Plummeting property prices in Hong Kong are pressuring land sale revenues, threatening to derail the city's competitive tax model.
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00:00Lot 623 in Hong Kong's Sha Tin neighborhood, currently an open parking lot, spans 2,300
00:07square meters and is big enough to develop up to 280 new apartments.
00:12Just a stone's throw away from the city's railway system, it's considered a prime location.
00:18In July, it went under the hammer for just over 70 million euros.
00:22But that was equivalent to less than half what a nearby site went for in square footage
00:26terms just two years ago.
00:29There's no sign of any turnaround for the market that would see developers needing to
00:33build up their stock.
00:34Hong Kong's property market is mired in a protracted downturn.
00:37According to analysis by Bloomberg Intelligence, more than 240 billion euros has been erased
00:42from real estate values since 2019.
00:46Transaction volumes in June fell by 30% compared to the month prior, and industry experts predict
00:52there's more pain to come.
00:54It's been fueled by a slowdown in the Chinese economy and a failure to kickstart the banking
00:58industry post-COVID.
01:00Despite authorities scrapping measures to cool a previously overheated market, the rebound
01:05was short-lived.
01:07Foreign firms also fear the city's new national security law diminishes Hong Kong's international
01:12role.
01:13The downturn is now choking off a crucial source of income for the local government.
01:18Revenue from land sales in the last fiscal year was the lowest since the global financial
01:23crisis.
01:24Experts say it isn't likely to pick up in any meaningful way any time soon.
01:30Income from real estate makes up around a third of government revenue.
01:34Experts say the market downturn could threaten the city's low tax system, seen as crucial
01:38to its status as a global financial centre.
01:41To ride out the storm, it's limiting sites going up for auction.
01:45The plot in Sha Tin was the only one going between April and June this year.
01:50The property market is going through a transitional period, right?
01:53And at the moment, you don't really have a situation where prices have stabilised, right?
01:58So in this kind of uncertain environment, it probably does make sense to delay things
02:02if you can.
02:04Only Hong Kong's fiscal reserves are also facing strain.
02:07The city had a budget deficit of about 11.5 billion euros for the financial year ending
02:12in March, almost double what the government previously estimated.
02:16Much of that covered expenditure on social welfare, and it's expected only to rise.
02:21The United Nations predicts Hong Kong will have the oldest population in the world by
02:25the year 2050, with almost a third over the age of 65.
02:30It's also earmarked billions to develop its tech industry in a bet on its economy.
02:35If the government can't generate profits from land sales, it'll need to find other options.
02:40It will increasingly become a tug-of-war between the government and the developers.
02:45It's possible to see a more progressive tax rate in some of the other types of tax, like
02:51properties, or basically for people who actually have the assets here, which are generally
02:57considered as a more well-off group.
02:59So I think these are all the directions that it may be heading towards.
03:03But Hong Kong's low tax regime is part of what makes it competitive.
03:07Too much tinkering with it could see it lose its edge.