Numbers show how real estate firms lost the plot
The fact is prices got out of hand and the industry expanded too far and too fast
There is a 200-metre stretch of Robinson Road in Mid-Levels that encapsulates much of what went wrong with Hong Kong's property market.
Between Mosque Street and the traffic lights by the junction with Seymour Road, well over half of all the shop spaces are taken up by real estate agencies. Indeed, some of the companies concerned have established multiple presences along this relatively short commercial strip.
And Robinson Road is by no means unique: the same picture is repeated throughout the city.
The answer, of course, is that a lot of small shops that used to provide goods and services for nearby residents have been driven out by rocketing rents. And the only people who can afford to pay the new sums being quoted are the property agencies themselves.
This absurd situation has been brought about by our old friends "market forces". As prices of residential properties went through the roof, so commission income - maybe one per cent each from buyer and seller - climbed too.
Five agents each selling two flats a month at an average price of HK$20 million would produce a kitty of HK$2 million in a single month. Even allowing for a generous share of the commission for staff; that still puts a big chunk of change at the disposal of the real estate company.
How to maintain or even expand your share of such a lucrative market? Easy - increase visibility at street level by taking up shop spaces, and when vacancies arise, do everything in your power to stop rivals forcing their way in by renting the empty spaces yourself.
Such an arrangement was never going to be sustainable in the long term, of course, because those very same market forces would eventually catch up with the situation.
Sure enough, property prices have stalled - in part because of the government's various anti-speculation measures - and turnover has dropped sharply.
How to maintain profit levels? Not easy with volumes so low, so let go of the non-performing staff and gradually give up the leased shop spaces.
Getting rid of the staff is easy, but the premises are subject to two- or three-year leases. No wonder both agents and their employers are squealing and urging the government to drop its stamp duty increases. But there is no argument for the government to back down.
The fact is prices got out of hand and the industry expanded too far and too fast. Some companies even tried to induce hysteria in the market.
What we have now should be seen as the beginning of a healthy correction. Longer term, when the government has addressed the supply situation, the emergency measures can be relaxed without tipping people back into panic buying mode. Until then, the government should stay the course.
Mike Rowse is search director of Stanton Chase International and an adjunct professor at Chinese University