• Knight Frank: The Budget covers a number of key issues but lacks immediate stimulus for property market

    24 February 2016

    (24 February 2016, Hong Kong) – In the Budget 2016-2017, the Financial Secretary John Tsang Chun-wah tabled a number of policies, including a set of one-off relief measures and the support for Small and Medium Enterprises (SMEs). On the property market, he proposed increases in residential and commercial land supply and measures benefiting the tourism and retail sectors. Knight Frank believes that although the Government tries to tackle a wide range of issues it has not provided immediate stimulus for the residential, office and retail property markets.

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    The Budget proposes a number of one-off relief measures, including a 75% reduction in both salaries and profits taxes and a waiver of government rates for the coming financial year. If the maximum tax rebate of HK$20,000 is used for mortgage payment, it will bring a monthly saving of about HK$1,600. This equals to around 1% reduction in monthly mortgage payment for a HK$3-million loan at a rate of 2.5% with a 25-year term, from HK$13,000 to about HK$11,400.

    In terms of land resources, the government will include 29 residential sites in the coming Land Sale Programme, providing 19,000 units in total, including 14 new sites.Taking into account residential land supply from other sources, a total of 29,000 units are expected to be provided this year, well above the annual housing supply target. David Ji, Director, Head of Research & Consultancy, Greater China at Knight Frank, says “Increasing housing supply will help alleviate the residential supply shortage, so the government should be able to meet its housing targets from 2016 to 2019. However it will be difficult for them to meet their longer term targets due to challenges in land rezoning from ‘green-belts’ and ‘government, institute and community’ use to residential use.Meanwhile, he is dissatisfied with the lack of mentioning of the ongoing residential cooling measures.”

    The Land Sale Programme for the coming year will also include eight commercial sites and three hotel sites, providing 540,000 sqm of floor area and 2,100 hotel rooms. To increase commercial supply, the Fiance Secretary plans to reprovise government facilities in the two action areas in Kwun Tong and Kowloon Bay, to convert the Murray Road multi-storey car-park to commercial use and redevelop the Queensway Plaza site.

    To cash in on the Belt and Road initiative, the government is engaged in in-depth exploration of co-operation opportunities and the unique role that Hong Kong can play. Thomas Lam, Senior Director, Head of Valuation and Consultancy at Knight Frank, expects these measures to boost demand for office, logistics and related properties in the long term. However, the short-term demand stimulus will remain mild. Amid various economic uncertainties, Grade-A office rents in core business areas in Hong Kong could remain stable this year with low vacancies, but those in decentralised areas are set to drop with abundant supply in the pipeline.

    In response to the challenging environment facing the tourism and retail industries, the government proposes to launch a series of relief measures, including the continual waiver of license fees for travel agents, hotel and guesthouse operators as well as restaurants and hawkers. The government is also planning to increase the number of designated spaces for the food trucks to 16, to be launched this year. The government will also increase the budget to jointly launch five promotional measures with the industry.

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    Moreover, the local tourism industry will continue moving up the value chain to attract high-spending overnight visitors. The government also focusd on upgrading the tourism infrastructure. While a convention centre will be constructed above the Exhibition Station of the Shatin to Central Link, the government will continue the preparatory work for the tourism projects in Kai Tak and Lantau. Knight Frank supports these measures, as there is an urgent need to alleviate the negative impact from the continued slowdown in inbound tourism. However, these policies will have limited impact on reversing the recent downward trend in retail property rents.

     

     

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