When it comes to market intervention, the less the better. In Hong Kong, the formula has been tried and tested and contributes to our success in being named the world's freest economy for many years. However, when market forces fail, the government is expected to step in. The series of measures introduced by the government to stabilise the red-hot property market is a case in point.
In the latest move, which surprised many, development chief Paul Chan Mo-po announced that a 14-year-old land sale system would be replaced by regular tender. Instead of waiting for developers to pick the land from a pool, the government is to decide what sites will be put on sale each quarter. It is good that the government is determined to take full control of land supply and try to stabilise output in a heavily skewed market.
Long overdue, the change is necessary in light of developing circumstances. Introduced in 1999 in response to the market slump, the regular land auction was eventually ditched by the government in favour of a so-called application mechanism, under which developers could submit bids to trigger a land sale from a list of sites for auction. It was widely hailed as the right way to let the market decide what was needed.
The scheme appeared to work well until a market turnaround in 2005. There was frustration when land could not be triggered for auction because developers failed to meet the undisclosed reserve price set by the government. On the other hand, there also have been concerns that developers can, at least in theory, join forces to snub the list and push up prices. That only seven applications have been received since last April shows the mechanism no longer serves its purpose.
The message is clear. Land supply rests with the government, not developers. The chief executive must have realised that no matter how many flats he pledged to build, it was no use if the land earmarked for construction was not triggered for sale by developers. Steady supply is the key. That said, it is not reassuring to hear that the majority of the 28 newly added residential sites may not be ready for sale until next year due to outstanding land-use procedures. The process should be expedited to ensure an adequate supply of land. Whether flat prices will come down as a result remains to be seen. It is to be hoped that the switch to regular tender can stabilise supply and enable smaller developers to come forward.