(Bloomberg) — Hong Kong will relax mortgage rules and cut alcohol taxes in a series of measures aimed at supporting the weak real estate sector and boosting spending as China’s slowdown weighs on the city’s economy.
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Chief Executive John Lee said he will increase the number of loans homebuyers can borrow for some properties and broaden a residency-by-investment program. The city’s leader also announced a drastic cut in liquor taxes, in an effort to boost a service sector struggling with fewer tourists and weak sentiment.
“We must maintain our development momentum and self-renewal, and that we must embrace change while remaining principled, innovative and flexible in meeting challenges and opportunities,” Lee said in his annual policy address on 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 rose as much as 6.5% before earnings fell.
Lee set his sights on boosting the economy after strengthening 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 financial hub.
The city’s economy has grown within the official forecast range of 2.5% to 3.5% in the first six months, thanks to strong exports that offset sluggish consumption, although China’s slowdown and geopolitical uncertainties have cast a cloud over Hong Kong’s growth prospects.
A focus of Lee’s speech was the ailing real estate sector, with house prices hovering around 2016 lows.
The maximum loan-to-value ratio for all homes will be set at 70%, he said, allowing some homebuyers to make a lower down payment. The ratio is currently below that threshold for homes above HK$30 million ($3.86 million) and 60% for homes valued above HK$35 million.
A comprehensive investment migration program will include residential properties valued at HK$50 million or more as part of the required HK$30 million investment. Such real estate purchases, previously excluded, would meet one-third of that requirement.
Thomas Chak, head of capital markets and investment services at Colliers International, said the new housing investment policy will help attract wealthy individuals to the city and increase transaction volume in luxury properties, but will have limited impact on the overall housing market.
Beijing’s recent stimulus measures, along with interest rate cuts by the US Federal Reserve, may provide some relief. Borrowing costs in the city rise and fall depending on the Fed’s decisions because the local currency is pegged to the dollar.
Hong Kong will also cut liquor taxes to help the service and food industries, Lee said, confirming an earlier Bloomberg report. The excise duty on liquor with an entry price above HK$200 will be reduced from 100% to 10%, with the lower rate applicable to the excess amount.
These sectors have struggled as sales and tourist arrivals are still below pre-pandemic levels, with a wave of bankruptcies suggesting corporate finances are eroding. During that period, the city’s image was battered by draconian quarantine measures and a crackdown on pro-democracy political opposition, including former media mogul Jimmy Lai, whose national security trial will resume next month.
Lee’s housing measures add to his government’s efforts over the past year to boost the real estate market, including lifting most restrictions on home purchases and cutting taxes on property purchases. Prices rose slightly earlier this year before falling further.
The comprehensive migration plan, called New Capital Investment Entrant Scheme, was relaunched last year as the semi-autonomous Chinese city sought to attract talent and capital despite stiff competition from peers including Singapore.
The initiative includes a mandatory investment of HK$3 million in a portfolio managed by the Hong Kong Investment Corp. to support local innovation. The plan was expected to generate HK$120 billion and 4,000 migrants annually, the government said in December.
–With help from Shawna Kwan and Sangmi Cha.
(Updates with market reaction, comments and more details)
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