Thoughts on Budget Speech
- Second round of consumption vouchers to boost retail sales after the pandemic subsides
- Mortgage easing to support residential demand.
- Enact eviction protection for non-payment of rents
Second round of consumption vouchers to boost retail sales after the pandemic subsides. In view of the hard hit caused by the fifth wave of the pandemic, the government has announced another consumption voucher scheme. Each eligible Hong Kong permanent resident aged 18 or above will receive, by phases, a total of HK$10,000 worth of electronic consumption vouchers, which is a double of 2021’s $5,000. The first phase of consumption vouchers worth $5,000 will be disbursed in Apr-22 with the remaining disseminated by instalments in the middle of the year. This should inject a total of HK$66.4bn into the retail market, representing c.19% of total retail sales value in 2021. Similar to the last round in 2H21, this should give a further boost to domestic consumption recovery once the current pandemic is contained with the easing of social distancing protocols after the implementation of compulsory universal test scheme in Mar-21. In particular, discretionary items should see a stronger-than-average rebound. This should underpin the retail market recovery in 2H22, benefitting retail landlords including Wharf REIC, Hysan Development and Link REIT. However, a full-fledged retail market recovery continues to lie on the border re-opening with Mainland China.
Mortgage easing to support residential demand. The government has once again raised the cap on property values under the Mortgage Insurance Programme of the Hong Kong Mortgage Corporation (HKMC) Insurance Limited. For first-time home buyers and families seeking self-occupied “flat for flat”, the cap on the value of a property eligible for a mortgage loan with maximum 80% loan-to-value (LTV) ratio coverage will increase from the existing HK$10m to HK$12m. The value cap on property eligible for a mortgage loan of a maximum cover of 90% LTV ratio will be raised from the existing HK$8m to HK$10m for first-time home buyers only. This should reduce the down payment requirement for residential units valued between HK$8m and HK$12m. Currently, due to the tightened social distancing measures led by COVID resurgence, secondary market activities have dwindled, and developers have accordingly put their new project launches on hold. Once the pandemic subsides, developers are expected to take advantage of mortgage easing, to roll out more mass-market project launches.
Enact eviction protection for non-payment of rents. The government will introduce new legislation that allows tenants of certain trades seriously impacted by the pandemic to defer rental payment for up to six months to relieve short-term pressure. Landlords are prohibited from terminating the contracts or to take legal action against those tenants that fail to pay rents on time. This new rule would prevent landlords from re-possessing retail premises within a short period of time from those tenants who have trouble making rental payment now and after the moratorium expires. This would result in rental income shortfall. However, this accounts for just a small portion of tenants in prime shopping malls. Instead, landlords will negotiate with the affected tenants that continue to operate after the COVID outbreak subsides and help them with temporary rental reliefs including rental deferral. Overall, the impact of this moratorium on eviction for nonpayment of rents should not be overplayed.