Complex issue requires the government to formulate long-term strategy.
Owning a home is what most Hongkongers aspire to, as it enables them to feel committed to the place where they live, and helps form part of their identity.
Nevertheless, as property prices continue to soar, those striving to become first-time buyers are finding it to be a distant dream to enter the market which, before the recent government intervention, appeared to favour speculators, foreign buyers and investors.
Hong Kong's property prices have hit record highs but, despite the urgent need to cool housing prices, Chief Executive Leung Chun-ying's administration is still struggling to formulate a long-term strategy to solve this unhappy state of affairs.
Will more government measures, such as a capital gains tax, help make Hong Kong homes affordable to the masses?
It is a complex issue that requires more than a silver bullet, as property plays a crucial role in Hong Kong's economy, which is still feeling the aftershocks of the 2008 global financial crisis, and euro-zone debt woes.
Opinions vary about the direction that Hong Kong should take to stabilise the market, without crippling the fragile economy.
Abraham Razack, the legislator representing the real estate and construction sectors, believes the government shouldn't have overreacted by intervening. He points out that price movements in the property market are based on confidence and perception, and the government should never try to manipulate it or put a ceiling on prices.
He warns: "Once the government steps in, there is no end to it. It's a bottomless pit."
He cautions that, "what the government is doing is moving the goalposts, and this approach is discriminatory in nature and goes against our principles of a level playing field, which will eventually damage our reputation as a trustworthy international financial centre". Razack was referring to the 15 per cent tax imposed on foreign buyers, and local and foreign corporate purchasers.
Financial Secretary John Tsang Chun-wah implemented two taxes, in late October, in a bid to drive out speculators and stabilise the market. The first was to introduce the Buyer's Stamp Duty, applicable only to non-permanent residents, and local and foreign corporate buyers, requiring an additional 15 per cent tax on top of the existing duty.
The second was to increase the special stamp duty rate and extend its restriction period from two to three years.
The new measures had an immediate effect, in that transaction volumes dropped sharply. However, they did little to lower prices in the private housing sector.
Razack argues that constant government intervention could result in irreversible damage to Hong Kong's reputation as an international financial centre. "Our property market is not only directly affected by local factors but also outside factors - the global economy and the euro-debt crisis," Razack says. "We are an open economy, so we cannot pick and choose whom we want to invest here, as well as how and when they should invest in our city."
He believes that as a financial and investment centre, Hong Kong has many advantages over other Asian cities, such as Singapore and Bangkok. "We have a stable economy, good government structure, a well-established legal system and judiciary, and a level playing field. But if the government tries to do anything to alter any of these, we will definitely lose our competitive edge to our Asian neighbours."
He also believes the state of Hong Kong's property sector has been overly politicised, making it difficult for the government to forge ahead in tackling the problem. He says it is important to strike a balance between politics and reality.
Razack says this "us verses them" attitude is a dangerous mentality. He was referring to the anti-mainland sentiment that prevails in Hong Kong. "Hong Kong people used to go to shop frequently in Shenzhen when the Hong Kong dollar was strong. The mainlanders never complained about us invading their city. Now the tables have turned and they come to shop for apartments in our city, and we complain endlessly about them overrunning our place."
Legislator Wu Chi-wai, who is the housing spokesman for the Democratic Party, says a key issue is hot money pouring into Hong Kong.
He says the government's priority should be to look after the people's housing needs rather than simply maintaining an investor-friendly market.
"A popular Chinese proverb says, 'you cannot fight a fire with water from far away'. [This] sums up our housing situation at the moment. It's important to look after the fundamental housing needs of the public by providing more housing but, unfortunately, it takes time to build public flats. The government seems determined to tackle the [sky-high prices in the] private housing market, but the effectiveness of these measures will likely be diluted by the enormous influx of hot money and investment demand."
He says those most affected by the present state of affairs will be in the low-income group. The sandwich class is also suffering, because property prices are rising far faster than their purchasing power.
Another lawmaker, Leung Che-cheung, who is the housing spokesman for the Democratic Alliance for the Betterment of Hong Kong, says the lack of information concerning the supply of public and private housing is a cause for concern.
The lack of transparency means not many really know the actual state of the market.
The question is, are there too many homes being held for future sales, keeping prices high, or are there too few housing projects, public and private?
Leung also says that there is a "shortage of public housing, and "the queue for public housing is very long, forcing people to look to the private sector, thus pushing up prices", he says.
"And yet, young people and much of the middle class cannot afford expensive homes [in the private sector]," Leung adds. "There is also a shortage of public housing in urban areas, where the demand is highest, resulting in a lot of people having to live in [sub-divided] flats."
He says the latest punitive measures may seem effective in the short term, as illustrated by slowing sales in the secondary property market, but he cautions these steps must be applied "in the right dosage, at the right time and for the right duration".
"The government has done a good thing for the people. It's important to remember that this kind of market interference is useful only if it's done after meticulously balancing a number of factors, such as strength, timing and duration. If dragged on for too long, it could cause unimaginable long-term damage to the fundamentals of the market, such as triggering negative equity," Leung warns.
Hong Kong's homes went into negative equity following the 1997 Asian financial crisis and the 2003 Sars epidemic, whereby home values were less than what was owing on the mortgages.
For the medium and long-term, Leung says it is imperative for the government to release more land to build public housing units to serve the lower-income segment and alleviate housing pressure. "We are seriously lagging behind in supplying public housing," Leung says.
HOMES 'OUT OF REACH TO MANY'
Eddie Hui Chi-man, professor of the department of building and real estate at Polytechnic University, points out that the house price-to-income ratio in Hong Kong is too high, meaning it is unaffordable for most people to buy a home.
"It takes at least 20 years of savings for Hongkongers to buy a home, compared to about six to seven years in many other places," he says.
Hui says government policy and economic factors will continue to play critical roles in shaping the property market. He also expects the public to continue applying pressure on the government to curb prices by introducing more measures. But he believes prices will not be affected.
"The recent measures of additional taxes will have immediate and short-term effects on property prices," he says. "We have seen fewer transactions over the past weeks and people are reluctant to sell their properties."