Since October last year, property prices in Hong Kong have been gradually declining. By the first quarter of 2016, prices had dropped by more than 10 percent from their peak. This reversal in the real estate market is so obvious that real estate tycoon Lee Shau-kee predicted a 30 percent decline in property prices from their peak recorded last September. If Lee's prediction is correct, prices are supposed to fall by further 20 percent in the near future.

And in a report released on April 13, real estate services specialist Jones Lang LaSalle said Hong Kong's overall transaction volume for residential properties decreased by 39 percent (quarter on quarter) to 6,221 in the first quarter. Against this backdrop, some people are arguing that the government should abandon, or at least ease, restrictive measures targeting the property market. This is to avoid the recurrence of a negative asset situation for many property owners. But the relevant government departments insist it is still not the right time to ease restrictions aimed at curbing property speculation.

A brief review of the recent history of Hong Kong's property market shows prices peaked in the year of 1997 and then kept sliding down until they bottomed out in 2003 when the SARS (severe acute respiratory syndrome) epidemic wrought havoc on the city. After bottoming out that year, prices began to rebound and eventually surpassed their 1997 peak. The latest upward cycle has lasted for 13 years - until last September.

Experience tells us that both an unabated rise and a steep fall in property prices will have a negative impact on the economy, or even on society. A steep fall is especially disastrous, as shown by the 1997 crash. This saw property prices plunge as much as 80 percent in the next few years following the Asian financial crisis. When talking about the big property crash of 1997, people often refer to the case of Kingswood Villas, a large private residential estate in Tin Shui Wai, where selling prices peaked at HK$4,000 to HK$5,000 per square foot in 1997 and later dropped to below HK$1,000. Following the property crash, thousands of Hong Kong families became negative asset owners. Tragic stories resulted from negative assets including suicides, divorces and broken families. These social tragedies are still haunting many people years later.

The vitality of the property market has a bearing on many other sectors, including the home decorating industry. It has an impact on carpenters, masons and painters, the building materials industry, the home appliance industry and so on. It affects the jobs and livelihoods of hundreds of thousands of people. Some say a sharp rise in property prices may cause anger in the city because it is increasingly difficult to buy a home; but a big fall in prices could be a worse problem as it could result in personal tragedies. Therefore, we should pay extra attention to the drop in real estate prices to avoid an avalanche effect.

The government's restrictive measures, including the Double Stamp Duty (DSD), were introduced in 2013 to suppress property speculation and prevent the market from becoming overheated. The DSD and other measures' effectiveness has been enhanced by the implementation of stricter requirements for mortgage loan applications - including a higher down payment and a lower debt service ratio. But with the property market declining now, a question arises: Is it still necessary now to keep these measures as restrictive as they are?

The government has clearly stated that the restrictive measures are directed against speculators. But stricter mortgage requirements have in effect discouraged first-time home buyers. The government should consider relaxing restrictions on mortgage applications even if it thinks it is not a good time to scrap the DSD.

The global economy is still struggling to recover and many sectors in Hong Kong are being dragged down. The stability of the property market is an important factor for a harmonious society. Therefore, I suggest the government ensure the healthy development of the property market by gradually easing mortgage restrictions.

(HK Edition 04/20/2016 page10)