Cooling Measures: Both Sides of the Coin
Since the beginning of 2019, Hong Kong's housing market has seen a dramatic rebound with stunning speed. Home sellers and developers are quickly adjusting their asking prices upward while prospective home buyers struggle to play catch up. The public has again become frustrated with the sudden market boom, with some saying that the government should introduce more cooling measures.
To be fair, the government has presented a multitude of policies over the past decade with the intent to curb rising home prices. But from taxes to LTV (loan-to-value ratio) caps, almost every cooling measure has caused public controversy.
Supporters of cooling measures believe they have served effectively—every time these measures are enforced, housing prices do take a small dip. Apparently, the Monetary Authority takes it as a sign that they are effective and therefore will use them time and time again whenever home prices skyrocket. However, if cooling measures are indeed instrumental in fixing the market, then how come unchecked price hikes keep happening, even reaching new heights?
Interestingly, since the government first introduced measures to control the housing market, many experts have consistently kept their oppositional stance. They criticise that instead of addressing the real causes of the problem, cooling measures actually dissuade home owners from selling their properties or upgrading to better homes. With owners holding on to their properties, once the accumulated housing demand explodes due to external stimulation, the limited supply naturally drives up home prices rapidly. This often leads to public resentment, which in turn compels the government to roll out more measures to quickly cool down the market. But the results are of course short lived; once the market readjusts to new changes, prices start to climb up again and to higher levels. While existing home owners rake in the benefits of such price hikes, home seekers find housing increasingly unaffordable and the dream of getting on the property ladder drifting further away.
So what exactly did a decade of cooling measures and tightened LTV caps achieve? Norman Chan, chief executive of the Monetary Authority, offered the answer in May. In his pre-retirement remarks at Legco, he opined that the only concrete achievement of cooling measures was improving the banks' and home owners' resistance to market downturn, but the most important factor in the rise and fall of housing prices is residential land supply.