• Sun
  • Dec 21, 2014
  • Updated: 1:18am
PropertyHong Kong & China

Affordable homes remain a distant dream despite curbs

Mainlanders and investors return to the market after developers offer subsidies on stamp duties

PUBLISHED : Tuesday, 10 December, 2013, 2:58am
UPDATED : Tuesday, 10 December, 2013, 2:58am

The government's cooling measures for the overheated property market have been in force for 10 months. Yet prices remain high, making it harder for average people to buy their own home.

Research by property consultant Knight Frank shows prices have fallen only 3 per cent since the government introduced further housing measures in February. Many end-users are therefore still finding it difficult to buy affordable flats. The problem is likely to be exacerbated as mainland buyers and local investors return to the market.

Recent sales of new projects such as The Avenue in Wan Chai, The Cullinan and The Austin in Kowloon have attracted investors by offering them subsidises on stamp duties. This has lowered the investment cost for investors and mainlanders.

Agents estimated about 70 per cent of the buyers at The Avenue were investors, compared with about 30 per cent for The Visionary in Tung Chung.

As the sweeteners help boost sales, developers are expected to maintain similar benefits for upcoming projects.

Thomas Lam, head of research and consultancy for Greater China at Knight Frank, expects the proportion of mainland buyers in the primary market to increase to 10 per cent next year from 5 per cent now.

This is bad news for average homebuyers as they will have to prepare more of a down payment or find it difficult to obtain a mortgage loan. Even if they can get the loan, they still have to pay double stamp duties unless they are first-time buyers or have already sold their flats.

Mainlanders and investors are cash-rich. Most of them are targeting new projects in the city centre and this will support the price of new homes in Kowloon and on Hong Kong Island. Even though the supply of new housing will increase next year, only 23 per cent will come from Kowloon and Hong Kong Island.

It is true that the developers are building more small flats. But it doesn't mean they will be affordable. Take the second phase of The Avenue. The project will offer 1,096 flats, of which about 68 per cent are studio and one-bedroom flats sized between 334 and 535 square feet. The minimum price for a small flat is HK$6.1 million.

While the price tag is unaffordable for many, these flats are considered a good buy for investors as it is easy to find tenants in such a prime location.

In the secondary market, only 33,997 private housing units changed hands in the first 11 months of the year. The annual volume will be far below the 62,934 deals recorded in 2012. Despite the poor sales, most of the flat owners are not willing to cut asking prices as the mortgage rates for their units are low.

Many people have hoped the price of second-hand homes would drop following the increase in new housing supply and price cuts at new projects. However, as the local economy remains strong and mortgage rates are low, most flat owners will be reluctant to cut asking prices. Property prices in urban area will not drop significantly.

Only a rise in interest rates could change the situation.



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Before the government put in the measures most analysts expected a further 10% increase in Home prices. With the measures put in lace the prices have dropped 4%. Thus prices are most likely 14% cheaper than they would have been if the government had done nothing. This makes the intervention seem very successful to me. This will soften the landing when interest rates do go up.
Raising interest rates will most likely create a further 15% drop on their own. (This drop would have been 30% if the government had not intervened).
I don't believe that the government needs to do anything but wait and just let the market stagnant for the next 1-2 years. They should not try and artificially try and lower prices as it will happen naturally.
[Only a rise in interest rates could change the situation.]

Oh how touchingly naive you are. Or perhaps just stunningly stupid.

How about...
... taxing rental income for landlords?
... implementing a property capital gains tax?
... taxing property ownership meaningfully (unlike the largely symbolic, partly waived 'rates')?
... taxing empty property even heavier?
... implementing a tax on empty lots that sit in developers' land banks?
... regulating the max time between a land auction and completion of the property?
... ending the small house policy?
... actually allocating land for the 470k-flat-in-10-years target that was set already nearly 1 year ago?
... imposing rent controls?
... ending/altering white elephant projects like the Kai Tak Stadium and WKCD and building more housing instead?
... speeding up urban renewal projects?
... making it much, much easier to convert old industrial buildings to residential ones?
... limiting tourism inflows so we can build more residential units, not hotels and shopping malls?

And so on. There are so many things the government could do to bring house prices back to normal. Hong Kong is a relatively low leverage property market. It really isn't just about interest rates.

Some of these measures, in particular capital gains tax, taxing ownership and/or taxing rental income would have immediate, decisive effects on house prices. An additional benefit would be a welcome diversification of our tax base.
There is nothing 'natural' about tying our currency and interest rate policy to the US; an economy that is increasingly not related to what drives ours.

The peg and the associated interest rate syncing are very artificial indeed, and I agree that this is the root cause of the real asset price inflation we have seen over the past 5 years or so.

So if you want to be less artificial, then sure, let's get rid of the peg, let the HKD appreciate and allow the HKMA to set an appropriate interest rate for the HK economy, which would probably be at least >3% overnight in the light of our inflation, asset prices and labour market.

In the absence of such a less 'artificial' economic policy, it is entirely sensible to for government correct for the occurring severe distortions in real asset prices that by implementing counter measures. They are just not doing enough of it, and arguably not in an effective way. Stamp duty is a primitive means of curbing prices, and it is relatively easy to bypass it as is happening left and right.

Oh, and by the way, even if we would not be facing these severe asset price distortions due to the peg, things like a CGT on property and taxing rental income are both entirely normal fiscal measures, found in nearly every single OECD jurisdiction and beyond. Why Hong Kong remains stuck in an originally 19th century British practice of only taxing transactions (and quite heftily at that), is a one of our government's many mysteries.
Not to mention that there is absolutely nothing 'natural' about our (especially recent past) politicised land supply control, the effective property developers cartel, some of the tightest (re)zoning and planning regulations in the world, and of course the small house policy. So please don't talk to me about a proposed CGT being 'artificial.' The whole Hong Kong property market is one big artificial house of cards.

Free up land supply (de-politicise it by simply having it depend on population growth/household formation using a transparent forumula), abolish the peg, set a domestic interest rate, end the small house policy and then we won't even need 'artificial' measures like a CGT, special stamp duty and so on.

Then 'naturally,' house prices would in all likelihood be at least 50% below current levels if we had had a land supply commensurate with population growth, and a sensible domestic interest rate policy over the past decade or so.
curb mainland money laundering simple!
All the items mentioned are just artificial and will create more havoc than any advantage. Hopefully the government stays away from implementing any further measures as eventually raising interest rates will do the trick.
We have to remember peoples saving etc.. are in their homes and why should the government pick who to help and who to hurt. (most people have a government home or own their own home).


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