Tsang's policy steps futile, analysts say

HONG KONG: Analysts say the government's latest measures to rein in fast-rising property prices won't work.

But that doesn't mean the administration is wrong to try damping down the market, says one observer.

"The property market is rotten and cannot be self-regulated. It is up to the government to do something," David Ng, head of regional property research at the Royal Bank of Scotland, said.

He said there were 2.5 million private flats in Hong Kong - enough for the city's 2.3 million households - and price growth was being driven by excess liquidity and speculation, not demand from end-users.

But Ng said the measures announced by Chief Executive Donald Tsang Yam-kuen in his policy address last week would do little or nothing to curb the speculation and price growth.

"Tsang has shown his last card to the market," he said. "He said he did not want to see property prices fall because of his policy address. Clearly, if he has no intention to correct the market, he cannot be expected to adopt any effective measures."

The chief executive said the government would release more sites to enable the construction of 20,000 private flats annually over the next 10 years. It also plans to build 5,000 small- and medium-sized flats under a scheme called the My Home Purchase Plan and lease them to eligible applicants at market rents for up to five years. A subsidy equivalent to half the rent paid by tenants will be used for part of the down payment for them to buy homes.

Ng said that if the government wished to be effective, it should increase the supply of high-end flats by releasing more luxury sites for sale.

This could shift the focus of investors to the luxury market and help curb price growth in the mid-range market.

Eric Yuen Chi-fung, an analyst at Dao Heng Securities, echoed the general view among analysts that the housing measures announced in Tsang's policy address would not have a big impact on the property market.

"Property prices will continue to go up. The factors supporting the growth in prices remain - interest rates are low, inflation is coming, excess liquidity continues, and demand and supply is in an imbalance," he said.

The government's intention to release more sites to enable the construction of 20,000 private flats annually over the next 10 years would have little immediate effect on demand, Yuen said.

"Housing policies are not strong enough to change the upward trend of property prices," Yuen said, and given the prospect of rising inflation, continued low interest rates and an improving economy, property prices would continue to rise.

"Property prices jumped 30% last year and have risen another 15% so far this year. I don't think that growth will slow in the coming year," he said. The likelihood was that prices would rise another 10 to 15% in the coming 12 months.

Eric Wong Chun-yu, a co-head of Asian property research at UBS, left unchanged his forecast that by 2012, property prices would have advanced a further 30%, when there was a danger that a property bubble would implode, as it did in 1997.

"The release of the My Home Purchase Plan is similar to the Home Ownership Scheme (HOS) in 1997. We may have a supply of such flats exceeding the supply of private housing - as happened in 1997 when about 70% of new housing supply was HOS flats.

"If that happens, the bubble will burst," he warned.
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