The View | There is a doomsday machine on the horizon that could destroy Hong Kong home prices
Low-quality living in Hong Kong won’t be worth a premium once the border with China comes down
The Basic Law expires in 2047. Like any vital government agreement, a long lead time is needed for renegotiation. Consultations need to start now in order to announce new arrangements around 2020.
Markets hate uncertainty and the longer that Hong Kong and Beijing don’t deal with the principal arrangements the more risk of business and social instability.
No single event in the near future – supply and demand of land or credit – will be as crucial to the Hong Kong property market as significant policy changes in Hong Kong’s land banking and usage policies. Up till now property owners and developers have benefitted from a relatively unchanged set of public policies since 1997.
By announcing a contiguous border with Shenzhen and Guangzhou, the resulting massive conurbation would level out Hong Kong’s flat prices
The run up to 2020 and the subsequent years will be a crucial period that will indicate if the central government understands the need for fundamental reform in Hong Kong’s property market. Or if Hong Kong’s establishment can convince Beijing to keep the status quo. The expiry of the Basic Law doesn’t mean that it ceases to function, but rather that changes are possible. And with no British government negotiating on the other side, the Hong Kong government can only consult with Beijing.
Banks who are already engaged in mortgage lending in mainland China have indicated that if Hong Kong becomes a contiguous part of the mainland they will price the mortgage risk at the same level as Guangzhou. While that foretells risk assessment, it is unknown how the Hong Kong government’s land policies will change.
The government’s actions in public housing alleviate some of the obstacles facing first-time owners. But, it has only taken minor actions in the private housing market. Increased stamp duties have proven to be ineffective to solving the genuine problems in the private sector.
Abuse of land banking rules by developers will remain a pernicious problem as long as strictly enforced conditions are not imposed on government land sales. As long as an artificial border exists between Hong Kong and the rest of China, a group of wealthy developers with adequate financing can corner the entire local private residential market. By announcing a contiguous border with Shenzhen and Guangzhou, the resulting massive conurbation would level out Hong Kong’s flat prices.