Flawed land policy is strangling middle class and small business

PUBLISHED : Friday, 30 October, 2009, 12:00am
UPDATED : Friday, 30 October, 2009, 12:00am

People have been criticising Chief Executive Donald Tsang Yam-kuen over an alleged conflict of interest regarding the light-bulb vouchers. We should not let this controversy overshadow real problems with his policy address. We are seeing a polarisation of our community as a result of a flawed economic policy.

When middle class professionals cannot afford flats in the medium-price range, this is a sign of an economy in serious trouble. While the current real estate market can be distinguished from the 1997 market (present levels of leveraging are relatively lower), it does not mean that current price trends should be encouraged. Home ownership is a modest expectation. It is unfair that property developers can profit from windfall after windfall when citizens spend their life savings on property.

The government argues that high land prices keep tax rates low and therefore Hong Kong remains competitive. But this argument is flawed. First, contrary to the principle of laissez-faire, the government relies on artificial methods to maintain the current price level, that is, by controlling the supply of land. Second, how can one expect Hong Kong to be competitive when the most productive sector of its workforce - the middle class and owners of SMEs - can barely afford a modest home?

Hong Kong has a unique economy, in that the wealthiest people are all real estate tycoons. No healthy economy shares this feature. In America, the richest people started off running small and medium-sized enterprises in a variety of industries. This type of entrepreneurship is impossible in Hong Kong, because it is far too expensive.

Mr Tsang seems determined to implement his six industries programme. It is fundamentally a land policy. He seems to be admitting that the high price of property inhibits these six industries.

The policy address, however, refers only to industrial buildings ('Owners of old factories offered incentives to convert or rebuild', October 15). This is grossly inadequate. We need a comprehensive change in our land policy so SMEs can survive and our talented young people can sustain their start-up companies. The programme should be extended to commercial buildings and substantive preferential arrangements should be offered to SMEs.

It is not economically sound to affix the policy to only six industries, because this is akin to economic planning. The government should not be deciding which particular industry will prosper in the coming decade. So long as there are appropriate incentives, the market will find its way.

We regulate securities trading. Insider trading and price rigging are serious offences. But what about the real estate market?

Unreasonably high property prices caused by artificial government policy, insufficient land and lack of incentives for SME growth, and an unregulated real estate market are the poison pills that are killing SMEs and Hong Kong's middle class. A polarised economy leads to a polarised society. The government's current land policy is a recipe for social unrest.

Adam Ip, Wan Chai