• Thu
  • Dec 18, 2014
  • Updated: 1:56pm
Bricks and Mortar
PUBLISHED : Monday, 11 August, 2014, 11:07am
UPDATED : Tuesday, 12 August, 2014, 12:36am

What can the government really do about home prices in Hong Kong?

With new towns crucial for boosting supply, Hongkongers must learn to strike a balance

Hong Kong property prices hit a record in June, raising questions about the effectiveness of the government's measures to cool down the property market.

The Rating and Valuation Department's monthly price index for private homes climbed to a record 249.8, 4.1 per cent higher than its level before the government released several measures in February last year.

Property prices have rebounded as home seekers decided to buy flats once they saw prices did not fall significantly after the measures were released.

To some extent, the government-imposed extra stamp duties have already dampened the buying interest of upgraders, local investors and mainlanders.

But housing demand remains strong, and people are cash-rich.

The government did not create new towns after the handover. Now we are paying the price

The measures can't have much impact in the face of low interest rates, which mean the monthly mortgage payment is not a big burden to buyers and investors.

Upgraders are also reluctant to sell the flats they live in. It is difficult for them to buy a new flat because the government has tightened mortgage requirements, and prices of three-bedroom flats have risen to an unaffordable level.

The government should increase further the buyer's stamp duty to dampen speculative demand from non-residents and corporate buyers.

The tight supply of land is another problem.

The government did not create new towns after the 1997 handover. Now we are paying the price.

The most recently developed new town is Tung Chung on Lantau Island, which was begun in 1989 and completed in 2011.

Development at another new town, Tseung Kwan O, began in 1982, and it has remained the major source of land in the past decade. About 14 per cent of the flats completed this year will be in Tseung Kwan O and 17 per cent next year.

One of the reasons the government did not create any new towns in the first few years after the turnover was that property prices had collapsed following the 1997-98 Asian financial crisis. Developers had to cut prices sharply because of oversupply in the market.

That property price crash cast a long shadow, leaving the government reluctant to develop new towns and resume regular land auctions even after the market recovered in the second half of 2003.

Although the government began to increase land supply in 2012, it was too late. Without creating new towns, it will be hard for the government to release more sites for sale.

But Hongkongers have become more involved in town planning, so new towns would be likely to provoke protests for environmental reasons.

Hongkongers, not just the government, have to figure out how to strike a balance between development and protecting the natural environment.



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Pathetic understanding of economics. The problem is not that the house prices is going up but the overworked printing presses have made the value of the HKD worth **** so your millions of dollars can only buy less and less square footage of living space. No amount of taxes, fees, duties will make any effect until they turn of those damn printers and the US dollar peg is broken.
HK is a major financial centre which means it is capable of attracting top talents with lucrative rewards and compensation packages, coupled with one of the lowest tax rates in the world. These people can always afford to pay premium rents at sought after areas. Moreover, our financial stability and proper law and order make us an ideal place for investment amongst overseas buyers. Hence there is indeed very little the govt can do. In fact, this is taking place at all major financial centres in the world such as NY or London, where prices are just as high as HK.
I think people need to ask themselves this question: Do they want HK to maintain as one of the world's major financial centres and if the answer to this question is yes, then this means we need to keep our market free and open. The govt. has already imposed double stamp duty on non-HK residents buying properties and if they still believe it makes economic sense to do so then that is their problem.
The issue is not whether HK is a major financial centre or not.
In HK's case, inflated prices is simply a case of supply not meeting "real" demand, especially from local residents, exacerbated by cheap money, which are as usual, readily available to the richer investors
For example, are there sufficient flats of good size for the low and middle income? I think not.
Rather, developers are more interested in pitching their developments at the high end.
This is the root of the property problem in HK.
Over 200,000 flats with no one living inside but the ghost of their owners.
Can the low and middle income afford to rent these flats. I suspect not.
But do the developers care? Nope. It's about making money.
Does the government care enough?
CY Leung appears to be trying, but it is going to take years before he can square the supply shortfall for this segment of HK society
build more lower cost housing for the lower economic classes, improve transportation for those areas which the housing is built, improve social services, remove discrimatory stamp duty on property, improve education for poor and middle class, increase minimum wage.
Good suggestions, but unfortunately we're in the good old HKSAR, with do-nothing government inherited from Mr. Do-nothing Donald. They'd never do anything to disrupt big-business, property developers, and the Heung Yee Crooks.
" Do they want HK to maintain as one of the world's major financial centres and if the answer to this question is yes, then this means we need to keep our market free and open."
Then you should support unpegging the USD - the biggest problem of Hong Kong...
Rent control.
Government has to compete with property developers by building quality housing, not tiny boxes, and selling at a modest mark up.
Here are a few other things the government could do that will make a difference almost immediately.
1. raise property taxes to discourage hoarding of property by investors. A single person owning 10 flats exacerbates inequality, and it makes the property market rigged upwards, because there are too many non-economic owners (no one sells apartments unless there is an economic crash). Make it expensive to own flats you don't live in -- this works elsewhere.
2. Cheap money from banks fuels these hoarders but the gov cannot control rates. So put limit the number of apartments a single person or entity can own. This is a little extreme, but extreme measures are needed because of the single-minded fixation on hoarding property. Individuals who own more than 2 homes can be made to divest, although less invasive things should be tried first.
3. On second homes, raise the borrowing limit to something really limiting -- not 50% but 90%.
4. Put a limit on capital gains, with 90% taxes beyond. For example, you hold bought a property for 100K, but is worth a million -- you only get 500K taxed at 15%, the rest is taxed at 90%. Making property less attractive.
5. Give a temporary tax holiday for sellers -- but only after introducing limits and making it easier for first time buyers.
I can already cries of how these measures will kill the property market and make people feel poor and thus lead to all kinds of bad stuff...but it's time to call bluff.
It's not going to happen because the HKSAR Govt has a real estate policy, never a housing policy.


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