Tung's dreams drown in developers' sauce

Scepticism has typified this column over the past two years. Scepticism that property prices would keep rising, scepticism that red chips were for real and scepticism that this Government knew what it was doing.

So it seems appropriate that this columnist's valedictory missive should follow the Government's total surrender to the big property developers. A stand-off that began in 1994 and culminated with Tung Chee-hwa's public housing programme, ended yesterday with the Government abandoning its strategy and handing the market back to a few big firms.

In the end there was nothing it could do. Whether the removal of pre-sale restrictions and expansion of state-sponsored mortgages can rescue the market is another matter. But if Hong Kong does emerge intact and a few years' hence Li Ka-shing and Lee Shau-kee again grace the top tier of world billionaires, they can thank Secretary for Housing Dominic Wong Sing-wah and colleagues.

Anti-speculation measures were designed to manage demand. They are now being ditched because there is no demand and property developers face desperate cash-flow problems. The hope is to restore confidence and halt spiralling price falls. Given the state of interest rates, credit availability and unemployment fears, the changes - although welcome - may have little immediate impact.

The lesson is simple. You cannot manage a complex housing market like Hong Kong as if it was 1950s Russia. As the architect of the post-1994 policy, Mr Wong should resign. He should go not because events overtook him but because the roots of today's crisis stem from his policies. The Government's credibility has been severely damaged and others should consider their position.

The most damning indictment of housing policy over the last four years is that no one thought through the consequences for supply.

Since the Government demands huge up-front payments for land, it takes lots of capital to be a developer. The quid pro quo was that firms could pre-sell units and take cash up front. The restrictions from 1994 onward effectively knocked most of the small players out of the market. Last year's boom, not withstanding favourable monetary conditions, was driven by expectation of dramatically reduced supply.