For most people, the biggest investment they are likely to make in their lifetime is the purchase of a home. Despite the likelihood of this overshadowing the ownership of any other single asset, there is considerable confusion between home ownership and property investment, a confusion rather remarkably shared by Hong Kong's chief executive, as revealed in his recent policy address.
The problem with confusion like this is that it leads to fuzzy thinking about investment, which can give rise to undesirable consequences.
It is no exaggeration to say that in Hong Kong, interest in property prices often rises to the level of obsession and that practically everyone seeks to be a player in the property market.
Fortunately, those seeking to be players by buying their own homes in Hong Kong are less likely to face the fate of homeowners in other places who have been forced into bank repossessions of their properties. This is because the city's banks are much tougher lenders and raise the bar on home purchase borrowing to an extent that excludes a substantial part of the population.
However, those who are able to borrow do so not just to secure a place to live, but also in anticipation of increasing values, an expectation based on Hong Kong's history. But unlike other assets, the sale of a home is almost always problematic.
This is why most homeowners have to think very carefully before trading their properties and are constrained from moving around in response to price fluctuations. Family homes are often tied up with proximity to schools or relatives, and disposing of the place can also mean disrupting these arrangements. Moreover, they need to factor in the costs of moving and redecoration as part of the profit and loss equation.
Yet many homeowners like to talk of how much more or less they are worth because of movements in the property market. The bald fact is that this talk is irrelevant for an asset that is not traded. This concept of wealth may be relevant in terms of stored value that can be passed on as an inheritance, but this, too, implies a transaction that realises the inherent value of the property.
Property investors are in a different place, because not only do they not have to think about the personal inconvenience, but they are also unencumbered by the costs of moving. They possess an asset that can be traded at any time.
In Hong Kong, many investors seem more drawn to property than other assets. This extends to buying property overseas as a hedge against the vagaries of the local market and (although this is less of a factor nowadays) as a form of insurance against political uncertainty. Mostly they buy residential properties, but it should be noted that in Britain, for example, they would have made far greater gains by purchasing farmland than prime properties in London. Elsewhere, commercial properties tend to offer better yields than residential properties.
However, it is residential property that captures the imagination. This may be because most people's first experience of property investment comes from a home purchase. Lamentably, home purchase is not an option for many Hongkongers, and they even have trouble renting adequate space for their families. The fact, as Donald Tsang Yam-kuen noted, that there are more properties in the city than households tells us more about the bias towards investments than it does about fulfilling housing needs.
By suggesting there is a housing surplus, he is confusing investment properties with homes. A privileged number can buy multiple properties for investment, but there is a much larger population who cannot afford a sole property for a home.
Those who can make such a purchase may trade their property eventually, but meanwhile they are left with an asset that should be valued for its utility, rather than its market price. They have a home first and an investment second.
There is rarely a case for not buying your own home, unless you are one of the privileged few, like Tsang, who has lived in government-subsidised property since childhood and is free to buy for property investment. The rest of us don't get homes supplied with our jobs and need the security of home ownership, accompanied by the illusion of growing wealth when property prices rise, an illusion quickly shattered by the discovery that selling the home at a high price also means buying or renting another at these same high prices.