Hong Kong is the most expensive real estate market of the Asia Pacific region. Home prices have been high since 2009 due to lack of steady supply, low interest rates and the influx of Chinese buyers in the region.
To cool the conditions down, the government had introduced various measures in the past few months.
Some of the measures include upping stamp duties for non-resident buyers and restricting home loans as well. More recently, in April the administration declared that developers need to maintain more transparent records of apartments for sale.
These curbs have been widely debated by experts with some believing that these constraints must be replaced with more practical ones like the capital gains tax. Some also expect more measures to come.
But has the government actually achieved its target with these curbs? How have these measures affected the market?
Home prices in Hong Kong went up 28 percent, the highest in the 55 housing markets tracked by real estate intelligence firm, Knight Frank. The government's effort to bring down prices has not really paid off. However, the volume of sales in the region has dropped tremendously. According to Bloomberg:
Builders including Sun Hung Kai Properties Ltd. (16) and Cheung Kong Holdings Ltd. (1) sold about 4,320 new units for HK$40 billion ($5.2 billion) in the first half, both the lowest since the second half of 2008, according to figures compiled by realtor Centaline. A total of 7,183 units were sold for HK$66 billion in the second half of 2012.
With sales going down dramatically, developers are discouraged and have decided to hold off transactions until the market looks up again. Some experts believe that the fall in the volume of sales will eventually lead to a fall in the prices.
"It's all supply and demand. Demand has dropped significantly even as supply has stayed the same. The only option is to lower the price," Buggle Lau, chief analyst for strategic development and research at Midland Realty,said in an interview with CNN.
But doesn't this contradict the main reason why home prices touched the roof? If developers cap sale transactions that will block the supply even more, sending prices up higher.
"All the measures to curb activities are negating whatever the government's trying to do to accelerate sales. They'll need to figure out a different way," Wong of Centaline Property Agency Ltd. said to Businessweek.
Cooling the property market down will definitely take some time. It is a long term process. However, the administration needs to be more cautious with cooling measures to avert a bubble without damaging the economy and the sector's strength.
