Don't repeat Japan's mistakes
NEWSPAPER headlines invoking ''war against property speculators'' are seen with increasing regularity in today's Hong Kong. These are exactly the kind of headlines which appeared in Japan's major newspapers back in the late 1980s. In fact, there are striking similarities between Hong Kong today and Tokyo then with respect to the seemingly insatiable demand for space and spiralling property prices in prime locations.
Other, commonly shared factors include clear trends towards a service orientated economic structure and business globalisation.
This does not mean, however, that Hong Kong should follow the disastrous path which Japan has taken over the last few years. After having witnessed phenomenal increases in property prices in Tokyo, a variety of alarmists and bureaucrats in 1989 began to call for tighter regulations on speculators. The Government overreacted to these demands and the growing mass media hysteria, and started to take a series of ''exceptional'' measures which began with steep interest rate hikes followed by direct controls over bank lending for property in 1990. In 1991, capital gains taxes were raised sharply to discourage property transactions culminating in 1992 with a new national land-holding tax, the so-called land value tax.
These measures were sufficiently strong to stifle Japan's once booming property market. But they did much more than that in that the worst damage was felt on the balance sheets of most financial institutions and business corporations. This policy-inducedcollapse of the property market has therefore severely affected the overall economy, leading to the worst recession in Japan's postwar history. It is sad to see that even today the Japanese Government whose policies are largely dictated by bureaucrats and the mass media, is extremely reluctant to lift the regulatory measures on property, for fear of being accused of favouring large developers and speculators by reversing its mistakes. As a result, Japan continues to suffer from a lack of clear direction in policy especially marked in the land and commercial property markets, while the economy itself is struggling to recover from an ever-deepening recessionary spiral.
There is a lot that Hong Kong can learn from Japan's bitter experience. It would be a mistake to lay the blame on the demand side of the property market. Labelling investors' actions as simply ''speculative'' (whatever that means) and talk of the creation of a ''property bubble'' are not particularly helpful if they lead to the introduction of regulatory measures that are indiscriminate in terms of the economic activities they are attacking.
The real lesson we should learn from Japan is not to have more control, but to let the market run its own course without government intervention. Overheating, if any, will be most naturally taken care of by the market itself, and regulation in all probability will only make matters worse. If high property prices become a hot political issue, the best the Government could do is to encourage supply or alternatively subsidise low-income-earning home buyers directly. Even then, one must be careful not to invite too much government involvement, which might well lead to oversupply or excessive fiscal burden in the future.
In view of what has happened in Japan's property market and the business community in general since 1989, we conclude that Hong Kong should keep a free hand in overseeing its property market rather than tie its hands by yielding to alarmists' demands fortighter regulation which would most likely strangle the property market well before 1997 and could have very severe repercussions throughout the economy generally. Hong Kong does not always have to learn its lessons the hard way.
KEITH G. McKINNELL Head of Department Department of Surveying The University of Hong Kong TAKAHIRO MIYAO Professor of Economics University of Tsukuba Japan
