Hong Kong announced its budget for the 2024-2025 financial year on Wednesday. The announcement came against a backdrop of a weakness in its property and equities markets, and concerns about the economy amid headwinds from a high-rate environment, soft global demand and a slowdown China.

Here's what analysts watched:

-- HOUSING CURBS: The announcement that arguably made the biggest splash was the removal of housing-market cooling measures. Analysts were surprised by the scope of the move, expecting it would do some good for home sales but expressing reservations about how much impact it will have.

"Removing the austerity measures from 13 years ago...will allow businesses and non-permanent Hong Kong residents to purchase residential properties without paying extra duties," says Marcos Chan, head of research at CBRE Hong Kong. But "high borrowing rates remain a hurdle for many commercial investment activities--rental recovery and vacancy improvements remain the key for a more sustainable recovery in investment demand."

It will take interest-rate cuts and economic improvement "for [house] prices to bottom out and rebound," says Joseph Tsang, chairman of JLL Hong Kong, projecting a 10% drop in prices this year.

-- MORTGAGE MEASURES: The central banking authority also relaxed some measures on mortgages and property lending.

Eddie Kwok, senior director of valuation & advisory services at CBRE Hong Kong, says the suspension of stress tests will reduce entry costs for home buyers, boosting residential transactions. "We believe it will benefit [the] high-end/luxury residential market." Looser loan requirements for commercial properties, meanwhile, could spur more refinancing and reduce pressure on distressed sales.

-- DEFICIT: The government forecast a deficit of HK$101.6 billion for the fiscal year ending March, almost twice what it had originally predicted. That compared with a projection from KPMG for HK$130 billion on lower land-related and stamp-duty revenue.

Hong Kong penciled in a deficit of HK$48.1 billion for the next financial year, and a return to surpluses in the following two years. It aims to gradually achieve fiscal balance, focusing on bringing down expenditure.

-- OUTLOOK: While warning of continued external risks, the government said it expects Hong Kong's economy to expand, tipping growth at 2.5% to 3.5% in real terms in 2024. That compares with growth of 3.2% in 2023, and a contraction in 2022 in the aftermath of the pandemic. "We forecast that the Hong Kong economy will grow by an average of 3.2% a year in real terms from 2025 to 2028," Financial Secretary Paul Chan said. "Underlying inflation rate is forecast to average 2.5% a year."

-- MARKET MOVES: Another item on the budget wish list were measures to boost stock market liquidity. By midyear, the government aims to introduce initiatives like a treasury share buy-back regime and keeping the market open under severe weather. Measures to increase efficiency and liquidity, including enhancing the listing process, are under consideration.

The Hong Kong REITs Association welcomed the inclusion of real estate investment trusts in mutual market access schemes, saying it would give Hong Kong and China investors more income choices and attract more capital, as well as the waiving of stamp duties on REIT units trading.

-- TAXES: Some tax proposals may have an adverse impact on efforts to retain high-income earners and boost tourism demand, says Sonija Li, head of retail research at MIB Securities. The government proposed a two-tiered standard rates regime for salary tax and tax under personal assessment, while a hotel accommodation tax at a rate of 3% is due to take effect next year.

Write to Fabiana Negrin Ochoa at fabiana.negrinchoa@wsj.com

(END) Dow Jones Newswires

02-28-24 0604ET