WINDS of change
Hong Kong is bracing itself for a new housing policy after Leung Chun-ying takes up his role as chief executive on July 1, but analysts believe change will be progressive rather than draconian, with a view to tackling the deeply rooted problems of the property sector.
With increasing pressure for more government intervention to rein in sky-high prices, all eyes will be on the new chief executive and how he is going to introduce housing initiatives that will help people achieve home ownership and improve their living conditions. This will be no easy task. While controlling runaway prices is a priority, everything should be done in a rational way so as not to jeopardise the fundamentals of the market.
Raymond Ngai, head of Greater China property research at Bank of America Merrill Lynch, points out that stability will probably be the theme of the government's housing policy under Leung, adding that no government would like to 'kill' off the market.
'Right now, 52 per cent of Hong Kong households already own their own homes,' Ngai says. 'I think it is not the policy of the new chief executive to introduce very tough policies with a view to pushing prices down. Governments like to see property prices stable instead of boom and bust in a cycle. I think the intention of Leung's policy may be to maintain stability.
'As Hong Kong property prices have already gone up a lot, it would make sense to let prices stay at current levels and for household incomes to increase steadily over time. The government may increase housing supply to prevent prices going up further.'
Lying ahead is a host of thorny issues for Leung in public and private housing sectors. Average private housing prices have breached the previous 1997 peak and reached a record high after new waves of buying sprees this year, igniting more worries about the affordability gap and about how first-time buyers can afford to own their homes.
As were highlighted during the chief executive election campaign, the major directions of Leung's housing policies include formulating a long-term strategy, conducting regular assessments of demand, ensuring adequate supply of land, building more public rental housing and assisting middle-income households to buy their own homes.
Among specific measures proposed by Leung, the period for tax deduction of mortgage interest will be extended from 10 years to 20 years, while the maximum interest deductible will be raised from HK$100,000 to HK$150,000.
The government will also consider introducing low-interest or interest-free loans to help middle-class families buy private-sector homes.
Thomas Lam, director for Greater China at Knight Frank, believes that Leung will not introduce any major changes in his first six months of office, especially when the future of the global economy and the European debt crisis remain in the balance.
'The new chief executive has many major issues to deal with,' Lam says. 'More time may be needed to come up with a comprehensive and long-term housing strategy that can cater to the needs of Hong Kong and also complement the overall development of the Pearl River Delta.'
Buggle Lau, chief analyst at Midland Realty, expects the focus of Leung's housing policy to be the increase of land supply, which will be in keeping with existing initiatives.
He says supply has been the key factor in Hong Kong's property cycles, noting that there was a glut of supply, with 183,000 private flats completed during the 1996-2003 down-cycle and that supply shrank sharply to about 110,000 units in the 2004-2011 boom period. Based on existing estimates, Lau says the supply may increase to about 135,000 units from 2012 to 2019.
'We will see a good increase in private housing supply in coming years,' Lau says. 'The government should be very careful in its housing policy. It is worth noting that demand is a variable factor out of the government's control. People will be more hesitant about buying property if prices go down.
'The government should maintain a flexible housing policy to cope with internal and external market changes.'
With hot money from overseas and the mainland being blamed for continually pushing Hong Kong prices up, Leung has raised the possibility of introducing a 'Hong Kong property for Hong Kong residents' policy that aims to build a new type of housing unit to be sold only to the city's residents, subject to the overriding premise of maintaining stable property prices.
'Regarding the proposed 'Hong Kong property for Hong Kong residents' policy, we need to study the pros and cons carefully,' Lau says. 'In fact, overseas or mainland buyers can still purchase properties in the secondary market if they find Hong Kong assets attractive.'