Clear plan needed to address land supply and housing issues
The government must act to make up for the failures of the previous administration in order to prevent market volatility and uncertainty
Not surprisingly, the state of the real estate market, particularly the residential sector, has been the subject of much discussion since the new administration took office in July and began an attempt to make up for the failure of its predecessors to adequately address land and housing issues.
Much has been written about the situation in which we find ourselves, and there is no doubt that the previous administration did take its eye off the ball in terms of land supply and the need for an accelerated social housing programme.
However, we are where we are, and the truth is that no matter how much we regret it, there is no quick fix and the only solution is for government to produce a detailed road map setting out where and when new sites will be released over the next five years. Similarly, it needs to set itself an annual target for the number of sites and residential units that will become available through redevelopment and lease modification, given half of our new supply will come from this source.
In my view the sooner the public sees commitment to a credible and comprehensive development programme involving new land supply and redevelopment of existing sites via the lease modification process, the more likely it is to take a more measured view on home purchases and the greater the prospect of bringing stability.
What few have yet to accept is that the starting point for any believable policy has to be population, and if we are to plan for the future we need a realistic and informed basis on which to do so.
Our population is just over seven million and government predictions range from 8.5 million by 2039 to a forecast of 8.9 million. Either way, we cannot deal with such growth incrementally and we are talking of one, if not two, new towns to meet with such a level of demand.
This hopefully will form part of a new long-term housing strategy upon which government has already started work.
It is the short and medium term that appears to be the challenge and where there is a need for a more focused and clear approach. What is not helping are off-the-cuff supply suggestions that verge on the irresponsible.
Random suggestions that do not appear to have been fully thought through have the potential to generate confusion and volatility that work against the objective of stabilising the market. They also emphasise that there is no firm strategy, which causes uncertainty - one minute we are going to move the stadium at Kai Tak for housing and the next we are not.
Then we are going to double the Kai Tak residential population, which would involve a complete revamp of the new outline zoning plan and the ongoing infrastructure provision. The next moment it is suggested that sites for private development on the application list might be used for public housing and then, when challenged, government backs away from its plans to accelerate land conversion in the New Territories, using resumption powers if necessary.
The government has already embarked on an expanded land sales and lease modification programme, as a result of which private sector supply, albeit mostly in small units, could potentially exceed 20,000 units a year by 2015. In parallel, it is planning to augment public sector supply to approaching 25,000 units a year again by 2015.
As far as the private sector is concerned, these are significant increases over the 11,000 completions in 2011 and the anticipated 13,000 units by year end. This is the only possible response and, though many in the community would prefer otherwise, building on such a scale takes time.
In my view this message, if clearly and consistently conveyed, should suffice at least to alert would-be purchasers that as this additional supply comes on to the market there is the potential for price corrections and they buy now at their own risk.
Many, of course, already face major exposure when interest rates rise, as they must, over time. However, on October 26, government introduced another round of measures to cool demand. These not only increased the rates of special stamp duty to discourage trading, but also brought in a new buyer's stamp duty, which will be applicable to all residential properties acquired by persons, including companies, except Hong Kong permanent residents.
The new duty is to be pitched at 15 per cent of the consideration paid and is payable by the purchaser of the property.
I can understand measures to discourage speculation or trading, but philosophically I am concerned about this duty in that it is discriminatory and is contrary to Hong Kong's claims to be an open economy. It is typical of initiatives that lack proper regulatory impact assessment.
In particular, how can government determine what "market normalisation" is, and when it has been achieved? If such a measure is regarded as politically expedient should it not be limited to a specific period of time or tied to a specific outcome, for example achievement of a significant new level of residential supply?
In addition, the measure discriminates against local companies and overseas investors who consider the Hong Kong residential market a "safe haven" for investment and provide rental accommodation to a significant part of the business community.
There also appears to be a knock-on effect of moving focus to the commercial sector where rents and prices are already high; as well as sparking speculation in car parking spaces.
International investment is part of the lifeblood of Hong Kong, as it is in other major cities. In London, over 50 per cent of upper-end market stock is owned by overseas parties, while in Singapore it is about 20 per cent and is seen as a gesture of confidence in government and the economy.
It is probably too late to make any adjustment (and I do not support the Real Estate Developers' Association's proposal that units over HK$30 million should be exempt). But perhaps it would be more logical to look at a situation where units of up to a certain size, say 70 square metres, are exempt from buyer's stamp duty?
After all, it is this segment that offers access to the first-time buyer and so, in the short and medium term, there could be an argument for restricting purchasers to permanent residents.
All in all we need clear messages, a firm programme, and minimum intervention in the market in the interim because this can only lead to market distortion, greater volatility and more uncertainty.
Nicholas Brooke is chairman of Professional Property Service Group