OpinionScheme for Hong Kong buyers needs more work to meet goal
With Kai Tak land sales pointing to high prices for flats, more restrictions seem inevitable
The government's "Hong Kong Properties for Hong Kong People" scheme aims to help the city's struggling middle class on to the property ladder. But it risks becoming another get-rich vehicle for investors.
But the government is becoming increasingly concerned about the affordability of the flats to be built on the land because of the keen price paid for the land five days later. The two sites were sold at a combined value of HK$4.54 billion, or HK$5,157 per square foot, higher than- market estimates of between HK$2,800 and HK$5,000 per square foot.
When the idea of "Hong Kong Properties for Hong Kong People" was introduced by Chief Executive Leung Chun-ying late last year, it was described as a pilot scheme aimed at satisfying local residents' demand for affordable housing. The objective may not be easily obtained on the basis of the price paid for the Kai Tak land. Credit Suisse said the selling prices of the flats were predicted to be an 8 per cent premium to the secondary market if the winning developer, China Overseas Land & Investment, wants to achieve a 25 per cent margin.
The average selling price of those flats will be similar to the nearby The Latitude, a development owned by Sun Hung Kai Properties - HK$10,696 per square foot in terms of gross floor area. If the developer wants to achieve a 19 per cent profit margin, the pricing will be sold on par with the secondary market of HK$9,592 per square foot, according to the Credit Suisse report.
The prediction is based on an assumption construction cost will be HK$2,800 per square foot, which is lower than the cost of HK$3,000 to HK$3,500 claimed by developers. So, selling prices of the flats at the project could be even higher. At that price, the product may only be affordable to buyers who already have the ability to buy in the private market. Those Hong Kong residents, who have stronger purchasing power, are in effect being offered more choice.
But how to improve the system? Increasing land supply is definitely a solution but the impact will not be seen in the next few years until it is large enough to generate the necessary economies of scale.