“House Purchasing Platform” is no way to save the property market

While first-hand property transactions have recently become more active, second-hand property transactions remain low. The low-priced strategy still prevails in primary properties. Though secondary property prices have shown a minor rebound for three consecutive months, the market is yet facing downward risks. Recently, a local political party proposed a "House buying pass" program to release the limitation of the capital flow from mainland to Hong Kong so that it can stimulate the transactions of local property market.

Hong Kong residential property prices have dropped by 30% approx. since three ago. This is a significant drop, and the business sentiment is not favorable, but for most self-use landlords, the situation remains acceptable. As the market is inclined to stabilize, the proposed of the "House Purchasing Platform" is to help to release the funds from mainland to purchase properties in Hong Kong. It may once again boost property prices a little bit. As a result, it will further raise the entry threshold to the first-time homebuyers, but it is no way to save the overall property market.

The main challenge to Hong Kong is the collapse of the commercial property market. Investors are on the brink of insolvency. Nine of six small and medium-sized developers are short of liquid assets to repay the short-term loans, and two or three bigger developers are also facing the risks of debt defaults.

For banks, one of famous local banks of its credit ratings has been downgraded to negative, the debt ratio of another larger bank rose to 7%. Hong Kong banking is now facing the grimness of default system crisis.

Hong Kong's small and medium-sized developers have collectively fallen into debt default crisis. It is possible that some of them will be filed bankrupt before the end of the year. Some larger companies may be better, but they still inevitably become “zombie companies.” They suspended all the normal operations and stopped to pay debt interest payments. Banks are hesitant to foreclose their mortgaged properties and filed these companies to bankruptcy. As a result, banks’ bad debt ratios are rapidly escalating to the brink of collapse.

The most urgent task for Hong Kong now is to establish a crisis response unit. This will not only prevent banks' bad debt-ratios exceeding 10% but also help debt-ridden developers to restructure their debts. S&P recently released Hong Kong's Purchasing Managers' Index, which has been below fifty marks, the boom-and-bust line for six consecutive months, indicating that the economy is still in contraction and the business outlook is not optimistic. In the coming next one to two years, Hong Kong economy will still face a tough challenge.