong Kong, became a special economic zone of the PRC, and Hong Kong was established as the main source of foreign investment in China. The manufacturing competitiveness gradually declined in Hong Kong due to the development of the manufacturing industry in southern China beginning in the early 1980s. By contrast, the service industry in Hong Kong experienced high rates of growth in the 1980s and 1990s after absorbing workers released from the manufacturing industry.
Throughout the British colonial era, Hong Kong was industrialized and developed in all aspects from its economy to its health care system. Many health facilities were built for its citizens, such as the Queen Elizabeth Hospital, Hong Kong, the Queen Mary Hospital, Hong Kong, the Princess Margaret Hospital, Hong Kong and the Prince of Wales Hospital. In 1983, when the United Kingdom reclassified Hong Kong from a British crown colony to a dependent territory, the governments of the United Kingdom and China were already discussing the issue of Hong Kong’s sovereignty due to the impending expiration (within two decades) of the lease of the New Territories. In 1984 the Sino-British Joint Declaration – an agreement to transfer sovereignty to the People’s Republic of China in 1997 – was signed. It stipulated that Hong Kong would be governed as a special administrative region, retaining its laws and a high degree of autonomy for at least 50 years after the transfer. The Hong Kong Basic Law, which is based on the English law would serve as the constitutional document after the transfer, was ratified in 1990.