Key comments on the 2024/5 Budget (香港2024/5預算案點評) 20240304

Your correspondent has made various comments in several media interviews relating to the budget measures. The most ‘uncut’ must go to the live interview on RTHK programme:

1) 《理財新世代》 - 預算案全面撤辣是否有助樓市走出困局

listen to RTHK here or on my own Youtube, followed by

2) Oriental Daily interview: 財赤嚴重勿只靠舉債 搞花招無助振經濟 (here) and then on the paper’s B1 section coverage, extracts of which reproduced here:

    東方日報B1：大屋苑車位狂冧價 街舖蝕讓激增1.4倍 (link)

    Bricks & Mortar Management主席兼總裁王震宇認為，息口高企，投資物業回報追不上存款利息，樓價難見起色，就算買部分高息地產股，回報也遠高於物業。假設租金上升，回報率要由約3厘上升至4.5厘，才可追近現時市場5厘息口。在息口未有回落情況下，整體樓市格局不會改變。

And finally

3) Feature article text from iMoney front cover story (link):

    《全徹辣 鬆按揭 樓市轉勢在望？》王震字：短時間反彈5％至7%

    瑞銀前房地產研究領主管·Bricks & Mortar Management主席兼總裁王震宇說樓價已經去到極度超賣水平，相信短期內一定反彈，預計升5%至7%，但「可能第四季調頭向下」，又強調「若非中國『印銀紙』，美元這段時間弱，以及全世界覺得美國短期內不能加息，香港樓價很難反彈。不應該覺得今次樓價反彈，全由政府『撒辣』所致。」

    他續說，「徹辣」雖令置業成本減少，但未必釋放很多購買力，「買樓的原因是因為覺得樓價會升。但如果樓價長遠仍跌，是不會有人因為成本少了，而擁入來買樓。」他又指經濟及政治環境才是左右樓市的主要因素，但前景不是得好，「中美角力這件事是最大問題，加上歐洲戰事令美元再升，令香港出口，或是賺匯能力會繼續跌下去。」

北水不會大舉重臨

    部分本地買家或看淡經濟前景而無意置業，但今次「徹辣」不只本地買家受惠，海外買家也包括其中，稅率與港人睇齊。事實上，港樓向來受內地投資者歡迎，政府未推出「辣招」前，部分發展商甚至安排專車，接送內地買家來港睇樓。王震宇認為目前大形勢已改變，相信北水不會大舉重臨，「內地炒家也不想來香港，如果在港沒有資產，可能會有興趣，但如果已經來港，或有能力出資來港的，一早留意更遠的地方」

搶人才或成新動力

    雖說北水難以大舉重臨，但政府過去一年積極搶人才，當中不少為中高收入人士，有望成為樓市新動力。王震宇明言，這些專才對樓市有些幫助，但暫時很難量化，又指如果「高才通」都是高資產人士，相信他們與投資者一樣都是看回報，「到底放錢落美元收息好，還是買樓收租，賺兩厘多回報？」

    外圍環境複雜多變，世界經濟復甦速度不似預期，香港作為外向開放型的經濟體，難免受影響，樓市自然受累，但這是否意味香港樓市黃金時期已成歷史？王震宇認為，這視乎香港如何重拾競爭力，「暫時來說，美國的打壓不會放鬆」，而香港要避免財政儲備被慢漫陰乾，要找方法抵禦下個風浪，「不停發債不是一個解決方法。」

香港自保勒緊褲頭

    被問到有何政府有何保救之法，他坦言可做不多，亦非香港可以控制，「現在打杖，怎樣保救？」」但建議政府避免破壞既有優勢，盡快減少過太多的福利及經常性支出，將編制減低，「要勒緊褲頭，未來一段時問是非常難頂的時候。」

    他又說，今次《財政預算案》將香港簡單稅制摧毀得體無完膚，皆因薪俸稅本來是單一稅率，但將變成兩級制，又要實施差餉累進制，導致香港減低簡單低稅率優厚條件。更壞的是，政府推進落實經濟合作與發展組織(OECO)的稅率方案，令香港低稅率優勢失去，相信對香港長遠競爭力造成非常大的打擊。

    王震宇說，目前樓價去到極度超賣水平，短期一定反彈，但受外圍環境影響，而且非香港可以控制，所以樓市長遠始終不穩，「如果以6個月為期限，就是入市時機，但若看遠一點就不好」，無論是投資者，抑或買家，情況亦一樣。他又建議，若打算賣樓套現，可以「趁高鬆綁」。

As we keep emphasising, the poorly thought out decimation of HK’s simple and low tax system is the biggest concern from this year’s budget, followed by a departure from HK’s traditional prudent financial disciplines – more welfare spending, zero scaling back of government expenditures, which resulted in the need to raise large amounts of new debts. No wonder former Financial Secretary John Tsang is also worried (see:曾俊華憂香港將要借貸度日)

Below was our original comment on the say of budget speech, plus extracts of relevant texts from the speech:

Very simply, the various property support measures come at a time when Chinese credit easing, temporary pause in US rate hikes, and technically oversold condition in local property prices (RSI at multi-year low):

​

This suggests whatever budget measures will only add to the bigger picture favourable tail winds. In the next 6-9 months, expect high single digit rebound in home prices and volumes, but by late 2024 we think the resuming USD strength and European wars to again weaken local property demand, with possible finish by early 2025 at levels below current prices.

Extracts of budget speech below, with emphasis from your correspondent, and comments in []:

------------most disappointing measures relating to HK’s tax system------------------

234. …implement a two‑tiered standard rates regime for salaries tax and tax under personal assessment starting from the year of assessment 2024/25. … the first $5 million of their net income will continue to be subject to the standard rate of 15 per cent, …portion exceeding [at] 16 per cent. It is expected that about 12 000 taxpayers will be affected, accounting for 0.6 per cent of the total number of taxpayers … revenue will increase by about $910 million each year.

[for a puny little increase, why destroy HK's simple income tax regime?]

235. …implement the progressive rating system for domestic properties, …effect from the fourth quarter of 2024‑25 onwards. …properties with rateable value over $550,000, which account for about 1.9 per cent of the relevant properties. It is estimated that the system will contribute to an increase of about $840 million in government revenue annually.

[for another puny increase, why destroy HK's simple rates system?]

238. …global minimum tax …by the OECD to address base erosion and profit shifting. …apply the global minimum tax rate of 15 per cent on large multinational enterprise groups with an annual consolidated group revenue of at least EUR 750 million and impose the Hong Kong minimum top‑up tax starting from 2025. …bring in tax revenue of about $15 billion for the Government annually starting from 2027‑28.

[for rubbing shoulders with mostly overleveraged / wanton spending bureaucrats elsewhere this is a big loss for HK's competitiveness (yes I know the pressures of being put on 'grey lists' etc - get big bro China to back us instead of bowing to profligate tyrannies elsewhere might be a better option?]

----------------------other important initiatives--------------------------

Re-domiciliation Mechanisms

36… putting in place user‑friendly fund re-domiciliation mechanisms for Open-ended Fund Companies and Limited Partnership Funds. … will submit a legislative proposal enabling companies domiciled overseas, especially enterprises with a business focus in the Asia-Pacific region, to re-domicile in Hong Kong.

Lifting all punitive stamp duties

43. …cancel all demand-side management measures for residential properties with immediate effect, that is, no SSD, BSD or NRSD needs to be paid for any residential property transactions starting from today.

Likely lifting of LTV/DSR restrictions too

44. …now room to make further adjustments to …property lending …The HKMA will make announcements later today.

Deduction of Expenses and Allowances under Profits Tax

54. …Profits-tax payers will be granted tax deduction for expenses incurred in reinstating the condition of the leased premises to their original condition. …the time limit for claiming the allowances will be removed. This will allow the new owner to claim allowances for the property after a change of ownership …take effect from the year of assessment 2024/25. [seems applicable to new purchases rather than new tenancies for existing owners - impact limited]

Tax / rates concessions

72.

    (a) rates concession for domestic properties for the first quarter of 2024/25, subject to a ceiling of $1,000 for each rateable property;

    (b) rates concession for non‑domestic properties for the first quarter of 2024/25, subject to a ceiling of $1,000 for each rateable property;

    (c) reduce salaries tax and tax under personal assessment for the year of assessment 2023/24 by 100 per cent, subject to a ceiling of $3,000. …This measure will benefit 2.06 million taxpayers and reduce government revenue by $5.1 billion;

    (d) reduce profits tax for the year of assessment 2023/24 by 100 per cent, subject to a ceiling of $3,000. …benefit 160 000 businesses and reduce government revenue by $430 million; and

    (e) allowance to eligible social security recipients, equal to one half of a month of the standard rate Comprehensive Social Security Assistance (CSSA) payments, Old Age Allowance, Old Age Living Allowance or Disability Allowance, while similar arrangements will apply to recipients of the Working Family Allowance, altogether involving an additional expenditure of about $3 billion.

Lower bribes for EVs

87. The first registration tax (FRT) concessions for electric vehicles, due to terminate at the end of March, will be extended for two years. …will reduce the concessions by 40 per cent. …At the same time, e‑PCs valued at over $500,000 before tax will not be entitled to concessions [good to see govt stepping back from mad rush to net zero, but can do more - scrap all concessions!]

'high' tech grants everywhere - really should scale back?

[109 & 113 & 119 & 123.... $3bn to Cyberport, $6bn to universities on biotech, $10bn on New Industrialisation Acceleration Scheme (NIAS), $2bn on InnoHK research clusters, etc... blind throwing of money at problems that may not need govt intervention? ]

HK to consolidate its #1 RMB hub status

131. As the world's largest offshore RMB business hub, Hong Kong processes about 75 per cent of global offshore RMB settlement. We also have the world's largest offshore RMB liquidity pool, at over RMB 1 trillion.

Lower patent tax

160. ...amend the Inland Revenue Ordinance ...implementing the "patent box" tax incentive, which will reduce substantially the tax rate for profits derived from qualifying IP to five per cent.

Increase ship register in HK

164. In addition, Hong Kong's ship registration regime is widely recognised internationally. Hong Kong ranks fourth in the world in terms of gross tonnage, ...port state control detention rate of Hong Kong registered ships is much lower than the global average. ...to offer block registration incentive to attract shipowners to register ships in Hong Kong extensively. The Government will amend the relevant regulations regarding this incentive starting this year.

Oversupply of public housing continues: 31k vs 16k private p.a. starter home collapse to continue

184. We will make available land for the production of no less than 80 000 private housing units in the coming five years.

185. On public housing supply, the Government has identified sufficient land for meeting the supply target of 308 000 public housing units over the next ten years (from 2024‑25 to 2033‑34).

No sign of fiscal restraint, big disappointment

208. Total government expenditure for 2024‑25 will increase by about 6.7 per cent to $776.9 billion, with its ratio to nominal GDP projected to increase slightly to 24.6 per cent.

209. Recurrent expenditure will increase by seven per cent to $580.2 billion. Of this, substantial resources will still be allocated to livelihood‑related policy areas including health, social welfare and education, involving a total of $343.7 billion, representing 59.3 per cent of recurrent expenditure.

211. ...will be a deficit of $48.1 billion for the year, and fiscal reserves will decrease to $685.1 billion. [time to take back many crowd pleasing non-means tested giveaways - eg the Joy You scheme)

212. In 2024‑25, the Government will maintain its target of zero growth in the civil service establishment. [should cut civil service size!]

[whilst forecasting 26/27 budget surplus, we believe this is overly optimistic, including on land sale projections as well as not factoring in global geopolitics]

So there you have it, short term asset positive, but may be a good opportunity to lighten up given decoupling uncertainties in the wider macro environment...

20130104 新城財經台 - 香樹輝 King King傾

20130104 新城財經台 - 香樹輝 King King傾

以下是2013年1月4日之節目錄音：

Metro Radio - Heung Shu Fai 20130104

王震宇料樓價首季微跌後全年將升一成

Bricks and Mortar分析員王震宇出席本台節目後表示, 政府去年十月底推出的兩項遏抑樓市措施後, 雖然樓市成交明顯下跌 , 但措施較政府兩年多前首次推出額外印花稅時為低 . 他指今次政府出招, 只是擊退外來買家 , 但樓價無明顯回落, 亦都不見有大量投資者急於沽貨離場.

王震宇估計今年首季樓價會輕微回落, 但相信由於市民普遍在新一年獲加薪 , 將會帶動樓價在農曆新年後反彈 . 他又認為在各國維持寬鬆政策的大環境下 , 資金會流向實體資產和商品 , 估計今年樓價會升一成.

王震宇又指特區政府正處於弱勢, 要透過壓低樓價增加支持度. 他說政府原意是好 , 但執行上來卻適得其反. 他認為月中的施政報告和下月的財政預算案, 都不應該再推出調控樓市措施 . 他說未來一兩年住宅新供應每年只有大約1萬 2千個單位, 遠遠追不上每年 4萬個單位的市場需求 , 認為應該政府增加土地供應.

20121106 HK Government plays God in residential market – 8 questions and 8 answers

HK Government plays God in residential market – 8 questions and 8 answers

The Government will amend the Stamp Duty Ordinance (the Ordinance) to adjust the duty rates and extend the coverage period in respect of the existing Special Stamp Duty (SSD), and introduce a Buyer's Stamp Duty (BSD) on residential properties acquired by any person except a Hong Kong Permanent Resident (HKPR).

The adjusted SSD will have three levels of regressive rates for different holding periods –

(i) 20 per cent if the property has been held for six months or less;
(ii) 15 per cent if the property has been held for more than six months but for 12 months or less; and
(iii) 10 per cent if the property has been held for more than 12 months but for 36 months or less.

The BSD will be charged at a flat rate of 15 per cent for all residential properties, on top of the existing stamp duty and SSD, if applicable, acquired by any person or entity, except a HKPR. Exemptions will be provided to certain transactions including, for example, those involving a HKPR and his or her close relatives who are not HKPR.

Table 1: summary of changes in new stamp duties on residential property

	Before	After	Change
SSD – reselling:
Within 6 months	15%	20%	5ppts
In 6-12 months	10%	15%	5ppts
In 12-24 months	5%	10%	5ppts
In 24-36 months	0%	10%	10ppts
BSD	n/a	15%	Only HK permanent ID holders buying in personal names exempted

Source: http://www.ird.gov.hk/eng/faq/index.htm

We address this new policy in a series of Q&As:

1) Will speculator fleeing cause prices to tank?  

2) Can you quantify how many foreign home buyers/investors are affected?

3) How will local end user reaction affect the housing market?

4) What will happen to developers and their pipelines and profits?

5) Will this lead to lower government land sales?

6) Which property segment benefit from this new policy?

7) Will the govt come after my hard earned cash wherever I go

8) What are your price expectations going forward?

Q: Will the SSD/BSD cause speculators to flee?

A: “Speculators? What speculators?” is our response. In 2012 YTD, the proportion of residential confirmor sales reached new record low of 0.1% (see Chart 1), a fraction of the 1.8% before the SSD were introduced in October 2010, and much lower than peak speculative years such as 7.1% in 1997. In other words, speculators playing residential property is now an immaterial and miniscule part of the market already, action by this class of players would therefore be next to NIL.

Chart 1: Speculator activity are at record lows in HK

Source: Centaline

Separately according to Centaline data, the proportion of sellers who hold less than six months have fallen from 14% in 1997 to 3.3% in 2011, and then to a new low of 0.2% in 2012 YTD. Even those holding for two years before selling have also come down from 28% of transactions to 22% in 2011, and halving again to 11% in 2012 YTD (Chart 2). It may well be that a good proportion of the 0.2% sellers disposing within six months this year are people who have come into hardship and needed to realise their homes for cash, only to be hit twice by the government’s SSD measures. Ouch!

Chart 2: Proportion of ‘speculators’ probably vastly outnumbered by ‘hard-up sellers’

Source: Centaline

Q: Can you quantify how many foreign buyers/investors are affected?

A: PRC buyers make up the bulk of non-local buyers in Hong Kong, making up some 33% of luxury, 31% of new flats, and a much more moderate 7.4% of existing residential units (Chart 3). 

Chart 3: PRC buyers as proportion of all residential transactions

Source: Centaline

Beside PRC nationals, the combined population of Whites/Indians/Japanese (i.e. the majority of non-domestic help population) make up a mere 1.4% of HK population, with those who have been resident in HK for <7 years an even lower 0.7%. These other nationalities are therefore unlikely to be meaningfully significant in their reduction in buying power in the overall residential market.

The unfair component of the new policy lies in the aspect that professionals living and working in Hong Kong – who are contributing taxes and building the city’s future – are denied the ability to buy their own homes without being hit by the 15% BSD, until they become permanent residents. How do we attract talent to the city when they are not given the chance to own their own homes?

Q: How will local end user reaction affect the housing market?

A: First, local end-users – the segment the government is keen to help – will see further drop in available units on the market, as the policy deters upgraders from moving, in fear that they may be tied down to a new purchase which may be near the top of the market, which if sold before the market turned south three years from now, will be whacked with a punitive tax.

Second, the lack of available offerings on the market caused by the absence of investor participation and upgrader selling means end-users will take even longer to find their homes.

Third, as sellers holding for less than three years fall away under the new policy, this segment, estimated at 20% of total transaction volumes, will be delayed or cancelled – HK residential property market will go from the world’s most dynamic and liquid market to a genuine ‘immovable asset’ market.

Fourth, with the 10% or so buying demand from corporates now disappearing (done under corporate ownership in order to provide staff accommodation or to shield buyer identity) as well as the 15-25ppts delayed local buying adding to the purging of non-local demand, we could be looking at as much as 30-40% drop in market volumes (Table 2).

Table 2: Estimated drop in secondary market residential transactions

Private residential market	Pre-policy transactions*		Proportional drop		Likely post-policy transactions*
	Min	Max	Min	Max	Min	Max
PRC buyers	10%	15%	-80%	-67%	2%	5%
owners who sell <3 yrs	20%	40%	-75%	-63%	5%	15%
company buyers	10%	10%	-80%	-50%	2%	5%
speculators	0.2%	2%	-100%	-50%	0%	1%
'genuine users'	60%	33%	0%	0%	60%	33%
Total	100%	100%	-31%	-41%	69%	59%
* transaction = demand

Source: B&MM

Q: What will happen to developers and their pipelines and profits?

A: As shown in Chart 3 above, PRC buyers make up as much as 30% of primary residential demand, compounding this sizable chunk with withdrawals from corporate and local buyer demand, developers collectively could see 40-50% drop in buying dollar for their projects (this may be 40-50% fewer buyers at the current prices, or 40-50% cut in prices for the same number of buyers, or any combination in between).

Given that the total primary market transactions in the past 18 months (pre-policy) ran at HK$12bn/month or HK$144bn/year, this is equivalent to an annual drop in sales revenue of HK$58-72bn. With profit margins of 30-40%, this translates to HK$17-29bn of lost profits each year for the developers as a whole. And on total market cap for the top eight developers of HK$970bn, two years of lost profit would equate to 3.5-6% of share price losses for the sector.

In other words, the share price drops of Monday (29 October) already largely discount the prospect of this measure being in force for just over two years, if our estimates above fall on the mark.

Q: Will this lead to lower government land sales?

A: Given the likely fall in sales revenue of up to 50% in the next two years or more, it is likely that developers will be scaling back materially their bids in any upcoming government land sales.

Chances are, relevant officials will not re-adjust their reserve price expectations until sufficient hard evidence has emerged that the market price for land has softened. The likely outcome therefore will be more than one site being retracted from sale for failing to ‘attract the bottom price’.

This brings forward the biggest problem characterized by the infrastructural setup of the government – on the one hand to maximise land sale revenue, and on the other hand to clamp down on home prices. We have long argued that when in conflict, the need to provide sufficient supply for the Hong Kong economy (i.e. when necessary, sell land cheap and sell them plenty) should trump the revenue considerations of the Treasury to earn high land revenues.

Q: Which property segments benefit from this new policy?

A: What we have is a global currency depreciation war. All assets will rise relative to paper money, and Hong Kong residential property, despite having these transaction barriers erected, will be under little risk of a big fall. However, with the biggest fire exit blocked, the people in the theatre will all be heading for the alternative exits.

Chart 4: If half of residential buying power (1/2 x 71% = 36%) goes to non-residential (26%)…

Source: Centaline, B&MM

As Chart 4 above shows, even if half of the pre-policy residential demand (35% of total transaction value) goes into the combined shop-office-industrial segment (26%), the newly arriving liquidity will more than swamp existing demand by 1.4 to 1. This is very bullish for the industrial and office sectors, which are our favoured investment subsectors in Hong Kong.

Q: Will the govt come after my hard earned cash wherever I go?

A: Such demand distortions are exactly the reason why government interventions should be kept to a minimum – the more the visible hand meddles in asset markets, the more bubbles it creates, and the more irresponsible behavior it encourages which eventually leads to systemic inefficiencies, if not crises.

The problem is, will the bubbles thus caused by the government lead to further irrational exuberance on the part of the people in power – in the pursuit of formless and fast flowing liquidity, will the government feel so omnipotent to hunt down non-residential property sector, and when money inevitably seeks shelter in the high risk stock market, clamp down on that too? What about the bond market, the IOU fiat scheme where supply is equally limitless? Where does the government’s moral obligation to ‘steady prices’ end and where a full blown communist style planned economy and total price controls start? 

The government needs to think about the moral hazards of driving citizen’s hard earned savings from predictable hard asset markets into often majority controlled security markets where leverages are high, supplies are unlimited (read: minority protection is impossible), and where losses of fortunes can be instant and severe political repercussions can be equally swift (remember the Accumulator saga anyone?).

Q: What are your price expectations going forward?

A: Residential prices may correct initially by 5% or so, followed by gradual recovery in 2013 back towards our target of 116 on the Centa-City Leading Index (CCL Index). We do not expect a big correction due to the fact that this new policy adds friction to new owners of residential property (which even falls to nil if held by local permanent residents who hold for three years) but does not fundamentally alter the intrinsic economics of property ownership – the fact that rental yields are well above deposit rates (Chart 5), and also in excess of market mortgage rates, in an environment of rising rents.

Chart 5: Mass housing yield gap still points to price appreciation

Source: HKMA, RVD, B&MM

As to rents, there may be more upward pressure as increasing numbers of potential buyers turn into renters. The combined rise in rents and small correction in prices should make housing yield more attractive providing support to prices.

Hong Kong residential property under the new policy will have no speculators, few short term investors, only strong holders who could pay a large downpayment, have high income visibility, and generally good holding power. With such a body of owners, price volatility will increasingly trend towards long term nominal GDP growth of 6-8% p.a. In other words, HK residential may become a TIPS like bond for as long as the current suite of policies stay in place.