{
  "title": "Getting the Diagnosis Right: Avoiding a Housing Price Bubble in Hong Kong SAR",
  "publication": "IMF Blog, December 21, 2010",
  "sourceUrl": "https://www.imf.org/en/blogs/articles/2010/12/21/avoiding-a-housing-price-bubble-in-hong-kong",
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  "summary": "Author and date: Nigel Chalk, December 21, 2010.",
  "sections": [
    {
      "heading": "Overview and context",
      "content": "- Author and date: Nigel Chalk, December 21, 2010.\n- Recent developments: \"the average cost of an apartment in Hong Kong has risen by almost 20 percent in the past year alone.\"\n- Broader context: This rise contrasts with a \"dismal outlook for real estate markets in the industrial countries\" noted in the World Economic Outlook, and Hong Kong has been a destination for an \"extraordinary amount of global capital\" over the past two years."
    },
    {
      "heading": "Key findings and drivers of price increases",
      "content": "- Exchange rate regime:\n  - The Linked Exchange Rate System is implicated by some, but the author argues this is a \"misdiagnosis.\"\n  - No other fixed exchange rate arrangement has seen inflows on the scale Hong Kong experienced.\n  - Rising property prices are not unique to Hong Kong; many Asian economies with different exchange rate regimes have seen house price increases.\n- Capital inflows and local strength:\n  - Motivation for large inflows reflects the \"strength and resilience of the local economy\"—Hong Kong is both a vibrant market for new equity issuance and a safe haven for international capital.\n  - Inflows are in many ways \"a symptom of Hong Kong’s economic success.\"\n- Interest rates and mortgage expansion:\n  - Low interest rates, \"imported courtesy of the link between the Hong Kong and U.S. currencies,\" have contributed by making mortgages cheaper.\n  - \"Mortgage lending has expanded by almost 15 percent over the past year.\"\n- Demand and supply factors:\n  - Strong demand from Mainland Chinese investors and high net worth professionals moving to Hong Kong’s expanding financial services industry.\n  - Tight current supply conditions; construction is underway but \"it will take time before those new units actually hit the market.\""
    },
    {
      "heading": "Assessment of the Linked Exchange Rate System",
      "content": "- Historical performance: The Linked Exchange Rate System \"has, time and again and for more than 27 years, shown itself to be a robust anchor of monetary and financial stability.\"\n- Policy implication: Changing the exchange rate regime is unlikely to solve higher housing costs; the exchange rate is only part of the story."
    },
    {
      "heading": "Policy recommendations (targeted measures for the property market)",
      "content": "- Strengthen lending standards to protect financial system integrity:\n  - Require higher downpayments for home purchases.\n  - Impose more conservative limits on the share of a borrower’s income that can be used to service their mortgage.\n- Increase transaction costs to deter short-term speculation:\n  - Raise stamp duties.\n  - Impose penalties for cancelling primary market transactions.\n  - Increase property taxes.\n- Expand residential land supply:\n  - Support efforts to increase land for residential development.\n  - The new government steering committee on housing land supply has committed to making available enough land to build \"20,000 new private residential units annually over the next decade.\""
    },
    {
      "heading": "Risk assessment and recommended stance",
      "content": "- Urgency: \"A rising risk of a housing bubble in Hong Kong should not be ignored.\"\n- Strategy: Use a countervailing policy response \"that is proportional to the risks.\"\n- Recent measures: Government announcements to \"further lower loan-to-value ratios and raise stamp duties\" are characterized as \"a proactive and well calibrated response.\"\n- Vigilance: It will be \"essential to remain vigilant and introduce further measures, should circumstances so warrant,\" to avoid a future \"protracted and painful\" downturn if current exuberance is left unchecked.\n\nGetting the Diagnosis Right: Avoiding a Housing Price Bubble in Hong Kong SAR — Nigel Chalk, December 21, 2010.\n\n---\n\n\n References\n\n- dismal outlook for real estate markets\n- like many countries in the region\n- “Listen to Ashvin Ahuja talk about 'China: Property Bubble in the Making?'\n- Our view\n\nSource: https://www.imf.org/en/blogs/articles/2010/12/21/avoiding-a-housing-price-bubble-in-hong-kong"
    }
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    "[Markdown version](/en/blogs/articles/2010/12/21/avoiding-a-housing-price-bubble-in-hong-kong/index.md)",
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    "Authors: Nigel Chalk",
    "Published: December 21, 2010",
    "Author and date: Nigel Chalk, December 21, 2010.",
    "Recent developments: \"the average cost of an apartment in Hong Kong has risen by almost 20 percent in the past year alone.\"",
    "Broader context: This rise contrasts with a \"dismal outlook for real estate markets in the industrial countries\" noted in the World Economic Outlook, and Hong Kong has been a destination for an \"extraordinary amount of global capital\" over the past two years.",
    "Exchange rate regime:",
    "Capital inflows and local strength:",
    "Interest rates and mortgage expansion:",
    "Demand and supply factors:",
    "Historical performance: The Linked Exchange Rate System \"has, time and again and for more than 27 years, shown itself to be a robust anchor of monetary and financial stability.\"",
    "Policy implication: Changing the exchange rate regime is unlikely to solve higher housing costs; the exchange rate is only part of the story.",
    "Strengthen lending standards to protect financial system integrity:",
    "Increase transaction costs to deter short-term speculation:",
    "Expand residential land supply:",
    "Urgency: \"A rising risk of a housing bubble in Hong Kong should not be ignored.\"",
    "Strategy: Use a countervailing policy response \"that is proportional to the risks.\"",
    "Recent measures: Government announcements to \"further lower loan-to-value ratios and raise stamp duties\" are characterized as \"a proactive and well calibrated response.\"",
    "Vigilance: It will be \"essential to remain vigilant and introduce further measures, should circumstances so warrant,\" to avoid a future \"protracted and painful\" downturn if current exuberance is left unchecked.",
    "[dismal outlook for real estate markets](http://www.imf.org/external/pubs/ft/weo/2010/02/pdf/c1.pdf.)",
    "[like many countries in the region](http://blogs.imf.org/2010/10/21/sustaining-asia%E2%80%99s-recovery/)",
    "[“Listen to Ashvin Ahuja talk about 'China: Property Bubble in the Making?'](http://www.imf.org/external/pubs/ft/survey/so/pvcast.aspx)",
    "[Our view](http://www.imf.org/external/pubs/cat/longres.cfm?sk=24406.0)"
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