C.Y.'s housing plan falls flat on credibility

Chief executive hopeful Leung Chun-ying suggests limiting the sales of new flats to Hong Kong residents, as part of his land policy proposal to increase land supply and keep property prices at a reasonable level.

SCMP, January 6

For a professional property man, C.Y. Leung has a way of coming out with some odd proposals for the property market. Perhaps we should take them to be ever more frantic political sops as it becomes ever clearer that not he, but a pan-democrat candidate, is the alternative to wine-boy for chief executive.

Take, for instance, his earlier proposal to allow 5,000 people a year to buy second-hand subsidised homes on the private market without paying a premium. This would not be a social measure. It would rather be a lottery. If your number comes up you get a cheap flat. If it does not come up, you help pay for other people's cheap flats through your taxes.

But it could have tremendous populist appeal. It is the few winners who would get the spotlight, not the many losers. Just imagine yourself as a political big noise on the platform at Victoria Park on a Sunday afternoon with the cameras flashing as you congratulate a beaming Mrs Wong who has just pulled the winning number for a flat way below its market value. What ecstasy to contemplate the way your poll numbers will now rise.

We shall not tell the world that Mrs Wong is a speculator geared to the eyeballs on five flats she already owns and is smirking at the prospect at flipping this one for some needed cash the same afternoon.

The same sort of cheap political thrill can be had in blaming outsiders for local woes. This has to be somewhat tempered when talking Hong Kong property, of course, as you cannot call these outsiders foreigners. Beijing might take exception. They are compatriots.

But, no matter, just emphasise inclusion of Hongkongers rather than exclusion of outsiders. Everyone knows who you mean.

We shall also not mention that the Executive Council, of which Mr Leung was long the convenor, took a very long time to realise that driving up local property prices by giving mainlanders Hong Kong ID cards if they bought property here through the capital investment entrant scheme was perhaps not a good idea.

More to the point, however, can we stop them anyway? Our own government, once again, encourages people to set up firms to own property rather than doing so through their personal names. Stamp duties on eventual sale are lower that way.

Are we then to forbid this practice in the future, Mr Leung? If we allow it, how are we to know that a Hong Kong registered firm is truly owned by a Hong Kong ID cardholder?

What if this person should choose to hold his Hong Kong firm through a Cayman Islands firm? Can we really forbid this practice in our property market when it is routinely adopted by every new listing on our stock market? In short, Mr Leung, have you thought this one through?

I am not without some sympathetic understanding of the basic complaint. In his last policy address, Donald said that we had 2.6 million residential units in Hong Kong for 2.35 million households, which implies that we have 250,000 vacant flats currently, probably more if we account for the growing number of people living in illegal subdivisions.

It is obviously a common practice of mainland speculators to hold their flats empty in Hong Kong. They think it's easier to flip these flats again that way and they don't care about rental income foregone. They expect to make their money on price appreciation. This does indeed squeeze the market for Hongkongers.

The blame for it rests most heavily with the stimulus policies of the world's major central banks. They have kept interest rates artificially low for much too long. In Hong Kong, this has kept up property prices that would otherwise long have settled back.

We wouldn't have quite so many of these mainland speculators if they didn't have so strong a market for so long.

Unfortunately, there is not much we can do about it immediately other than general land supply measures that will take a long time to have an effect. Property lotteries will not stop prices from rising, nor will xenophobia.

But they have often done wonders for populist political campaigns and C.Y. may be in need of such wonders at the moment.