SCMP Friday, June 16, 2000

'Let market decide flat prices'


The Government yesterday shrugged off calls for intervention in the property market to stop prices falling, with a senior government source saying officials were watching but would take no reckless action.

"There is no speculation in the property market. We hope the market will be stable. We will monitor it closely and will not take any action recklessly," the source said.

He said property prices had increased by five per cent since the mid-1998 low, when there had been an average 49 per cent plunge from the 1997 peak.

Pressure has been mounting for the Government to take action. The Liberal Party warned on Wednesday that the economy stood "on the brink of collapse", and the Bank of China's Hong Kong office said the Government should cut the supply of subsidised housing.

But the source said it was difficult to say what a reasonable price level was, and it was better to leave it to the market to decide. He said the financial turmoil meant people were being cautious about investing their money.

He pointed to support for non-intervention in some sections of the press, quoting editorials in the Hong Kong Economic Times and the Hong Kong Economic Journal warning the Government not to meddle.

The source played down high-profile lobbying by property developers, who have been calling for a halt in the sale of government-subsidised homes.

It was not unusual, he said, for the property sector to voice its views. In the early 1980s, two property tycoons visited the then housing branch and told officials the higher the quality of subsidised flats, the more difficult it would be to sell flats in the private sector.

Lau Chi-kit, deputy general manager of HSBC, said yesterday it was his personal view that the ruling allowing banks to lend no more than 70 per cent of the value of a property should be relaxed - one of the measures the Liberal Party has demanded. "It's a psychological problem. If the public believe property prices will not drop any more, they will have the desire to buy flats," he said.

But David Eldon, chairman of the Asian arm of HSBC Holdings, said the ceiling was necessary because it was a buffer to protect banks from fluctuating prices.

The Hong Kong Mortgage Corp, which buys mortgage loans from banks and repackages them as mortgage securities to sell to investors, said it was considering lifting the ceiling on mortgage insurance loans from 85 per cent to 90 per cent.

In an open letter to the Government, the Hong Kong Institute of Real Estate Administration, made up of surveyors and architects, said the Government should abandon its target of having 70 per cent of households owning their flats.

It said all anti-speculation measures, including the ceiling on mortgage lending, should be abolished. Other steps suggested include increasing subsidies for first-time home buyers.

Those calling for a cut to the number of subsidised flats for sale were joined by the New Century Forum, a group of otherwise non-affiliated legislators and professionals.

A member, Andrew Fung Ho-keung, told Deputy Secretary for Housing Elaine Chung Lai-kwok the Government should review the functions of the Housing Authority, cancel the target of supplying 85,000 flats a year, reduce stamp duty, and increase the ceiling on mortgage lending to 85 per cent.

Vice-convenor legislator Ma Fung-kwok said: "People's faith will be further undermined if property prices drop further. We are not asking the Government to intervene in the market. We only demand that prices do not go down any more."