SCMP Thursday, June 15, 2000

Falling homes prices 'put economy at risk of collapse'


Pressure was growing on the Government last night to intervene in the property market and stop the fall in prices.

Warning that the economy was on the "brink of collapse", the business-orientated Liberal Party said it would stage a rare protest rally on Sunday, while the Bank of China's Hong Kong office said short-term measures were needed to avoid a repeat of the lengthy depression from which Japan is just emerging.

"We want to urge the Government to stabilise the property market," said Liberal Party chairman James Tien Pei-chun. And in a statement, the party said: "With the depressed property market, prices of flats are falling and assets shrinking and people have lost confidence in the economy. Their consumer appetite has weakened with Hong Kong's economy on the brink of a collapse. If the Government continues to sit back and watch without coming to the rescue, the future is bleak."

Property prices are estimated to have slumped by 50 per cent since the 1997 peak, and although the economy has rebounded strongly since the Asia-wide recession, property prices have continued to fall.

The party, which usually backs the Government, demanded a halt in the Home Ownership Scheme, which sells subsidised flats. It said flats that have already been built should be rented instead and the scheme reviewed.

Land auctions should be stopped to allow developers to apply for land according to market demand, and the rule forcing banks to lend no more than 70 per cent of the value of a property should be revised to 85 per cent, it said.

Mr Tien denied his party served the interests of developers, saying it represented owners of flats whose homes were now worth less than they paid for them. The party estimates that there are about 170,000 people in this predicament.

Cheung Kong (Holdings) chairman Li Ka-shing declined to offer explicit support for the march, but said the Liberal Party "represents the business community, and there is no reason why I would not support them". He said he would not join the protest, however. "I believe property prices are quite stable and I don't expect a major correction," said Mr Li.

The march from Chater Garden to government headquarters will be led by party vice-chairman Selina Chow Liang Shuk-yee, because Mr Tien will be out of town. Legislators from other parties said they would not attend.

A quarterly report by the Bank of China Hong Kong-Macau Regional Office said the Government should cut land supply and suspend the sale of subsidised housing. The report said the residential market was likely to remain oversupplied while downward pressure on prices remained. Some short-term measures were needed to avoid a long-term depression similar to Japan's.

It said some large plots of land scheduled for sale should be withdrawn and put on to a reserve list from which sites would be released when developers showed interest.

The report also suggested the Housing Authority and Housing Society suspend sales of subsidised flats, instead offering preferential loans to home purchasers to buy private-sector flats. The measure would eliminate half the downward pressure on prices, it said.

But some legislators said worries about falling prices were exaggerated. "The bankers I've contacted are of the view that the situation is better than in the middle and end of 1998," said Democrat Lee Wing-tat. "Secretary for Housing Dominic Wong Shing-wah should publicise the property price index to clarify what the actual situation is."

Mr Lee's party and Chan Yuen-han of the Democratic Alliance for the Betterment of Hong Kong opposed a halt in the Home Ownership Scheme because they believed it met the needs of many families.

Deputy chief executive of the Monetary Authority David Carse rejected the call to relax the 70 per cent ceiling on mortgage lending. The ceiling was a risk management measure, he said.