Hong Kong’s property cartel aligned against CY Leung over second term
The upcoming election for chief executive has average citizens directly at odds with property tycoons when it comes to the pro-affordability housing policies of incumbent CY Leung
The conspiracy theory to watch in this town is who the property cartel and business establishment advances as Hong Kong’s next chief executive. Certainly the property developers can’t be happy with CY Leung’s public housing construction spree. Average citizens and tycoons are directly at odds with each other in the coming election. Both sides have much to lose.
Public housing was traditionally a major stepping stone for young people and first-time buyers to enter the housing market and climb the socioeconomic ladder. The Donald Tsang administration basically did nothing about housing and usually blamed low interest rates and the dollar peg. And worst of all, he tightened land sales.
Collusive policies allowed developers to ratchet up private flat prices to a level that made Hong Kong one of the most unaffordable places to live, crippled by the world’s biggest wealth gap. If they have their way in determining a pro-developer leader we could see a return to favourable policies that can only cause flat prices to rise sharply to the point of marginal affordability.
Affordability is still strained in Hong Kong even with slowing demand and rising supply. UBS maintains its view that Hong Kong home prices could tumble by as much as 30 per cent by the end of 2017 due to a deteriorating economy, rising unemployment rates and lower inflation.
Even though prices could tumble by 30 per cent, developers are only selling the minimal amount of flats and holding back development of their land bank. Indeed, Hong Kong’s overall property sales volume plunged nearly 40 per cent year-on-year in the first half of the year.
Low prices and low volumes mean that property holders have not been driven to panic selling. They are not compelled to sell flats as prices fall in order to limit losses. On one hand, low interest rates allow them to finance their positions. Or they believe prices will rebound in the near future.
The chief executive will be selected in March next year by a 1200 member Election Committee dominated by business and professional elites. Replacing Leung with someone sympathetic to big business would signal a revival of pro-developer policies in the market. Don’t forget that Leung was the accidental winner of the last election. He was not expected to win and not the tycoons’ preferred choice.
The next phase of the game would be to declare victory over high property prices after the recent decline, remove the stamp duty and roll back the public housing programme. Assuming interest rates remain low next year a Hong Kong property boom can be readily engineered by restricting levels of supply.
You can already detect the not so subtle, public manoeuvring by the elite. As Hong Kong’s wealthiest citizen, Li Ka-shing has much at stake in the upcoming March selection process for chief executive. Though Li didn’t mention Leung in a recent Bloomberg interview, he said Hong Kong’s in the worst shape he’s seen in the past 20 years.
He didn’t offer any solutions other than to encourage people to study and work hard to pay for his flats. I would have more respect for Li if he simply said he wants to continue adding to his fortune forcing the Hong Kong population to buy and live in grossly overpriced 200 square foot flats.
Peter Guy is a financial writer and former international banker