The IMF said Hong Kong’s accelerating asset inflation risks causing a bust that leads to deflation and an extended economic “downturn,” and urged further measures to rein in property prices.
“Depending on the amplitude of the upswing, the resulting downturn could prove both protracted and painful,” the IMF said in a report yesterday. The government should consider increasing stamp duties on housing and taxes on owners of higher-end properties if prices continue to rise, it said.
Hong Kong home prices have climbed about 50 percent since the start of last year, surpassing a 1997 peak that was followed by a six-year deflationary slump. Central bank head Norman Chan (陳德霖) has said the US Federal Reserve’s expanded monetary stimulus may spur inflows of cash to Hong Kong, where a currency peg to the US dollar prevents officials from raising interest rates to cool demand.
“We are fully aware of the risks of an acceleration of the credit-fueled asset cycle,” Chan, of the Hong Kong Monetary Authority, said in a statement yesterday.
The central bank “will introduce appropriate and timely prudential supervisory measures to ensure banking stability,” he said.
Since April, the government has raised stamp duty on some home sales, increased down-payment ratios, stopped offering residency to foreigners who buy property in the city and increased land auctions to boost supply.
“Positive economic news is translating to very high levels of property price inflation,” Nigel Chalk, the Washington-based China mission chief at the IMF, said in an interview with Bloomberg Television.
Higher rents will probably push up consumer price inflation to about 5 percent by the end of next year, the IMF said. Rental costs caused that measure of prices to increase 2.6 percent in September.
Hong Kong should withdraw fiscal stimulus in next year’s budget as the economy is “now back onto a robust growth trajectory,” supported by China’s expansion and the global recovery, the IMF said.
The government allocated one-off handouts, including salaries tax rebates and waivers of property rates, of HK$20.4 billion (US$2.6 billion) for the 12 months ending March 31 next year.
The IMF raised its growth forecast for Hong Kong to a range of 5 percent to 5.5 percent next year from last month’s forecast of 4.7 percent. It expects the economy to expand 6.75 percent this year.
Hong Kong reported last week a more-than-estimated 6.8 percent expansion in the third quarter from a year earlier, after a year-long contraction starting in late 2008.
The currency peg has served as a “robust anchor” to the economy, the IMF said.
Still, prices in goods and the labor market could be driven down should there be “a move to a tightening bias in the United States or a slowdown in China,” it said.
Hong Kong’s economy would benefit from further developing the offshore market in yuan trade and financial investments, the fund said.
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