Editor's notes: The following is the speech by Financial Secretary John Tsang at Financial Times Asia Property Summit yesterday.

Ladies and Gentlemen,

Good afternoon.

Thank you so much for inviting me to the Financial Times Asia Property Summit, and thank you also for choosing to convene this august gathering in Hong Kong. This conference may not be part of the formal celebration for the 10th anniversary of the establishment of the Hong Kong Special Administrative Region, but I will assume that you are here to celebrate with us. I, therefore, wish to extend to you all my sincere gratitude and excitement for your being here today.

Hong Kong, indeed, has much to celebrate. Ten years after the reunification, we are still very much that city of romance, that city of impossible dreams, that Asian World City that is synonymous to business.

Most of you probably know that I am still rather new to the job, and I have been told by a friend from the media circle that I am still not behaving like a Financial Secretary. I understand that finance ministers are supposed to be gray and unsmiling creatures. It is probably because managing other people's money is a serious matter. So, I will try to be a serious Financial Secretary who is having a good time.

However, there is one part of the tradition with which I will not tamper, and that is the exercise of prudence. This word clings to every finance minister, and you will not be surprised to learn that I have a daughter with that name. So I think you will understand that I intend to follow this very principle and be very "prudent" about making predictions. You all know what happens to magazines that went out on a limb with headline-making predictions about the fate and future of certain cities.

But there is a prediction that any Hong Kong Government official can safely make, and that is that in 10 years' time, Hong Kong will still be "the world's best city for business". That is because our Government will continue to adhere faithfully to certain time-tested principles that are good for the city and good for business, old and new, large and small, local and foreign-owned.

Ladies and Gentlemen, we live in a high performance age. But Hong Kong's economic rebound from SARS a few years ago is definitely not steroid-induced. The evidence, statistical and otherwise, shows that our economy is fundamentally sound, solid and sustainable.

Some of you may be uncomfortable unless you see some numbers. I shall oblige you. In the property sector, which is your primary focus of interest today, the price index of residential property went up by almost 40% from 2003 to 2005. In July 2007, the index has risen only 9% over the same period in 2005. The number of transactions has gone up by 34% from 71,000 in 2003 to an average of some 95,000 from 2004 to 2006. As for 2007, 63,000 transactions have been registered in the first seven months. Reassuringly, the number of residential mortgage loans in negative equity is down 96% from the peak in 2003 when some 106,000 cases were registered.

There is now a more wide spread belief in the community, a belief that is shared by Government, that it would not be healthy for the development of our economy to hinge solely on the performance of the property market.

That was probably the case in the mid-1990s when Hong Kong's consumption boom was supported largely by an overheated property market. That period also saw our current account in deficit and our export market in retreat. The subsequent bursting of the real estate bubble has taught us a few lessons. Hong Kong might not have casinos, but in the eyes of many at that time, our property market and our stock market were casinos on the Venetian scale.

Today, Hong Kong's economy is based on a much sounder footing. Our current account surplus, driven mainly by services exceeds 10% of the GDP in recent years. Exports have been growing at double digits for several years. Consumption is strong and well-supported by rising income. Inflation is tame so far but we need to watch it carefully, and unemployment hovers around the 4% level. The asset quality of our banks is good. Business in many sectors is reporting good profits and the number of regional offices or headquarters is rising year after year. The supply of grade A office, both in quantity and variety, is expanding, and so is the rent level of these offices. In other words, the fundamentals of our economy are good.

This healthy economic development has not come about because of Government intervention. One principle we hold sacred is respect for the market. The Government sees itself as the facilitator leaving the driving to the private sector. Our role is to cut red-tape, provide sufficient land to meet market needs, adopt measures that make the supply of land sensitive to the demands of the market, give transparency to the system through the release of regular statistics on the market, and enhance the efficiency of our system through continued investment in our infrastructure.

You will agree that Hong Kong is one of the world's most efficient cities. We in Government intend to enhance that reputation. Efficiency translates into profitability for business and satisfaction for the community. This city has an overall efficiency that is second to none. Where else can you secure a new smart ID card in less than 30 minutes? Where else can you travel from the heart of the central business district to the airport in less than half an hour luggage free? Where else can you comfortably meet half a dozen business contacts in the same day and still have time to shop and have a great meal? An efficient city, above all, is one that is not tied up in wasteful red-tape and one that is not hampered by heavy-handed regulations. And it is responsive to market needs.

Our Application List for land sale is a good example. This is a scheme that is finely calibrated to market dynamics. Through the triggering system, land supply will be provided to meet the community's needs according to market demand. This way both the timing and amount of land to be sold are determined by the market.

We have adopted various measures to fine-tune the Application List System. In order to facilitate triggering and reduce the cost in making a bid, we have lowered the amount of deposit from 10% to 5% of the bid price submitted, subject to a maximum of HK$25 million from its previous maximum of HK$50 million. The minimum number of Government Gazette notices has been reduced from three to two. Where possible, red-tape is reduced and efficiency heightened.

We also value procedural transparency. The Government now publishes on a monthly basis the number of unsuccessful applications for the sites concerned on the Lands Department's website.

The Application List is, of course, not the only channel to acquire land for residential and commercial developments. Developers can purchase land on the open market, acquire and assemble existing property for redevelopment, modify their land leases through lease modifications and land exchanges, and participate in property development projects in partnership with the two railway corporations and the Urban Renewal Authority.

According to the latest information, 530 hectares of land will be available for residential uses in the next five years, and 135,000 flats will be produced, subject, of course, to actual market demand. Worries over office space shortage are unfounded. Some 250,000 square meters are due to be completed in 2007, followed by 340 000 sq meters in 2008. While the rents of some prime prestigious office buildings may surpass the 1994 office boom level, the overall rental level in May 2007 is still some 30% below the peak in December 1994.

Another property investment opportunity is tourism. Tourism is now a key pillar in our economy. About 53% of our visitor arrivals in 2006 are from the Mainland, out of a total of 25 million which is up by more than 8% over 2005. In-bound tourist expenditure was over HK$119 billion, up 12.7% over 2005. This is good news for our hotel operators who saw occupancy rate reach 84%, and as high as over 90% in peak periods. Room rates rose by 15.7% for high tariff A hotels, and 11.5% for high tariff B hotels. 68 hotels are slated for construction in the five years from 2005 to 2009, with an accumulative increase of 21,666 hotel rooms.

Again, the Government assumes the role of facilitator to ensure that tourism development will not be hampered by under-supply of visitor accommodation. The Town Planning Board has approved quite a number of hotel developments on land originally designated for industrial use. Planning applications for hotel development are considered by the Board within two months of receiving the applications.

Property prices have been on the upward trend in general since 2003. Although for particular cases at the top end market, prices have exceeded the highs before 1997. Prices in the medium and lower levels have risen only steadily, and still remain substantially below the fearful heights in pre-1997 days. With increased income and purchasing power, and a benign inflation rate, housing and office rentals remain within affordable limits. The rental rebound is riding on the resurgence in business activities, especially in the finance sector.

For those of you who wonder if we have a high land price policy, the simple answer is no - we do not set the price for land; our prices are determined by the market.

It is a truism that markets dislike uncertainty. Consistency of policy is our watchword. With consistency comes orderliness in the market. The Government is in constant consultation with the trade and other stakeholders to make sure no one is in any doubt about our policies and priorities.

In the last few years, members of the public have become progressively concerned about the design, layout, massing of developments, provision of open space, and clean air which affect the living environment of our community. We need to balance these public concerns against our desire to put scarce land resources to optimal use.

Finally, what about the market outlook? In the long run, property market development hinges heavily on macro economic fundamentals. One factor that looms large is our healthy integration with the Mainland economy. We are proud of our role as that platform that facilitates Mainland enterprises in bringing in foreign investment and going global. These functions help consolidate our position as a financial hub.

There is a symbiotic relationship between the healthy long-term development of our financial and business hub and the property market. When the overall economy is humming, so will our property market. And if you wonder whether the property market is driving the economy, I can tell you it is definitely the other way around. It is the economy that drives the property market.

Ladies and Gentlemen, With our low taxes, we are not only a good place to park your money. We have also no capital gains tax. No dividend tax. And no estate duty. With our interlocking relationship with the enormous potential of the Mainland market, we are an even nicer place to invest in. I think I can go out on a limb and say that "If you don't find Hong Kong an attractive place to invest in, you are probably tired of making money."

Thank you.

(HK Edition 09/06/2007 page6)