(Bloomberg) -- Hong Kong’s government is removing cooling measures on housing to boost the lackluster market and will provide additional funds to support tourism as part of a sweeping plan to revive growth in the financial hub. 

Measures to curb housing demand will be canceled with immediate effect, Financial Secretary Paul Chan said in his budget speech on Wednesday. The policies are no longer necessary in the current economic and market conditions, he said during an address that also detailed some HK$1 billion ($128 million) spending on tourism measures including fireworks displays and efforts to host more mega events.

In addition, the Hong Kong Monetary Authority eased mortgage rules, pausing stress tests and allowing some homebuyers to purchase properties with smaller down payments. 

Separately, the government announced plans to raise taxes on high earners in a bid to bring down the budget deficit. 

Confidence in Hong Kong has waned as home prices tumbled to a seven-year low, national security measures eroded freedoms of expression and the stock market sank at one of the fastest rates worldwide. High interest rates and China’s growth slowdown have also weighed on the city’s recovery from the pandemic slump. 

The Hang Seng Properties Index reversed losses on news of the property cooling measures, climbing 2.6%. New World Development Co. jumped more than 8%, headed for its best day in more than two months and the biggest gainer on the Hang Seng Index. Henderson Land Development Co. advanced 7.7%.

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Property Easing

The HKMA said it will suspend a stress test for residential mortgages that required borrowers to attain a certain level of income to cover a potential rise in interest rates.

In addition, it allowed buyers to borrow more to purchase more expensive homes. For example, the maximum loan-to-value ratio for properties worth as much as HK$30 million was changed to 70%. Previously, only homes valued up to HK$15 million were eligible for a 70% LTV ratio.

Read more: Hong Kong Eases Some Mortgage Rules Effective Wednesday 

Until now, non-residents had to pay a combined 15% tax when purchasing properties, while Hong Kong resident buyers who already own a home were subject to a 7.5% levy. Owners who sold their properties within two years of purchase had to pay extra duties. In comparison, the rate for regular home purchases is capped at 4.25%.

The real estate industry had urged Chan to lift the curbs to boost sales and alleviate the worst property slump in more than two decades. High borrowing costs and a weak economic outlook have deterred buyers. 

“Abolishing the extra stamp duties for investors and overseas buyers could breathe new life into Hong Kong home sales,” said Patrick Wong, an analyst at Bloomberg Intelligence.

Still, the impact of the tax cuts is likely to be muted if previous easing measures are any guide. After the government lowered the additional stamp duty on non-local buyers and investors last October, there was only a moderate rise in sales. There was just an increase of 16 home sales tied to such tax between November and January, according to Jones Lang LaSalle Inc. 

The “surprise announcement” will favor property firms and travel-related shares, according to Sonija Li, an analyst at MIB Securities Hong Kong Ltd. She said the Hong Kong Monetary Authority “may further relax mortgage rules” related to stress testing and mortgage loans.

Any pickup in the housing market would improve Hong Kong’s prospects to generate revenue from land sales, easing pressure on the city’s strained finances. The government decided not to sell any residential or commercial land plots in the first quarter due to weak demand from developers.

A two-tier tax system will be introduced from April, with income of up to HK$5 million taxed at 15%, and anything higher than that being taxed at 16%. The move will affect about 12,000 people, or about 0.6% of taxpayers. This will bring in about HK$910 million of additional revenue each year, Chan said.

Read more: Hong Kong to Raise Tax Rate for High Earners to 16%

Tourism Boost

Chan flagged challenges to the economy in the coming year, which he said is expected to grow in a range of 2.5% to 3.5% “amid a complicated and ever-changing international environment.”

“More strenuous efforts are required to strengthen momentum of our economic recovery,” he said, adding that the city sees average gross domestic product growth from 2025 through 2028 at 3.2%.

Along with the property curbs, wide-ranging measures to support tourism and other events are a key part of the city’s plan to bolster growth. Chan said the Hong Kong Tourism Board will hold pyrotechnic and drone shows along the city’s harbor every month.

The finance chief added that the city is hosting some 80 “mega-events” scheduled in the first half of the year, and pointed to Art Basel and a Saudi-funded LIV Golf Tournament as big international draws. Chan said he would collaborate with mainland cities to promote “multi-destination tourism” in the Greater Bay Area cluster of Hong Kong, Macau and nine mainland Chinese cities.

Hong Kong is heavily reliant on visitors from mainland China, and their spending is key to the health of the local retail and services sectors. Some 1.2 million mainlanders traveled to the city over the recent Lunar New Year holiday, down slightly compared to the equivalent period in 2019.

--With assistance from Sangmi Cha, Kiuyan Wong, Felix Tam and Dominic Lau.

(Updates with mortgage rule easing and tax hike for high income earners)

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