As the housing market has shown signs of softening in recent months, many have begun to speculate when the government will relax its property curbs. But the roadmap of the relaxation, rather than the timetable, is more important for investors and potential buyers.
Policy curbs can be roughly classified into two groups. The first group consists of various stamp duties aimed at suppressing speculative demand. The second group refers to counter-cyclical measures imposed by the Hong Kong Monetary Authority on mortgage loans.
It’s widely expected that the first step of easing would be a less demanding stress test.
Under the current rule, potential home buyers have to pass a stress test, which stipulates that monthly mortgage repayment amount should not exceed 60 percent of the mortgage borrower’s income even if the interest rate goes up by 3 percent.
That rule has squeezed out some potential buyers, even though they have sufficient funds for the down payment.
It’s expected the interest rate will rise by 1 percent by the end of 2019. If that happens, the HKMA might consider relaxing the stress test to, say, a 2 percent rate increase instead of 3 percent.
Relaxing the loan-to-value (LTV) ratio could be next in line.
The HKMA has capped the LTV ratio for property worth less than HK$10 million at 60 percent and 50 percent for flats with a value over HK$10 million. The move is aimed at preventing excessive borrowing in the residential market.
This LTV ratio ceiling is likely to be revised to 70 percent if the housing price shows a substantial drop.
These two easing measures would help unleash demand from a large number of home buyers and cushion against steep falls.
But it’s tricky to pick the right timing. If the authorities move too early, it could reignite the housing market.
Relaxing stamp duties would probably be the last step. These include the Special Stamp Duty, Buyer’s Stamp Duty and Double Stamp Duty.
Policymakers would be very cautious in easing these measures for fear of encouraging speculation as the home supply shortage will remain acute for an extended period even if the housing market cools down.
Unless there is a crash, the government may only make revisions to these stamp duties such as shortening the lock-up period or lowering the tax rate rather than remove them completely.
This article appeared in the Hong Kong Economic Journal on Nov 27
Translation by Julie Zhu
[Chinese version 中文版]
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