That also makes the administration highly reliant on the fortunes of the property market. This year’s budget, to be released Wednesday, will probably show the surplus will shrink 63 per cent in fiscal 2019, largely because of diminished income from land sales, according to Deloitte LLP.
When the SARS outbreak crushed Hong Kong’s property market in 2003-04 — slashing the revenue contribution from land sales to just 3 per cent — the budget deficit came in at more than HK$40 billion ($7.1 billion). With land-sales revenue at a two-decade high, it’s unlikely the good times will last.
The property downturn could also weigh on the broader economy by making homeowners and borrowers feel poorer, as the value of their house declines. That could act as a brake on consumer spending, according to Tommy Wu, a senior economist at Oxford Economics.
«When sentiment worsens as prices fall, people will be more cautious on consumption,» Wu said. «And when the value of the pledged property drops, there will also be more pressure on borrowing.»
Developers also play an outsize role in Hong Kong’s stock market, comprising the third-largest sector by weighting, following finance and communications, data compiled by Bloomberg shows.
That makes the share-market’s performance closely linked to the property sector. During the last decline in home prices between 2015-2016, the Hang Seng Index dropped about 10 per cent. Then, as the property market boomed, with house values peaking at a record high in mid-2018, the index surged about 40 per cent.