Budget Speech

Risk of Asset-price Bubbles

20.      I have been mindful of the risk of a property bubble. I have repeatedly reminded the public that an environment with abundant liquidity and ultra-low interest rates will not last forever. People should carefully assess the risks and their own financial position when making a home purchase decision. To ensure socio-economic stability by forestalling the risk of a property bubble, I introduced three rounds of measures in February, April and August last year to ensure the healthy and stable development of the property market. In October, the Chief Executive also announced a series of short, medium and long-term measures in his Policy Address. These measures have to a certain extent achieved the intended effects of increasing flat supply, enhancing transparency in the property market, and preventing excessive expansion in mortgage lending.

21.      The US’s second round of quantitative easing measures worth US$600 billion announced in November last year has fuelled the already buoyant property market. The excessive fund flows have led to exuberant speculative activities, and short-term resale transactions have surged sharply. The exuberance has even spread from the luxury market to the mass market. To curb speculative activities, we have introduced a Special Stamp Duty on short-term resale of residential properties. The Hong Kong Monetary Authority (HKMA) has also further tightened the loan-to-value ratio for mortgages made by banks.

22.      With the introduction of these measures, there was an immediate reduction of speculative activities. The number of residential property transactions in January plunged by 39 per cent over November to around 8 000 cases, of which short-term resale cases fell 34 per cent. In December, the number of new mortgage applications likewise fell sharply by 37 per cent over the previous month. Although the figures for January are not yet complete, a preliminary examination shows that flat prices were up by two to three per cent in January after falling 0.9 per cent in December. There are also signs of pick-up in the turnover of residential flats lately. The pick-up of late conceivably reflects the strength of the demand from genuine end users and long-term investors. Notwithstanding this, we will remain vigilant against the possible risk of a property bubble posed by excessive liquidity and exceptionally low interest rates. We are determined to maintain the stable and healthy development of the property market and will continue to monitor closely the market situation. I will not hesitate to take further actions to safeguard our socio-economic and financial stability when necessary.

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