Why Hong Kong’s property slump may be best time to focus on public housing

With one in two Hongkongers locked out of the property market despite falling prices, it’s time to move towards the Singapore model of providing public housing for more people, not only the poor
We can start chipping away at the problem by improving the design and quality of public housing, and allowing more Hongkongers to be eligible

Dennis Lee

Published: 9:30am, 9 Mar 2024

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Who is hurting in Hong Kong’s weak property market? The government? Yes, because land premiums and stamp duties historically make up a significant part of government revenue.

Last week, Finance Secretary Paul Chan Mo-po revealed revenues of HK$19.4 billion (US$2.5 billion) from land premiums in the current financial year and HK$50 billion from stamp duty. These were, respectively, just 30 per cent and 60 per cent of the estimated HK$65.6 billion and HK$85 billion. This shortfall is equivalent to nearly 80 per cent of the HK$101.6 billion deficit projected.

But the administration itself does not suffer – it is the people it serves who do, when funding for public services, infrastructure projects, welfare programmes and relief measures are affected.

Are property developers hurting? Yes, because they are sitting on excess inventory that they can neither sell nor rent out. In the third quarter of last year, the number of vacant new properties reached a near-20 year high, according to property agency Centaline.

But economic cycles and market fluctuations are part and parcel of a capitalist economy and developers are already responding with strategies, such as not tendering for any more land, tendering low bids and offering discounts. Despite falling prices, however, Hong Kong’s property market remains one of the world’s priciest. Developers can still walk away with a profit, albeit smaller than in rosier times.

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How Hong Kong's housing market became among the world’s most unaffordable

Are homeowners with mortgages hurting? Yes, especially those who bought around 2021, when prices peaked, and who face negative equity if the value of their properties falls below their mortgage. According to investment bank UBS, even with the complete removal of market cooling measures, property prices could still drop by 5-10 per cent this year.

But there are two types of mortgage borrowers. For those living in the property they bought, at the risk of appearing to lack empathy and stating the obvious, it’s necessary to point out that they agreed to the price of their home. No asset comes with a guarantee of price appreciation.

To complain of negative equity is merely an admission of buyer’s remorse. What about when the value of the property exceeds the mortgage? The real estate market is a two-way street. And, for those who borrowed to buy properties as an investment and are seeing the value of that investment fall, well, tough luck – they made a poor call.

The real victims here are the non-homeowners, stuck between high borrowing costs and rising rents in a property market that remains among the most unaffordable in the world.

Property demand is low, some reports say, but this is a mischaracterisation. Demand for a home remains high but transactions are low because, even in this weak market, many Hongkongers simply cannot afford to buy. Over the past two decades, property prices have outpaced both inflation and salaries.

Saving up for a deposit on a home has become a fantasy for many as the goalposts keep moving further away. In a society as affluent as Hong Kong, the home ownership rate hovers around 50 per cent – just one in two of us own a home in the city.

Hong Kong is at a unique crossroads, with developers, investors and potential homebuyers all lacking confidence in the property market. If the night is darkest just before the dawn, might the situation offer an opportunity to revamp our strategy in tackling the city’s chronic housing problem?

Hong Kong land and housing supply must flow even in a downturn

No one wants a property crash but we can consider chipping away at the colossal problem during this downturn. For a start, we could improve the design and quality of public housing, and allow more Hongkongers to be eligible, turning on its head the idea that such housing is only for the poor.

We could take a page from Singapore, where public housing simply means affordable homes for up to 80 per cent of the population. Public housing is also attractive and comfortable, with the non-profit Housing and Development Board reinvesting revenue into the maintenance and improvement of public spaces, such as by upgrading building facades, adding amenities including lifts and walkways, and enhancing landscaped areas.

While the Singapore government makes no money from selling public housing, the maintenance and upgrades add to the value of the flats, so when Singaporeans choose to sell their homes after the mandatory minimum occupation period, they often make a profit.

The Pinnacle@Duxton, a 50-storey public housing estate in Singapore’s city centre, next to the business district, seen on May 27, 2019. It has the world’s two longest sky gardens, at 500m each, on the 26th and 50th floors. Photo: Roy Issa

This is a housing model that prioritises people’s standard of living and prosperity – in sharp contrast to the Hong Kong model of selling land for government revenue and leaving private developers to price our homes. There are also serious shortcomings to the government’s unsustainable reliance on land sales, which are being exposed in the current market.

But if we change to the Singapore housing model overnight, our system would break down. Revolting developers aside, Hong Kong simply cannot build a large quantity of high-quality public housing in a short time.

What we can do is increase the emphasis on providing public housing. We could raise the current figure mandating that 70 per cent of all new housing must be public, and examine the vacant land set aside for private development and see which lots could be rezoned for public housing. And we could also build and maintain public housing that is of a high quality while raising the income and asset limits so more people are eligible for public flats.

In these ways, we could progressively increase Hong Kong’s home ownership rate and take care of the community from the bottom up. As a bonus, we could also expect to reduce the poverty rate and the gaping wealth gap.

Dennis Lee is a Hong Kong-born, America-licensed architect with years of design experience in the US and China