Tepid market suggests target for private housing won't be met
Albert Cheng says the administration should buy back MTR development rights for public housing rather than allow developers to reap huge profits
Leung Chun-ying won the race to become Hong Kong's chief executive with promises to focus all efforts on resolving land and housing problems.
But, since taking over, he has done little to ease housing-supply pressure, especially the supply of public and subsidised housing.
His excuse is to blame the acute shortage of land, which he claims is making it difficult for the government to source suitable sites for housing.
Now Leung is blindly snatching up land in any way he can in a desperate attempt to rescue his plunging popularity.
In this year's policy address, he accepted a proposal from the Long-term Housing Strategy Steering Committee to supply 470,000 flats in the next 10 years, of which 60 per cent would be public and subsidised housing. That means the government needs to ensure there are about 19,000 private housing units available every year for the next 10 years.
Apart from running a key transport network, the MTR Corporation is also a large property developer in Hong Kong.
This position was further strengthened when, under its merger with the Kowloon-Canton Railway Corporation in 2007, it also bought the rights to develop eight sites.
Today, the many joint residential projects the MTR Corp has developed with private developers make up a sizeable portion of the market's supply. This makes the company a market leader.
The government, with more than 70 per cent of MTR Corp shares, is by far the largest stakeholder. As a listed company, it is bound by the principles of any commercial operation, which means putting the interests of shareholders first by maximising profits.
However, in recent years, the MTR Corp has failed to conclude tenders for several property projects on the first try. As a result, housing supply has slowed. In fact, the company has not launched any property project in the past three years.
Most recently, we saw the failed tender for a residential project, right above the Tin Wing Light Rail Station in Tin Shui Wai. The tender had to be withdrawn earlier this year for the second time, as none of the offers met the minimum requirements.
This was supposed to supply 1,500 flats.
This failure will have a negative impact on the government's capability to meet the annual quota of 19,000 private housing units.
Secretary for Development Paul Chan Mo-po recently criticised the MTR Corp for the slow pace of its property development. He said that if the corporation failed to step it up, the government may reconsider its property development rights along the rail lines and would not rule out taking back such rights to build public housing units.
The MTR Corp has become a monster because the government gave it a free hand. Thus, there's no one to blame for this situation but the government itself, and its lax policies.
To be fair, the MTR Corp has launched three tenders in the past year - two for the Tin Wing site and one for Tai Wai station. It rejected all the bids because they failed to satisfy tender conditions.
The fact is that the MTR Corp has done its best to push out development projects.
Take the Tin Wing site. When it was up for tender last year, the investment cost was HK$3.1 billion. No developer submitted a bid. Earlier this year, the investment cost was lowered substantially, with better terms, and still it failed to attract a winning bid.
Thus, it is the developers who are not co-operating and trying to push down prices.
There is no reason why the MTR Corp should sell its projects on the cheap.
Now Chan has put pressure on the MTR Corp to sell property development rights, it signals to the developers that they can push prices down further, knowing there is a desperate fire sale.
It's obvious Chan has tried to shift the blame onto the MTR Corp to take the heat off himself for failing to find enough land for housing development.
In fact, the main reason for the repeated tender failures was because of unsolved issues over land premiums. If the government doesn't want to reduce land premiums, the best way forward is for it to use market prices to buy back the development rights to build public and subsidised public housing.
That way, the government can follow market rules and respect commercial principles, while not allowing private developers to reap huge profits at the expense of MTR shareholders. Most importantly, it can resolve the public housing problem.
If Chan continues to put pressure on the MTR Corp to sell projects on the cheap, it will again prove that the Leung administration has never taken the side of Hongkongers against the city's property monopoly.
