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.
Then, last July, Chief Executive Tung Chee-hwa abruptly decided supply was the problem and nailed his credibility to 85,000 new flats per year. Yet, with details not announced until October, by which time financial markets were collapsing, developers had done nothing about new projects. The result is that private sector supply over the next three years will undershoot even further.
With most small-to-medium developers knocked out of the market, for want of finance, new supply will almost exclusively be in the hands of the big four firms. They will be the only ones able to buy new land over the next year and, if the market holds together, be in total control two years hence.
As if by glorious coincidence, tomorrow is flat-selection day for about 2,000 pre-sale buyers of Cheung Kong's Tierra Verde project. With limits restricting onward sale of unfinished units scrapped, the primary market instantly becomes more attractive. Agents are already waxing about speculative profits for ballot winners.
All this might seem daft in a market still heading south, but for Mr Li and friends they are once again in control.
Private sector building will fall, and plans to bulldoze 75,000 public housing units mean a chain reaction of tenants being shifted into better quality flats while high-income public renters are kicked out, presumably with no option but to buy new Home Ownership Scheme stock.
Pity those trying to sell an existing flat over the next six months. Banks have no reason to offer mortgages and potential buyers will only tango at huge discounts.
In almost two years of writing this column, many things in Hong Kong have changed. The ubiquitous power of the big property developers is not one of them. Whatever your perspective, you have to admire their sauce.
