Supply is the key to ending Hong Kong's housing problems, not policy change

Pre-sale period lengthening designed to create impression of more residential units

PUBLISHED : Tuesday, 09 July, 2013, 12:00am
UPDATED : Tuesday, 09 July, 2013, 5:01am

Is Chief Executive Leung Chun-ying successfully convincing the public that his administration can provide enough affordable housing?

Over the past two weeks, the government has announced a series of policies including a revised plan for the development of the Northeast New Territories, a lengthening of the pre-sale period for private homes and an increase in the number of sites in its land sales programme.

Homebuyers may now be hoping that prices will fall in the short term as these measures are applied - but it may be too early for them to celebrate just yet.

The Northeast New Territories development is the subject of a continuing political fight and will face resistance even if it proceeds, as farmers and pro-democracy parties oppose it.

On the surface, the June 27 announcement on the extension of the pre-sale period for private residential developments from 20 months to 30 months may put 15,000 flats on the market. But will it help push prices lower? Unlikely.

The concern of some legislators that the extension would allow developers to sell their flats before prices fall is exaggerated. With more projects available for sale, developers will have flexibility to change their marketing plans - if demand for mass housing declines, they will sell more upmarket homes, or vice versa.

In other words, Hong Kong-listed developers will have more control over pricing and feel less compelled to cut prices to generate sales. Some believe the lengthening of the pre-sale period is designed to create more residential units.

It is like the policy that aims to help middle-income families buy flats in the secondary market - the Home Ownership Scheme (HOS). The chief executive said in July last year that 5,000 "white form" applicants - prospective buyers of subsidised units currently living in private flats who do not receive a housing subsidy - for HOS flats would be able to buy second-hand HOS flats without paying a land premium.

The announcement triggered a jump in the resale prices of HOS flats before the policy took effect last month. As a result, the scheme was criticised for having fuelled a rise in home prices.

By the end of last month, when the government announced the land sales programme for the third quarter, Secretary for Development Paul Chan Mo-po issued a rousing statement that the government would sell in the current financial year six more sites that would provide 1,500 new homes.

However, the government needed to earmark three sites in Shek Mun, Sha Tin, from the land sales programme originally allotted for private residential purposes for public rental housing. That will help the government meet its target of building at least 100,000 public housing flats in the five years to 2023.

Chan also admitted that about 22 sites in the land sale programme must be rezoned. That will take time.

Policy hops may raise homebuyers hopes in the short term, but, in the end, it is all about supply.