HONG KONG -- With the U.S. Federal Reserve looking to taper its monetary easing and economic growth starting to slow in China, Hong Kong's real estate market could be in for a difficult year.
Hong Kong Chief Executive Leung Chun-ying, also known as CY Leung, announced the government's administrative policies for 2014 on Wednesday, with no major changes made to the housing policy. This came as a reassurance to the real estate industry, which had been worried about the possibility of a tighter policy to hold down prices. However, concerns over external factors remain.
In Hong Kong, where the currency is pegged to the U.S. dollar, exchange rate fluctuations associated with the in- and outflow of funds have little corrective effect, making fluctuations in asset prices, including real estate, that much larger. Once the Federal Reserve begins its tapering and global funds return to the U.S., Hong Kong could witness an outflow of cash that pushes asset prices there even lower.
"The slowdown in China's economic growth will also have an affect" said Lau Siu Cheung, an official at Prudential Brokerage. That is because Hong Kong's real estate market is supported by active investment from wealthy Chinese. Home prices in Hong Kong are now historically high. "Many think that the trading has already been sluggish since last year and home prices will drop this year," Lau said.
The government policy includes a plan to supply 470,000 housing units in the next ten years, of which 60% will be public housing. That translates to 28,000 public units per year. As last year's policy called for supplying 100,000 units in five years, it was accepted that "there was no major change in the annual housing supply target," according to Linus Yip, a Hong Kong-based strategist at First Shanghai Securities.
With Hong Kong's economic gap widening, this year's policies put more emphasis on providing support for low-income earners. The government announced a policy of introducing an allowance for households of low-wage workers that is linked with employment and working hours. The government is also considering providing temporary subsidies.