Hong Kong to Relax Housing Rules, Cut Liquor Tax in Growth Push

Hong Kong to Relax Housing Rules, Cut Liquor Tax in Growth Push·Bloomberg
Kiuyan Wong and Shirley Zhao
4-min read
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(Bloomberg) -- Hong Kong will loosen mortgage rules and cut an alcohol tax in a series of measures seeking to support the flagging real estate sector and boost spending, as China’s slowdown weighs on the city’s economy.

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Chief Executive John Lee said he will raise the amount of loans homebuyers are allowed to borrow for some properties and broaden a residency-by-investment program. The city’s leader also announced a drastic cut to a tax on liquor, looking to boost a services sector struggling with fewer tourists and weak sentiment.

“We must maintain our development momentum and self-renewal, and that we must embrace changes while staying principled, innovative and flexible in meeting challenges and opportunities,” Lee said in his annual policy address Wednesday.

The Hang Seng Properties Index rose as much as 3.9% after Lee announced the relaxed mortgage rules, outperforming the main Hang Seng Index. Shares of New World Development surged as much as 6.5% before paring gains.

Lee set his sights on boosting the economy after cementing Beijing’s authority over the former British colony with a national security law earlier this year, a move Western governments criticized for muzzling open discussion in the Asian finance hub.

The city’s economy has grown in the first six months within the official forecast range of 2.5% to 3.5% thanks to strong exports that offset sluggish consumption, although China’s slowdown and geopolitical uncertainties have cast a cloud on Hong Kong’s growth outlook.

A focus of Lee’s speech was the ailing property sector, with home prices hovering near a 2016 low.

The maximum loan-to-value ratio for all homes will be set at 70%, he said, allowing some homebuyers to fork out lower downpayment. The ratio is presently capped below that threshold for homes above HK$30 million ($3.86 million) and 60% for those valued above HK$35 million.

A broadened investment migration program will include homes valued at HK$50 million or above as part of the required HK$30 million investment. Previously excluded, such property purchases would fulfill a third of that requirement.

Thomas Chak, head of capital markets and investment services at Colliers International, said the new home investment policy will help attract wealthy individuals to the city and boost transaction volume in luxury properties, but will have limited impact on the general residential market.

The recent stimulus bonanza by Beijing, alongside the US Federal Reserve’s interest-rate cuts, may provide some relief. Borrowing costs in the city rise and fall with the Fed’s decisions as the local currency is pegged to the dollar.

Hong Kong will also lower the amount of tax it levies on spirits to help the services and food industry, Lee said, confirming a previous Bloomberg report. The duty for liquor with an import price above HK$200 will be lowered to 10% from 100%, with the lower rate applicable to the excess amount.

These sectors have struggled as sales and tourist arrivals remain below levels before the pandemic, with a wave of bankruptcies points to eroding business finances. That period saw the city’s image take a hit from draconian quarantine measures and a crackdown on the pro-democracy political opposition, including former media mogul Jimmy Lai, whose national security trial resumes next month.

Lee’s housing measures add to his administration efforts over the past year to boost the real estate market, including by removing most home purchase curbs and cutting property buying taxes. Prices picked up slightly earlier this year before continuing a decline.

The expanded migration plan, called the New Capital Investment Entrant Scheme, was relaunched last year as the semi-autonomous Chinese city sought to attract talent and capital in the face of fierce competition from peers including Singapore.

The initiative includes a mandatory HK$3 million investment into a portfolio run by the Hong Kong Investment Corp. to support local innovation. The plan was expected to bring in HK$120 billion and 4,000 migrants annually, the government said in December.

--With assistance from Shawna Kwan and Sangmi Cha.

(Updates with market reaction, comments and more details)

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