Inflation, Poverty and Anti-property Speculation Measures

KP Chan on inflation, poverty and  anti-property speculation measures:

The Deputy Chairman [KP Chan] was concerned that, apart from buying properties, Mainland residents also came to Hong Kong to buy daily necessities, which would push up the prices of such commodities.  He asked whether the Government would consider improving the supplies of daily necessities.

FS responded that Mainlanders coming to Hong Kong was a welcome development given the benefits they brought to Hong Kong’s tourist industry and the retail businesses. Given the wide range of sourcing, he believed that the suppliers/retailers could make the necessary sourcing arrangements to meet the increased demand arising from Mainland visitors.

The Deputy Chairman [KP Chan] pointed out that based on the Government’s analysis, an increase of the existing interest rate by 3 percentage points would lead to an increase of the affordability ratio to 54%, exceeding the long-term average of 52% for the past 20 years.  The Deputy Chairman [KP Chan] asked whether the Government had conducted an analysis of the estimated timing of the next cycle of interest rate increase, the pace and level of such increases, etc.

FS responded that it would be difficult to predict the timing of the next cycle of interest rate increases, as there were many factors which might affect the monetary stance in US and Europe, e.g. the effects of QE2 had yet to be seen, and there were uncertainties as to whether there would be QE3 or more. Given that home purchase was a major investment decision for many people, prospective home buyers should be very careful in their investment decisions. They should be aware of the impact on their repayment abilities should interest rate eventually rise back.

The Deputy Chairman [KP Chan] opined that the threshold for defining a low income household should be adjusted for inflation over time as the $4 000 threshold was set in 2000, noting that the CPI had risen by about 4% from 2000 to 2010.  The Government Economist responded that she would explore the possibility of such adjustments, in collaboration with the Census & Statistics Department.

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