Jake's View | Need a scapegoat for Hong Kong’s property woes? Look west to US Fed policies, not China

Beijing’s new rules on outbound investment could bring benefits for Hong Kong, possibly driving down land prices. --SCMP, August 23

This is all very well, but it does not mean much for homebuyers if home prices continue to go up. All it would mean then is that developers make bigger profits.

Sellers charge buyers what they think the market will bear. If there is a disconnect between the influences driving land prices and the influences driving home prices, then a drop in land prices will not necessary lead to a drop in home prices.

And in this case, there is a definite disconnect. While mainland money has been hot on the heels chasing land purchases here for several years, it has not gone into the purchase of completed homes.

My evidence lies in the first chart. The latest data releases show that, since the beginning of 2008, prices for flats with a floor area of 40 square metres (430 square feet) or less have rocketed by 212 per cent, while those for flats with a floor area of 160 square metres or more have gone up by only 60 per cent.

This was a reversal of the trend of the previous 10 years and I think it clearly indicates a shift in buyer identity. Mainland buyers purchasing for investments concentrate on the luxury side of the market and became less active starting about 10 years ago.

Contributing to this trend was a change in the Capital Investment Entrance Scheme, a government attempt to drive up economic growth by encouraging capital inflows with the carrot of a Hong Kong identity card. Starting in 2010 property was removed from the list of eligible investments.