The IMF yesterday warned that Hong Kong could see an abrupt fall in property prices after years of dramatic increases in one of the world’s most expensive housing markets.
Home prices in the Asian financial hub have skyrocketed 90 percent since 2009 because of an influx of wealthy Chinese buyers, pushing home ownership beyond the reach of many of its 7 million people.
“The sharp run-up in house prices raises the risk of an abrupt correction,” the IMF said in its annual review of Hong Kong’s economy.
“A sharp price correction would lead to falling collateral values and negative wealth effects, which could trigger an adverse feedback loop between economy activity, bank lending and the property market. The property sector is the main source of domestic economic risk,” the Washington-based organization said.
However, it said the chances of a price correction that is large enough to generate major macroeconomic and financial consequences are “fairly low in the near term.”
It also said the Hong Kong government’s recent bid to slap new taxes on residential properties “should help dampen housing demand,” but urged the city to ensure sufficient supply to boost home affordability.
Hong Kong announced a 15 percent stamp duty on non-permanent residents and corporate buyers, as well as a higher stamp duty on the resale of property within three years, in late October in an attempt to rein in soaring prices.
With the global economic weakness continuing to impact domestic economy, the IMF said it expected Hong Kong’s economy to grow 1.25 percent this year, before rebounding to 3 percent next year.
Hong Kong Chief Executive Leung Chun-ying (梁振英) had warned last week that the city needed to boost its housing supply and create more living space or risked losing its “best and the brightest” talents.