Hong Kong Budget Expected to Ease Property Curbs, Boost Tourism

(Bloomberg) — Hong Kong Financial Secretary Paul Chan will look this week to cement the city’s tentative economic recovery and burnish its image as a global financial center while reining in the fiscal deficit. 

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Chan is expected to ease curbs on property transactions and announce moves to lift tourism and attract investment inflows into local capital markets when he unveils the city’s budget Wednesday, according to analysts and economists. They see cash handouts as unlikely this year, citing budget constraints. 

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“Loosening property curbs is for sure. The key is how big the loosening can be,” said Willer Chen, an analyst at Forsyth Barr Asia Ltd, who suggested that the government could hike a tax on tobacco to boost revenue.

Confidence in Hong Kong has waned as the property market experiences a historic rout, national security measures erode freedoms of expression and the economy struggles to rebound after dropping pandemic-era curbs. Hong Kong briefly lost its place to India as the world’s fourth-largest stock market earlier this year as global capital poured out of China. 

Former Morgan Stanley Asia Ltd. chair Stephen Roach this month argued that “Hong Kong is now over” and stressed that China has to fix its economic problems and let the city run itself. 

Here’s a look at the key things to watch when Chan delivers his budget address on Wednesday at around 11 a.m. local time: 

Property Easing

The Real Estate Developers Association of Hong Kong — an industry body representing the city’s major developers — along with many local politicians have put pressure on the government to remove extra property taxes to lift the lackluster market, which is facing its worst slump in more than two decades.

“We expect further lowering of rates for additional stamp duties,” Karl Chan, an analyst at JPMorgan Chase & Co., wrote in a note, referring to restrictions often described locally as “spicy measures.” 

High mortgage rates will continue to limit investment demand, but a cut in buyer stamp duties may attract some cash-rich mainlanders to buy luxury homes.

A full elimination of curbs is “possible,” according to Chan — though he warned such a move may only stimulate volume in the short term, and is unlikely to reverse the downtrend in home prices.

“The property market is driven more by interest rates and confidence on the economy and stock market,” he said.

Key stocks to watch include Sun Hung Kai Properties Ltd., CK Asset Holdings Ltd., Link REIT, New World Development Co., Wharf Real Estate Investment Co.

Deficit Woes

Paul Chan on Sunday said he planned to be more “focused and effective” in using limited public resources when facing a deficit. 

The city is expected to record a budget deficit for the second consecutive fiscal year. Analysts at PricewaterhouseCoopers expect the government to record a HK$110 billion ($14.1 billion) consolidated deficit for the 2023-2024 fiscal year. KPMG analysts see the shortfall at HK$130 billion, driven by “reduced land-related and stamp duty revenue.”

Chan’s boss, Chief Executive John Lee, in October announced cuts to the property purchase tax for foreigners and the second-home tax for local residents. He also reduced the stamp duty on stock trades. 

Any boost from those measures was overshadowed by the city’s high interest rates and a strong local dollar, which is pegged to the greenback. Slowing growth in China is also weighing on the city’s trade, which is heavily reliant on moving products between the world’s second-largest economy and other countries.

Tourism Boost

The city is expected to roll out measures to boost tourism — including holding monthly fireworks and drone shows and organizing seasonal activities such as city walks and night running — as part of the budget address, local media outlet Sing Tao reported this week, citing unidentified people.

Fireworks “could urge travelers to plan overnight stays in Hong Kong, increasing per-head spending” in the city, said Angela Hanlee, a senior gaming and hospitality analyst at Bloomberg Intelligence.

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Reviving tourism remains a priority for the Hong Kong government, as mainland visitors over the Lunar New Year holiday were still below the 2019 level. Authorities announced last week the addition of two Chinese cities — Xi’an and Qingdao — to a popular travel program which allows residents of those places to travel to Hong Kong individually, rather than requiring them to join tour groups. 

Companies that may benefit from a tourism rebound include Sa Sa International Holdings Ltd., Chow Tai Fook Jewellery Group Ltd., and Cathay Pacific Airways Ltd.

Waning Confidence

Business leaders and investors may be looking to Chan’s address as an opportunity for the financial secretary to assuage concerns that have weighed on confidence in the financial hub. 

The budget announcement coincides with a visit by Beijing’s point person overseeing the semi-autonomous territory, and alongside a consultation period for a new security law that has stirred anxiety among some in the business community.

The economy returned to growth last year, though its 3.2% rate of expansion was still slower than expected. The government is set to unveil final gross domestic product figures for the end of last year later on Wednesday and may provide new forecasts for 2024. 

Last year’s expansion — coming after a deep contraction in 2022 — gives Chan less reason to offer further stimulus, said Thomas Shik, chief economist at Hang Seng Bank Ltd.

What Bloomberg Economics Says … 

“Hong Kong’s post-Covid recovery in 2023 undershot expectations. Growth this year will be even slower. China’s weak economy will continue to be a heavy drag. The city’s property downturn and stock-market slide show few signs of turning around — a negative for sentiment and consumer spending.”

— Eric Zhu, economist

Read the full report here.

Chinese leader Xi Jinping’s government is seeking to strengthen economic ties between Hong Kong and mainland cities via the so-called Greater Bay Area project. The hope is it eventually rivals clusters like Tokyo and Silicon Valley. Chan and Lee have used prior city budget and policy addresses to discuss progress on that development. 

–With assistance from Shawna Kwan and Jeanny Yu.

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©2024 Bloomberg L.P.

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