• Wed
  • Nov 26, 2014
  • Updated: 4:03pm
Lai See
PUBLISHED : Tuesday, 18 March, 2014, 1:05am
UPDATED : Tuesday, 18 March, 2014, 1:05am

More pragmatism needed over Hong Kong's land policy


Howard Winn has been with the South China Morning Post for two and half years after previous stints as business editor and deputy editor of The Standard, and business editor of Asia Times. His writing has also been published in the Far Eastern Economic Review, the Wall Street Journal, and the International Herald Tribune. He writes the Lai See column which focuses on the lighter side of business.

There's been some gnashing of teeth within the government over the supposedly low bids from property developers over the land premiums they have tendered recently.

Meanwhile, the government has been trying for the past few years to force down property prices, first by attempting to talk the market down and then by introducing the stamp duty. The market has responded by falling.

Nevertheless, the Lands Department still expects developers to pay high premiums for land. If property prices are being forced down, then it is not unreasonable for land prices to fall as well.

Hong Kong wins accolades for being a free economy, but how is it that the Lands Department gets to decide what land prices should be?

There is a simple message here. If you force down the selling prices, developers are going to be reluctant to pay high prices for land, particularly as construction costs have gone through the roof in recent years.

However, rather than let the market decide, the government or rather the civil service is terrified of being seen to grant favours to property developers. And yet the government is desperate to get more sites for housing development.

It is interesting to see that a big developer like Sun Hung Kai Properties, which has a huge land bank of agricultural land, has hardly touched this over the past few years because the premiums demanded by the Lands Department don't make economic sense.

SHKP has found it more appealing to bid for land at government auctions. If the government wants more residential development quickly, it is going to have to think out of the box. These days, that's anathema to any civil servants so the decisions need to be taken at the top.

The government currently allows owners of entire factory buildings to convert them into hotels or offices. Why can't it allow some of these buildings to be converted to residential use?

It may be that they are in a quasi-industrial zone without shops, kindergartens and so on. But all this should be reflected in the price. In time, the shops will come.

There are all kinds of measures the government could take to get more housing from the existing sites without having to engage in potty exercises like building artificial islands in the sea.

In the 1970s, for example, the government gave developers a 50 per cent discount on lease modification premiums because it wanted to encourage development. There is a need for more pragmatic thinking.


An unwilling winner

Hong Kong frequently comes top or near the top of indices comparing relative economic "freedom", ease of doing business and so on.

One index it may not be so keen on assuming prime position is the Economist magazine's crony-capitalism index. This is a new index compiled by the magazine, though it includes a ranking for 2007 where Hong Kong also came first.

The aim of the index is to test the view that economic rent-seekers are on the increase. It is based on the assumption that today's tycoons are getting rich by grabbing a bigger slice of the pie, rather than increasing the size of the pie, as a result of connections and policies that favour their industry interests rather than the economy as a whole.

The index compares the total wealth of a billionaire's main in-rent heavy industries, such as real estate and construction and telecommunications, with the world's gross domestic product.

"The higher the ratio, the more likely the economy suffers from a severe case of crony-capitalism."

The list of the 23 territories can be seen at http://econ.st/1lCBO0.

Hong Kong is followed by Russia, Malaysia, Ukraine and Singapore. The United States is ranked 17th, having improved from 12th in 2007.

There are some surprises, which suggest the methodology needs some refining.

China is ranked 19th, which is better than Britain at 15th and the US, while Thailand is 16th. The Economist acknowledges some methodological shortcomings.

The index shows crony capitalism is on the rise in emerging economies and is either remaining the same or declining in developed economies.


Have you got any stories that Lai See should know about? E-mail them to howard.winn@scmp.com


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This article is now closed to comments

Unfortunately this government is unable to think pragmatically...
Your article is spot on though - once again this exposes the hypocrisy of wanting high income from land sales, but wanting housing prices to come down. Widen the tax base, start taxing the rich people more that still live in and take advantage of government housing. This should more than offset the 'loss' in cheaper land prices.
John Adams
I like the crony-capitalism index .
Or rather : I DON'T like HK's No 1 position in the world league.
With the lack of an extradition treaty between HK and Macau I guess we should also top the world league of crooked- crony - capitalism.
And for those who have may have missed the news : the 4-year police investigation into the 39 Conduit Road scandal has ended with a "no case to answer" verdict.
Some investigation. Some verdict !
BTW : What has happened to Donald Tsang and where is he hiding these days ?
Mr Tsang has a lot to answer for at the bar of public opinion for the cronyism he fostered in his time as CE, even if he himself does not end up behind bars.
‘Nevertheless, the Lands Department still expects developers to pay high premiums for land. If property prices are being forced down, then it is not unreasonable for land prices to fall as well.’
Not necessary so.
May be the government wants Hong Kong property developers to take in less profits from their current more than 30% on their investment to make housing more affordable. Such handsome profit of a no risk investment while the society suffers with shoebox size flats or living in cubicles is just obscene.
Pragmatism without a goal is not pragmatism. Hong Kong should stand firm on its housing policy to make housing affordable in Hong Kong.
Purchasing a flat is not like purchasing a particular vegetable that one can always switch to another vegetable when the price is not right.
A) Cheaper Land prices will just increase profit for large developers and does not necessarily = cheaper house prices. Even if cheaper land prices did lower house prices it will just be at expense of the tax payer as less income will come in. Land is precious in HK and should not be sold at subsidy prices.
B) The people who say to modify industrial buildings for residences have they even thought about what they are saying? Putting in hundreds of bathrooms, kitchens, air conditioners, showers, lights etc.. into a building / district not designed for it would be disastrous. Who will take care of the sewage etc.. Industrial building probably only have 4 toilets per floor (not heavily used). How will they increase this 10 fold? (pathways etc.. are also insufficient in he from of industrial buildings are also not capable - elevators etc.. also could not handle the load)


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