Hong Kong Property Prices Rising, Inflation Looming

Hong Kong seems to have recovered from the Global Financial crisis, with annual economic growth now at 6.8 percent. But the cost of living is rising in Hong Kong, mostly due to rising property prices. Since 2009 they have gone up by 60 percent and are expected to rise still further. It’s fuelled by a flow of money from Mainland China and low interest rates in Hong Kong.

This is driving inflation, which is expected to rise to as high as 4.5 percent this year, from 2.4 percent in 2010.

Pro-Democracy lawmaker Leung Kwok-hung interrupted financial secretary John Tsang's budget speech on Tuesday, complaining about the high cost of living.

While citizens protested outside the Legislative Building.

[Winston Yuan, Protestor]:
"Right now Hong Kong people are spending half their salary on their mortgages. So for those people earning equivalent $1,283 U.S. dollars a month, it's impossible to buy an apartment."

Yet the government is conscious of the problem, despite being keen to play it down.

[John Tsang, Financial Secretary]:
"Overall inflation in 2010 was 2.4 percent. Discounting various government measures, underlying inflation for the year was 1.7 percent. This was relatively mild when measured against our economic growth of 6.8 percent. However, latest indications are that serious inflation is looming,"

And Tsang insists he is tackling the problems in the property market.

[John Tsang, Financial Secretary]:
“We must not lose sight of the risk to our social and economic stability with the formation of a property bubble. I'm prepared to administer additional measures when required to ensure the property market remains stable and healthy."

Measures in this year’s budget include increasing the land supply for residential use to provide 10 to 20 thousand extra apartments this year, and issuing 10-billion Hong Kong dollars worth of inflation linked bonds to ease property prices.

Hong Kong property prices are already the highest in the world, and despite these measures, are expected to go up further.

Property shares on the Hang Seng Index did rise slightly after news that the new budget did not contain new property restrictions, but quickly stopped gaining after the additional land supply was announced.