Financial secretary warns of property bubble

Tsang is cautious of the surge in overall property prices in February that surpassed the 1997 peak as he pledged to observe developments in the property market.

Financial Secretary John Tsang says he will pay close attention to developments in the property market and will not hesitate to introduce further measures to reduce the risk of a property bubble.

Speaking at the Legislative Council on Wednesday, Mr Tsang said short-term speculative activity has recently declined. There was a significant drop of confirmor cases in the first three months of the year, from an average of 320 a month between January and November last year to 134 last month, according to a government report.

Although speculative activities have cooled off, the market continues to fluctuate, he said. As low interest rates persist, property prices picked up again early this year, with an accumulated increase of 7.2% in the first two months. The number of transactions rebounded, and there was a turnaround in the number of bank mortgage applications in January.

He said he is deeply concerned overall property prices in February surpassed the 1997 peak, adding he will monitor developments in the property market and introduce further measures to reduce the risk of a property bubble, if required.

The factors affecting the property market have become more complex, such as increases in interest rates around the world and local banks tightening mortgage lending terms. He said these developments have sounded the alarm that an interest-rate rebound may arrive earlier than generally expected, reminding people the current environment of abundant liquidity and low interest rates will not last forever, and neither will rising property prices.

He emphasised the Government is determined to increase land supply. It will closely monitor the development of the property market and continue to make available residential sites in the Application List for direct sale where necessary. It will also consider announcing the Land Sale Programme in advance on a quarterly basis.

Mr Tsang said in view of the adjustments to the Budget, he estimates total government revenue for 2011-12 will be $369.7 billion, while total expenditure will reach $378.2 billion. He said the forecast surplus of $3.9 billion in the Consolidated Account will become a deficit of $8.5 billion.

Fiscal reserves are estimated at $583.1 billion by end-March 2012, equivalent to 18 months of government expenditure, or 31% of Gross Domestic Product.

The deficit for 2011-12 is mainly attributable to the one-off measures and will have no implications on medium-range finance. He expects an annual surplus in the Consolidated Account for the period between 2012-13 and 2015-16.