Hong Kong Suspends Property From Residency Plan; Shares Decline

Hong Kong will stop offering residency to foreigners who buy property and unveiled a rent-to- buy program, intensifying efforts to cool prices that have jumped almost 50 percent from 2009. Shares of developers tumbled.

The government will temporarily remove real estate from its Capital Investment Entrant Scheme, which was set up to encourage foreigners to invest to gain residency, Chief ExecutiveDonald Tsang said in his annual policy address today.

The government in the past year raised mortgage down payments and increased land supply to rein in home prices that have surged since the beginning of 2009 on the back of record- low interest rates and an influx of Chinese buyers. The Hang Seng Property Index posted its biggest drop since May, as Sun Hung Kai Properties Ltd., the city’s biggest developer, and rivals fell on concern the measures will weaken demand.

“There will be a correction of share prices of property companies as housing supply and demand become more balanced,” said Tim Leung, who helps manage about $1.5 billion at IG Investment Ltd. in Hong Kong. “Residents have complained that housing has become unaffordable. The government has the responsibility to force the market to supply homes to the general public.”

The Hang Seng property gauge, which tracks the city’s seven biggest developers, fell as much as 3.4 percent and was down 1.5 percent at 2:31 p.m. local time, reversing an earlier gain.

Shares Fall

Sun Hung Kai fell 3.4 percent to HK$132. Cheung Kong Holdings Ltd., the builder controlled by Hong Kong’s richest man Li Ka-shing, dropped 1.6 percent to HK$116.60. New World Development Ltd. declined 3.5 percent to HK$16.10.

“Many find it unnerving that property prices have kept rising and years of hard-earned savings cannot even cover a down payment,” Tsang told the city’s lawmakers today. “They hope that the government will help them realize their aspirations for home ownership.”

Under the rent-to-buy program, the government will offer 5,000 units for first-time property buyers to rent for as long as five years at a fixed amount. Over those five years, tenants will be eligible to use half of the total rent paid toward a down payment to buy a home.

‘Limited Impact’

“Many of the policies announced today may have only limited impact on the property market in the near term,” said Cusson Leung, a Hong Kong-based analyst at Credit Suisse Group AG. “Take the rent-to-buy scheme, a lot can still happen over the next few years.”

The first project under the plan will provide about 1,000 units in the Tsing Yi district and is expected to be completed by 2014, Tsang said.

Home prices have surged almost 50 percent since the start of 2009, according to Centaline Property Agency Ltd.

The government will continue to boost land supply and expects 61,000 new units to come onto the market in the next three to four years, Tsang said. In the past 10 years, an average of 18,500 new units were sold annually, he said.

Tsang also pledged to strengthen regulations of developers’ sales tactics, and the government will study requiring builders to list saleable floor areas instead of building area when calculating per-square-foot prices.

“These are good measures as it will give buyers a standardized idea of the size of the flats they are buying,” said Wong Leung-sing, a research director at Centaline, Hong Kong’s biggest privately-held property broker. “I think this whole policy address is a move in the right direction.”