Hong Kong Government Tries to Slow Overheated Property Market

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After months of complaints and predictions of impending disaster, the Hong Kong government has taken steps to dampen the overheated property market.

The new measures include a restriction on flipping property, hoping to stem the quick resales favored by speculators. The government also announced tightened mortgage requirements on luxury properties purchased as investments, as well as plans to auction three sites for future development.

With supply low and demand high, especially from investors from mainland China, valuations have moved from stratospheric to the ridiculous. Prices jumped 40 percent in the last two years, while the rest of the globe's property markets wallowed in the recession.

Although critics immediately charged the government with not going far enough, some analysts said the measures sent a clear signal that the government was ready to step in to control the market.

"The plan to launch a basket of policies, followed by potential resumption of public housing supply, is a credible threat to the overheated property market," David Ng, an analyst with RBS, told Reuters.

Beyond the economic ramifications, the growing property is turning into an embarrassment for the Hong Kong government.

Turns out only a few tycoons have been reaping the bounty, recent news reports confirm. Seventy percent of homes on the market originate with two companies, SHK Properties and Cheung Kong Holdings, according to analyst's estimate. "It has never been quite so brutally clear how little competition exists in the property market," wrote Marketwatch's Craig Stephens.

The reaction in the market was immediate. Transactions dipped 50 percent over the weekend, from a week earlier, property agency Centaline reported. And property companies saw stock prices drop an average of more than 3 percent, suggesting investors believe the champagne days may be ending for the industry, at least temporarily.

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