Private Property Prices Exceeding People's Affordability

15.     Over the past year or so, the property market has been exceptionally vibrant because of the relatively small supply of private residential flats, abundant liquidity and persistently ultra-low interest rates.  This is the root of people's difficulty in purchasing a home.  Property prices in August this year increased almost 18% over August 2010.  The mortgage to income ratio was 47% in the second quarter of this year.  Both figures indicate that people face greater pressure and higher risks in home purchase.

16.     In addition, owing to strong demand from Mainland and overseas investors for high-priced residential properties, developers have in recent years shifted towards the provision of high-end units.  Although second-hand transactions on average accounted for over 80% of total turnover in the past years, there has been a significant drop in the supply of small and medium-sized first-hand residential flats in the low to medium price range.  This has caused anxiety and pressure for potential buyers and affected market sentiment.  This is especially so for lower-income families preparing to buy their first flat but who find prices beyond their reach.

Inadequate Land Supply

17.     The cessation of HOS production and the slackening of the private property market in late 1990s and early 2000s resulted in a significant decline in the demand for land.  Consequently, the planning work and infrastructure projects related to developing new land were adversely affected.  When the market began to recover, property prices trended upwards.  However, a drop in land sales over the past few years, combined with a decrease in private housing supply, sent property prices up further.  To ensure the healthy and stable development of the property market, we will make available land for an average of 20 000 private residential flats each year in the next decade.  I announced this target last year, aiming to build up a sufficiently large land reserve within a certain period to stabilise the supply of residential land.

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