Official policy waits to see what develops
WE ARE IN a fine fix indeed when questions about stability in supply of public land are left to developers who can hardly agree among themselves and cannot seem to agree with what they said yesterday.
You may argue, of course, that the Real Estate Developers' Association (Reda) is a group that the government naturally wishes to consult occasionally on the topic of property development; part of keeping in touch with all sectors of the community, you know.
If only it were all sectors. First the developers get an opportunity to bend the ear of President Hu Jintao and then they get a session with Chief Executive Tung Chee-hwa to make their pitch.
Meanwhile, you can make fists of your hands if you want to count on your fingers the number of occasions that the Democrats have had this sort of exchange of views with either, and the Democrats constitute the party with consistently the greatest majority of votes in what passes for general elections in Hong Kong.
On the surface it seems that the members of Reda have agreed to a resumption of land sales next year despite the stand taken last month in Beijing by their president, Stanley Ho Hung-sun, that a freeze on land sales should be extended another year.
But look more closely and what they actually say is that the resumption should only apply to land for luxury residential developments. This represents a very small fraction of the total market.
Methinks Mr Ho has not really changed his views at all but just beribboned them in response to an economic recovery that will likely bring a revival of demand in the property market and certainly benefit developers' margins, particularly if land supply remains pinched.
Let us put things into perspective here. It is a reasonable assumption that demand for property is correlated to economic growth. The busier we become and the more successful we are in what we busy ourselves doing, the greater will be the amount of floor space that we need to do it.
Now look at the first chart, which shows you the amount of land area sold at public auction relative to real gross domestic product. In 1987 that figure was more than four square feet for every million dollars of GDP. The average figure for the past 12 months was 0.12 square foot, barely 3 per cent of the 1987 figure and the trend has been steadily down.
The second chart shows you what this has done to authorisations for construction of new private sector buildings. Here we have come down over the same period from just under 60 square feet of authorised floor area for every million dollars of GDP to only 12 square feet at the moment. Is the threat to the market really oversupply?
I, too, can cite reasons why we may not need as much new property as we previously did. For one, the figures include industrial floor space and we no longer require it in Hong Kong. In fact, if we devote the empty industrial space that we now have to office uses we may also not need much new office supply.
Meanwhile, the bulge in the population tree is now in the late 30s and early 40s brackets, representing people who have bought their homes during the period of much greater supply in the 1980s, and new home construction has generally kept pace with the growth in household formation over the past 10 years.
If these were the sorts of considerations, both pro and con more land supply, on which our government puts together its policies for supply over coming years, all would be well. We could look forward to much less volatile cycles in property prices in the future.
However, if it is in fact the way our public servants are doing things, they are doing them mighty quietly and without much input from the overall community.
What we instead see is a single sector of the community, one that has a decided conflict of interest with overall community objectives in matters of land supply, trying to steer land policy on a word-in-your-ear basis, and apparently having considerable success with it, too. See them to the door, Mr Tung. You need to talk to more people than the members of Reda.