Property cooling measures shouldn't violate our free-market principles

Albert Cheng says the government's senseless actions are based on a wrong diagnosis; the problem is actually a shortage of public housing

PUBLISHED : Friday, 20 September, 2013, 12:00am
UPDATED : Friday, 20 September, 2013, 1:44am

Since the 2008 financial crisis, Hong Kong's residential property prices have almost doubled and are now ranked as the highest in the world. The main reasons have been the increased capital flows into Hong Kong as a result of global quantitative easing measures and the persistently low interest-rate environment.

Exacerbating the problem has been the rise in the value of the yuan against the Hong Kong dollar, prompting a seemingly endless flow of cash across the border, inundating the local property market and turning it into a heavily investment-oriented marketplace.

All these factors, plus the perennial local demand, created favourable conditions for prices to keep going up.

At the end of 2010, the previous administration implemented special stamp duties to curb rising prices. But they only had a temporary effect and, since the beginning of last year, house prices have again been on an upward trend.

After Leung Chun-ying took over as chief executive last July, his measures to curb prices have had the opposite effect and significantly boosted the prices of second-hand Home Ownership Scheme flats.

Last November, the government stepped up cooling measures by introducing a special stamp duty and a buyer's stamp duty. Then, in February, a double stamp duty was implemented on non-residential premises in a bid to curb prices in the commercial sector, including car parking spaces.

The most effective way to curb speculation is to impose a capital gains tax on properties

Overall, the local property sector has been badly affected by these measures, which have reduced transactions, stirring an outcry from property agents. Even tycoon Li Ka-shing voiced his discontent, warning that a property market led by the government implies a certain amount of policy risk. He said that more negative effects of the price-cooling measures would gradually surface next year and warned that he could not foresee what direction the market would take in the near future. Leung's property cooling measures not only go against free-market principles; they are also senseless - it's like drinking poison to quench your thirst.

The measures have only served to pull the plug on market movement and have not been effective in bringing down prices. The government has made a wrong diagnosis; it doesn't seem to understand that the real issue is housing, not property acquisition and the only solution is to provide a large number of public housing units. Private units are for investment and thus the level of supply is determined by demand.

The price-curbing measures have artificially increased the cost of transactions. They are supposed to hit speculators, but in the end they will also have an impact on genuine buyers who are non-permanent residents. No wonder the market is stagnant.

In fact, the most effective way to curb speculation is to impose a capital gains tax on properties. This will directly affect those who don't buy for personal use. It will prevent short-term speculative gains and will not affect genuine buyers and long-term investors. This tax will not only prevent speculation, it will also safeguard Hong Kong's long-held core value of a free-market economy.

Ironically, those who are against these tough property-cooling measures seem unwilling to defend our free-market economy and have only come up with excuses to press the government to lift the sanctions. One example is legislator Abraham Razack, a much-maligned mouthpiece for property tycoons.

This week, the Legislative Council resumed examining property-cooling measures. Razack quietly altered his original amendment demanding an exemption for companies operated by local residents and charities - to exclude charities - after he realised it would place serious restrictions on corporate buyers.

When he first made the amendment, he claimed to be defending the interests of the common man rather than protecting those of property tycoons. Now, however, it's clear he's not standing up for the people or their individual rights.

If his amendment is approved, it won't really affect the measures. And if it's rejected, it will make Leung and his government look good, as if they were going against the wishes of the property tycoons to impose tough measures.

The only real beneficiary in all this would be charities, because they are genuine long-term investors. In any case, Razack's strategy is a win-win situation for him. He can fulfil his role as the political agent of property tycoons while appearing to stand up for the people.

His ruse seems to have the support not only of the pro-government camp, but also some of the pan-democrats. It's puzzling why they have fallen for it. If pan-democrats want to reject the government's overly harsh property-cooling measures, they should do so on the basis of safeguarding our free-market economy, and for no other reason.

Albert Cheng King-hon is a political commentator.