Too much money
On an early December morning, the banks of Shing Mun River in Sha Tin New Town in Hong Kong were shrouded in clouds, mist and drizzling rain. Elaine Ho, a property agent at Ka Hing Properties Co, sat in her small office close to the river, sorting out a heap of paperwork on her desk.
On the left of her desk was a stack of newspapers carrying news about purchases of large local properties by investors.
Ho had few customers to attend to, even though it was a weekend morning, which is normally a busy time for property agents.
"Customers have been getting fewer and sales have been declining since the Hong Kong government issued new measures to cool the property market in late October," she said. "But the good news is that I don't have to work late in such foggy and damp weather, which has lasted for almost a month."
In Hong Kong, estate agencies can be seen on almost every street corner, especially in areas such as Causeway Bay and Central that are popular with mainland tourists.
The agencies put up posters by the pavements, and neatly dressed salespeople distribute leaflets to attract potential mainland customers. But business has been slack since the end of October.
In order to curb speculation and bring down skyrocketing home prices, the Hong Kong government announced on October 26 a 10 to 20 percent Special Stamp Duty (SSD) on short-term re-sale of homes within a three-year period, and a 15 percent Buyers' Stamp Duty (BSD) on home buyers who are not permanent Hong Kong residents.
Local and non-local corporate buyers are also required to pay an additional 15 percent on top of the existing BSD.
Property prices in Hong Kong have risen strongly in the last two years. The house price index in Hong Kong reached a record high of 223.2 in October, up 29 percent from the peak value of 172.9 registered in 1997, according to the latest data from the Rating and Valuation Department of the Hong Kong Special Administrative Region.
Karen Wong, a local resident working at a PR company, had planned to buy an apartment two years ago but was held back by the soaring prices.
"More than HK$100,000 a square foot for an apartment is hardly affordable for ordinary residents like us. The new measures by the government at least give us some hope that the prices may drop to a certain level," Wong said.
Wong believed that a large number of wealthy mainland people have invested in the Hong Kong property market, and that this has destroyed the local balance of supply and demand and driven up prices.
Dropping sales
"Given the uncertainty in the market, investors are reluctant to buy and are taking a wait-and-see attitude. Property owners are also reluctant to sell, and have turned to renting their properties," said Helen Chau, a manager at Wing Sing Property, which specializes in second-hand property sales and leasing.
"We almost have no property sales business now. Property owners stick to the prices they ask for, and are reluctant to come down. The new housing measures have led to a drastic decline in sales, but with no obvious impact on the prices," Chau said.
According to Chau, around 30 percent of the home buyers her agency deals with are from the mainland, and the majority of mainland buyers see properties in Hong Kong as a channel of investment.
"Clients from the mainland told me that the investment returns from property in Hong Kong are high. So when the BSD was issued, we advised these clients to invest in shop and factory premises or parking places," Chau said.
"Sales of second-hand homes dropped 50 percent in the first three weeks after the policy announcement, while sales of new homes plunged 80 percent in the same period," said Wong Leung-sing, senior associate director of the Research Department at Centaline Property Agency, a local property firm.
"Home prices have dropped, but at a very slow pace. In the first three weeks after the new policies, prices only dropped 2 percent," Wong said.
The company's Centa-City Lending Index (CCL), which measures local second-hand home prices, fell by 2.08 percent to 114.38 by November 18, the third week after the policy announcement, data released by Centaline Property Agency on December 7 showed.
"There will be a 5 or 10 percent decline of prices at most in the next three months," Wong said.
Residents angry
Zhang Peng, originally from Shanxi Province in the mainland, has lived in Hong Kong for six years, and now works for an accounting firm there.
He believed the new property policies by the local government failed to take into account the interests of people from the mainland who have worked in Hong Kong for four or five years.
"The Hong Kong government should have considered that many non-permanent residents in Hong Kong have a real need for homes, instead of simply assuming that we are speculators," Zhang said.
"For those like us who are working in Hong Kong, paying taxes and making the same contribution as locals, it makes no sense to restrain us from buying homes," he said.
Zhang said he has to wait for another year until he becomes a permanent Hong Kong resident and will wait to decide on buying a home.
Meanwhile, the Real Estate Developers' Association (REDA) of Hong Kong, which represents the interests of Hong Kong's property developers, met local government officials in charge of real estate on December 7 to discuss the new property measures.
The REDA asked the government to change the policy, in particular the additional 15 percent BSD charge.
"The consequences (of the curbing policy) will be a big rebound for property prices in the future. The new measures help push up rents and eventually the investment returns on home purchases. More speculation will be brewing," said Wong at Centaline Property Agency.
However, Frances Cheung, a senior strategist at Credit Agricole in Hong Kong, believed there is a chance for the Hong Kong government to suppress speculation and prices.
"Expectations appear to remain that prices will not go down. So the impact so far has been on reduced transactions. In order to alter investor expectations the government has to hold its grip tight and not yield to industry pressure. Then prices would have a chance to correct lower," said Cheung.
Cao Junchen contributed to the story.