【明報專訊】WITH THE LAUNCH OF QE3 (the third round of US quantitative easing), an influx of hot money and sustained low interest rates are bound to push up home prices in Hong Kong. The Hong Kong Monetary Authority's immediate reaction on Friday was to tighten mortgage lending requirements. However, we should learn from experience. As a result of the first two rounds of US quantitative easing, home prices have gained 60 percent since September 2008, despite all the "drastic measures" introduced by the government, including the repeated tightening of mortgage lending and an additional stamp duty, which at best had only very short-term effects on curbing home prices. The measures taken by the Monetary Authority this time cannot be expected to have any effects in the long term.
Many in the property market have pointed out that, to check soaring home prices, there must be an adequate supply of housing for people of all income levels. However, it usually takes five or six years to have a piece of land developed into residential units ready for sale, and to meet our urgent needs we cannot afford to wait that long. In recent years, Hong Kong is becoming more closely integrated with mainland China economically, and the economic cycle is trending upwards. However, because of its currency peg to the US dollar, Hong Kong has to adopt like the US a monetary policy of super-low interest rates, which has further fuelled asset prices. As QE3 has no fixed amount or time limit, it will pump up Hong Kong's property bubble in the long run. And when US interest rates start to rise, Hong Kong's property bubble will burst, with very serious consequences.
It can be seen from the above that Hong Kong is going through a very difficult time. To keep its head above water, the US has to resort to the unusual measure of printing money recklessly. Similarly, to keep its head above water, Hong Kong should adopt some unusual measures, including the introduction of a policy that imposes limitations on the purchase of properties with foreign or mainland capital, so that property prices may not be boosted to a new high.
Both Australia and Singapore have in recent years introduced measures that restrict foreigners from buying local properties. In Australia, foreigners are not allowed to make purchases in the secondary property market, and can only buy certain new properties. In Singapore, an additional stamp duty equivalent to 10 percent of the purchase price of a property is imposed on foreigners and investors. What particular measures should be taken in Hong Kong? Realistic studies have to be carried out before this question can be answered. But it must be understood that conventional measures are useless against the continued influx of hot money.
Of course, hot money pouring into Hong Kong only partly accounts for the high property prices. When local speculators still play an important part in the property market, the imposition of restrictions on foreign and mainland investors represents only one of the many measures that should be considered. It remains to be seen what effects QE3 will ultimately have on Hong Kong. If the property market is to soar again uncontrollably, it may be necessary to increase the special stamp duty and extend its enforcement period. It may even be necessary to increase the property tax payable by owners of rented-out properties. More than one measure should be taken simultaneously to arrest the rise in property prices.
As long as the government makes it clear that the restriction on the purchase of properties by non-locals is a temporary special measure that will be rescinded as soon as the US stops printing money recklessly, it is unlikely that Hong Kong's reputation as a free economy will suffer much.