A price spiral with no logic

PUBLISHED : Sunday, 13 March, 1994, 12:00am
UPDATED : Sunday, 13 March, 1994, 12:00am

UNUSUALLY steep rises in residential property prices over the last few weeks are signalling runaway speculation and the likelihood of a property crash in the not-too-distant future.

Unlike the past price hikes which saw a parallel increase in secondary and primary markets, the latest surge was led by land auction and pre-sale activity by developers.

Wheelock and Sino Land cranked up selling prices in a period of three to four weeks at Bailey Garden in Kowloon and Avon Park in Fanling by about 20 per cent and 30 per cent respectively.

One week earlier, Henderson Land increased the price of 80 units of its Sunshine City project in Ma On Shan by 13 per cent within the space of four days.

Analysts concurred that the escalating prices had been due somewhat to Sino Land's paying a record $5,600 per square foot for a piece of land in Hunghom at a government land auction late last month.

All developers like to see property prices going up progressively, but the recent developments show that they are now finding it increasingly hard to escape from the property craze.

Perhaps no indications are better than the prices set by the developers, who have their own profits and losses at stake. Both property investors and end-users are certain to follow where the major developers go.

Another worrisome sign is that, in the past, New Territories residential flats have tended to rise at a slower rate than flats in urban areas.

However, property agents have been quick to point out that the laggards in the New Territories, which are major component of the property supply in Hong Kong, are set for a big jump in prices.

This will then create an across-the-board increase in local property prices which will even be harder to cope with.

Obviously, the present increases lack any rational basis. The phenomenon is particularly unusual given that Financial Secretary, Sir Hamish Macleod has vowed to increase the supply of land to curb rising prices.

Other proposed measures, including adding staff to the Land Department to speed up land grants processing, or assisting developers in relocating residents in urban renewal projects, have failed to have any impact on property speculators and end-users.

It may be argued that the Government or the Hong Kong banks could adopt more stringent measures to take some of the heat out of the mass residential property market.

Early this year, the Hongkong Bank and Hang Seng Bank took the lead to tighten mortgage lending for luxury residential flats.

It follows that the banks might do the same to mass residential flats if the recent high activity in the mass market persists.

However, it is believed that the current craze partly stems from the expectation of further tightening of mortgage lending on a much wider scale.

Being a self-fulfilling animal, inflation or the fear of inflation has already done damage to the local property market.