In assessing the prospects of Hong Kong’s housing market, one hears all sorts of theories and various speculations. Cutting through the noise, we can say there are two “gray rhinos” that will determine the market direction. The two factors are government efforts to boost land supply, and changes in long-term interest rates.
Chief Executive Carrie Lam Cheng Yuet-ngor set up the Task Force on Land Supply after she took office last year. The panel has conducted a macro review of the sources of land supply, and evaluated land supply options, in a bid to achieve the broadest consensus and draw up a framework of recommendations on the overall land supply strategy for the government.
After five months of public consultation, the task force is believed to have laid out eight options for consideration on a prioritized basis.
These include brownfield sites development, reclamation outside Victoria Harbour and the massive reclamation project to the east of Lantau Island, according to reports.
The eight options are expected to provide up to 2,900 hectares of land for the city over the next decade. If everything goes according to plan, it would help mitigate the land supply shortage considerably.
All these options might face huge opposition from vested interest groups.
But Lam has reiterated her tough stance on the issue. “Don’t count on the government to rescue the [property] market,” she said last week.
Meanwhile, Chinese President Xi Jinping has praised Lam’s administration for having the courage to tackle hard issues.
It seems unlikely that the Hong Kong government would change the long term housing policy unless home prices suffer a major crash or there is another financial crisis.
Another major factor determining the long-term direction of property prices is the US interest rate trend.
With global capacity still abundant, and growth momentum turning weak, the US inflation will probably stay under control, and the Fed funds rate should hover largely between 2.5-4.0 percent.
In other words, a relatively benign interest environment should persist.
With tough land policy on one hand, offset by low interest rates on the other, an orderly correction is the most likely and welcome scenario for the Hong Kong housing market.
This article appeared in the Hong Kong Economic Journal on Dec 20
Translation by Julie Zhu
[Chinese version 中文版]
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