Budgeting ConcernsBreaking down this year’s budget for investors and home-seekers

Surprising no one, the swansong budget offered few surprises. Reaction was mixed: some call it a replica of the housing measures in last year’s Policy Address; economists call it moderate; the sandwich class calls it generous and developers call it harsh. Tempered by the gloomy economic outlook, Hong Kong’s new budget offers no direct cash handouts, but keeps property cooling measures intact.

In his fifth budget speech — probably his parting one — Financial Secretary John Tsang dished out a handful of sweeteners to appease the middle class, thanks to the city’s swelling coffers with a handsome surplus of HK$63 billion. They include a salary tax rebate of up to HK$12,000 and a wavier of property rates for about 90 percent of homeowners. He also pledged to extend the period for tax reductions for home-loan interest to 15 years from 10. These one-off measures, according to Simon Lo, head of Asia research and advisory for Colliers International, will hopefully “stimulate home buying sentiment, especially for first-time home buyers.”

What’s more, the financial chief turned his attention to the city’s supercharged office market. As promised by Donald Tsang in the Policy Address to boost supply of grade A offices, not only will the government transform Kowloon East into the second commercial hub, but also relocate department offices from “downtown” business areas. Analysts regard this “decentralisation” as an attempt to put the brakes on soaring office rentals, which are notoriously the highest in the world at an average $200 per square foot. “[This] acts as a stabilising agent thus narrowing the rental gap between offices in core and noncore areas,” Lo added.

The budget, however, contains no major shift in the government’s determined drive to cool the once-hot property market. Recent measures, including a special stamp duty of up to 15 percent of a home’s value on its quick resale and a hike in the minimum down payment of 50 percent on luxury housing worth over HK$12 million, are still in effect. Such a move is suggestive, analysts said.

Some attribute the budget’s lack of heavy lifting to political reality — the government’s lame-duck status, as the Chief Executive Donald Tsang and his political asides will step down in approximately five months. The speech was delivered against the backdrop of the looming Eurozone debt crisis and sputtering American recovery. Yet, it hints at the government’s confidence in the existing policies to curb speculation and prevent expansion in mortgage lending. “I am pleased to see that these measures have achieved some results,” said Tsang in his budget address. Local home prices surged 75 percent since the beginning of 2009, through their peak last July and recorded the first fall in property prices in three years. Official statistics show home prices fell 4.4 percent in the July-November period. “I shall, therefore, continue the strategy that has proven to be effective in facilitating the healthy and stable development of the property market,” he said.

This could be an immediate sign of relief for investors, who cheered the government not toughening its austerity measures. According to data from Centaline Property Agency, the number of appointments for viewings by real-estate agents as a barometer of sentiment surged 17.2 percent from a week earlier, as many had remained sidelined before the budget was unveiled. As many as 5,500 new flats from 12 housing projects are coming on the market following the budget, including Henderson Land’s 103-unit luxury development Lexington Hill in Sai Wan with a hefty price tag of HK$15,000 per square foot.

On the other hand, the government is eager to keep a grip on the city’s land supply. An ambitious target has been set up despite the recent market slowdown: 30,000 flats, more than triple the number of new flats developers have brought to market in each of the five years through 2011. The bulk of the new supply will be in the outlying areas, mostly in the New Territories, including small to mid-size flats from development projects along the West Rail line and from urban renewal projects and MTR sites.

Some real estate watchers were anxious about such a move. Ricky Poon, executive director of residential sales at Colliers, predicts home prices could fall as much as 10 to 15 percent this year, with the second-hand market a hardest hit. “The city needs about 25,000 flats annually, but now with ample supply and plenty of choices out there, sales of second-hand small to mid-size flats are going to suffer.”

Following the budget, the Development Bureau announced 47 sites up for grabs from the financial year staring April 1, half of them new and half rolled over from last year, providing enough land for about half of the targeted 30,000 units. The list includes sites from Kai Tak, home of the old airport, and even remote Sha Tau Kok near the Mainland border.

Analysts, however, aren’t convinced this will be a sure-win formula, either. Although the government is determined to increase land supply to curb speculation, whether it will work lies in market reaction. “Whether developers tabled bids for those sites is one factor, and it takes at least two to three years to build on them,” theorised Ricacorp Properties executive director Willy Liu, suggesting an immediate impact on land supply and the market is unlikely.

Many would say the budget isn’t a flawless one: developers hoped for less government intervention; lawmakers berated it for neglecting the “N-nothings,” a term coined to describe the city’s neediest people. Nevertheless, amid global economic woes and a politically sensitive time of power transition, Poon commented: “The budget isn’t one that entirely lacks vision. If not, the government wouldn’t reach out to the long-forgotten sandwich class.” It’s more of a zero-sum game, after all.