Hong Kong 2024-2025 Budget

Hong Kong revealed its budget for the 2024-2025 financial year on Wednesday, amidst challenges in its property and equities markets, and economic concerns influenced by various factors such as high-rate environment, soft global demand, and a slowdown in China.

Housing Market Changes

The most significant announcement was the decision to eliminate housing-market cooling measures. Analysts were taken aback by the extent of this move, anticipating a positive impact on home sales while expressing doubts about its full effects.

According to Marcos Chan, head of research at CBRE Hong Kong, the removal of austerity measures from 13 years ago will allow businesses and non-permanent residents to acquire residential properties sans additional duties. However, challenges such as high borrowing rates pose obstacles for commercial investment activities. Therefore, achieving rental recovery and vacancy improvements is crucial for a sustainable recovery in investment demand.

Joseph Tsang, chairman of JLL Hong Kong, believes that interest-rate cuts and economic progress are necessary for house prices to stabilize and then rise. He forecasts a 10% decline in prices this year.

Changes in Mortgage Measures

Eddie Kwok, senior director of valuation & advisory services at CBRE Hong Kong, mentions that the suspension of stress tests will lower entry costs for home buyers, ultimately boosting residential transactions. This is expected to particularly benefit the high-end/luxury residential market. Moreover, relaxed loan requirements for commercial properties could stimulate more refinancing and alleviate pressure on distressed sales.

Fiscal Deficit Forecast

The government predicted a deficit of HK$101.6 billion for the fiscal year ending in March, nearly double its initial forecast. This projection contrasts with KPMG's estimate of HK$130 billion, primarily due to lower revenue from land-related and stamp duty sources.

Fiscal Strategy and Economic Outlook

Hong Kong has projected a deficit of HK$48.1 billion for the upcoming financial year, with plans to return to surpluses in the subsequent years. The focus is on gradually achieving fiscal balance by reducing expenditure.

Economic Forecast

Despite warning of ongoing external risks, the government anticipates a growth rate of 2.5% to 3.5% in real terms for Hong Kong's economy in 2024. This follows a growth of 3.2% in 2023 and a previous contraction in 2022 due to the pandemic. Financial Secretary Paul Chan stated that the economy is expected to grow at an average of 3.2% annually from 2025 to 2028, with an average underlying inflation rate of 2.5% per year.

Market Measures

Efforts are underway to enhance stock market liquidity through proposed initiatives like a treasury share buy-back regime and ensuring market operations during severe weather conditions. Discussions are also ongoing to improve efficiency and liquidity by enhancing the listing process.

Real Estate Investments and Taxes

The inclusion of real estate investment trusts (REITs) in mutual market access schemes has been welcomed by the Hong Kong REITs Association. This move is expected to provide more income choices for investors in Hong Kong and China, as well as attract additional capital. Additionally, the waiving of stamp duties on REIT units trading has been highlighted.

Taxation Impact

However, some tax proposals could potentially deter high-income earners from staying in Hong Kong and impact tourism demand, according to Sonija Li, head of retail research at MIB Securities. The government's plan for a two-tiered standard rates regime for salary tax and personal assessment, along with the introduction of a 3% hotel accommodation tax scheduled for next year, might have consequences on these fronts.