‘We got things wrong’: Lowe defends his legacy
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‘We got things wrong’: Lowe defends his legacy

The RBA governor is due to step down on September 17

By Shannon Molloy
Fri, Sep 8, 2023 9:27amGrey Clock 2 min

Outgoing Reserve Bank governor Philip Lowe has defended his legacy in his final speech in the top job, insisting he is not to blame for Australia’s soaring home prices.

Dr Lowe’s final few years at the RBA have been characterised by rapidly rising interest rates, made harder for borrowers to swallow by his earlier forecasts that an upward shift would not commence until 2024.

The cash rate began rising in May last year and is now a staggering 4 percent higher following a record run of hikes, the swiftest since the 1980s, but Dr Lowe is unrepentant.

“The issue that has defined my term more than any other is the forward guidance about interest rates that was provided during the pandemic,” he said in an address on Thursday.

“That guidance was widely interpreted as a commitment, rather than a conditional statement, that interest rates would not increase until 2024.”

Red hot inflation offered the RBA no other choice than to begin a dramatic tightening cycle. He repeated his belief that his assurance of rates remaining on hold was never a firm one.

“There has been much criticism since [rates increased], especially by those who borrowed during the pandemic based on our guidance,” he said.

“I ask that people keep in mind the circumstances we faced in 2020. It was a very scary time. There were credible projections that the unemployment rate would rise to 15 percent and that there would be a deep and lasting economic contraction.
“And even well into 2021, large parts of country were still in stringent lockdowns.”

However, Dr Lowe conceded that “with the benefit of hindsight”, he now believes the RBA “did do too much” in terms of implementing emergency measures in the early stages of COVID.

“But hindsight is a wonderful thing,” he said. “We got some things right, but we got other things wrong.”

He rejects the view that keeping rates at a record low of 0.1 per cent for so long is responsible for home prices rising at one of the fastest paces in history during 2021.

“Rather, it is the outcome of the choices we have made as a society – choices about where we live, how we design our cities and zone and regulate urban land, how we invest in and design transport systems, and how we tax land and housing investment.”

One big thing Dr Lowe does not regret is increasing the cash rate in a bid to get a handle on inflation, acknowledging the move as “unpopular” with much of the public but declaring it “the right thing to do”.

He took a final parting shot at the media, which he claimed had inflamed tensions with “clickbait” news about rates, fuelling “vitriol [and] personal attacks”.

Dr Lowe has spent 43 years at the RBA and the past seven as governor. He officially steps away next week, replaced by current deputy governor Michele Bullock.

Economists forecast her first change to rates will be some time in 2024 – and will likely be a reduction, based on current fiscal indicators.



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Hong Kong Takes Drastic Action to Avert Property Slump

The city’s real-estate market has been hurt by high interest rates and mainland China’s economic slowdown

By ELAINE YU
Fri, Mar 1, 2024 3 min

Hong Kong has taken a bold step to ease a real-estate slump, scrapping a series of property taxes in an effort to turn around a market that is often seen as a proxy for the city’s beleaguered economy.

The government has removed longstanding property taxes that were imposed on nonpermanent residents, those buying a second home, or people reselling a property within two years after buying, Financial Secretary Paul Chan said in his annual budget speech on Wednesday.

The move is an attempt to revive a property market that is still one of the most expensive in the world, but that has been badly shaken by social unrest, the fallout of the government’s strict approach to containing Covid-19 and the slowdown of China’s economy . Hong Kong’s high interest rates, which track U.S. rates due to its currency peg,  have increased the pressure .

The decision to ease the tax burden could encourage more buying from people in mainland China, who have been a driving force in Hong Kong’s property market for years. Chinese tycoons, squeezed by problems at home, have  in some cases become forced sellers  of Hong Kong real estate—dealing major damage to the luxury segment.

Hong Kong’s super luxury homes  have lost more than a quarter of their value  since the middle of 2022.

The additional taxes were introduced in a series of announcements starting in 2010, when the government was focused on cooling down soaring home prices that had made Hong Kong one of the world’s least affordable property markets. They are all in the form of stamp duty, a tax imposed on property sales.

“The relevant measures are no longer necessary amidst the current economic and market conditions,” Chan said.

The tax cuts will lead to more buying and support prices in the coming months, said Eddie Kwok, senior director of valuation and advisory services at CBRE Hong Kong, a property consultant. But in the longer term, the market will remain sensitive to the level of interest rates and developers may still need to lower their prices to attract demand thanks to a stockpile of new homes, he said.

Hong Kong’s authorities had already relaxed rules last year to help revive the market, allowing home buyers to pay less upfront when buying certain properties, and cutting by half the taxes for those buying a second property and for home purchases by foreigners. By the end of 2023, the price index for private homes reached a seven-year low, according to Hong Kong’s Rating and Valuation Department.

The city’s monetary authority relaxed mortgage rules further on Wednesday, allowing potential buyers to borrow more for homes valued at around $4 million.

The shares of Hong Kong’s property developers jumped after the announcement, defying a selloff in the wider market. New World Development , Sun Hung Kai Properties and Henderson Land Development were higher in afternoon trading, clawing back some of their losses from a slide in their stock prices this year.

The city’s budget deficit will widen to about $13 billion in the coming fiscal year, which starts on April 1. That is larger than expected, Chan said. Revenues from land sales and leases, an important source of government income, will fall to about $2.5 billion, about $8.4 billion lower than the original estimate and far lower than the previous year, according to Chan.

The sweeping property measures are part of broader plans by Hong Kong’s government to prop up the city amid competition from Singapore and elsewhere. Stringent pandemic controls and anxieties about Beijing’s political crackdown led to  an exodus of local residents and foreigners  from the Asian financial centre.

But tens of thousands of Chinese nationals have arrived in the past year, the result of Hong Kong  rolling out new visa rules aimed at luring talent in 2022.

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