A tale of two cities: how home prices affect Hong Kong and Shanghai’s competitiveness
A new study says Hong Kong’s lofty home prices ‘threaten’ its competitiveness. But too much intervention can be just as damaging
As Shanghai and Hong Kong battle for supremacy on the economic and financial fronts, property prices in the two cities could potentially become the game changer.
According to a study jointly conducted by the United Nations and the Chinese Academy of Social Sciences (CASS), lofty home prices in Hong Kong threaten its urban competitiveness.
The CASS is one of the key think tanks that provide advice to the national government.
Its conclusion echoes the Shanghai government’s worries that expensive dwellings in the city have emerged as a stumbling block to its chances of climbing into the list of global elite metropolises.
Among the 202 sample cities, Hong Kong was the most expensive place to own a home in 2015, with an average buyer having to spend US$21,502.2 for a square metre of a flat, according to the Global Urban Competitiveness Report.
However, disposable income per capita stood at US$29,460 that year, ranking 52nd in the world.
“The house price exerted obvious negative impact on its per capita income,” the report said.
Normally, a city’s per capita income will increase in line with house-price growth, but when the home price-to-income ratio hits a certain point, elevated housing prices will turn into a negative force, it added.
In the same year, urban residents in Shanghai had an average disposable income of about US$8,000, and the average home price was US$4,860 per sq m at that time.
Home prices in Shanghai surged between mid-2015 and late 2016, prompting the municipal government to roll out a series of austerity measures to stem the wild rise.
In October 2015, the then Shanghai Communist Party boss Han Zheng told a government conference that the local authorities would stand firm against a property bubble because soaring home prices dented the city’s competitiveness.
As talented professionals could not afford a home, they were unlikely to be attracted to work and live in the city.
Han is likely to become the country’s vice-premier during the National People’s Congress in March after securing a seat at the Party’s top decision-making body – the Politburo’s standing committee last week. Li Qiang has now replaced him as Shanghai Communist Party boss.
Han has taken a harsh stance on the property market over the past decade, with Shanghai always pioneering moves among the mainland’s provincial-level regions to curb home prices.
In March, 2016, Shanghai raised mortgage down payments, heightened the threshold for non-locals’ home purchases and tightened oversight of financing through the shadow banking system to rein in its overheated property market.
The local housing authorities also implemented price interventions as a way of maintaining a tight grip on the market.
The policies were generally viewed as the most stringent measures aimed at tackling the red-hot real estate sector.
But they triggered controversy since developers and analysts contended that they tainted Shanghai’s image as an international metropolis where market forces should be given a full play in deciding house prices.
The report placed Hong Kong in 12th place in terms of global competitiveness, while Shanghai was ranked 14th among the top global cities.
New York was on top of the world, based on its overall competitive strength.
The biggest and busiest city in the United States was the world’s eighth most expensive city with an average home price of US$10,267 per square metre in 2015, compared to disposable income of US$55,857 per capita.
“The high house price and the high competitiveness of New York reinforce and complement each other,” the report said. “Despite the home price fall following the financial crisis, New York, especially Manhattan, is still one of the most expensive cities in the world to own a home.”
Hong Kong’s limited land supply, strong housing demand from the employees of multinational companies and the free rein given by the government to the property sector are behind its sky-high home prices, the report said.