Jake's View

Official meddling to blame for lofty home prices, too

Data shows low interest rates, not speculation, behind the surge in property values, aided by bureaucrats tampering with the market

PUBLISHED : Tuesday, 11 June, 2013, 12:00am
UPDATED : Tuesday, 11 June, 2013, 4:22am

The government should impose more property-cooling measures unless flat prices drop at least 20 per cent, a leading government housing adviser says.

SCMP, June 10


I'm not quite sure what to make of this. The normal practice for testing public opinion on a new initiative is to have the top government official concerned call in selected journalists and tell them they can only attribute it to "a high-placed source".

I must confess I have never been selected for this honour. They know in government whom they can trust and whom they cannot. I would immediately break my sacred sworn pledge of honour and identify the weasel.

But in this case it cannot be an official statement. It fails the first test.

The statement maker has identified himself - Stanley Wong Yuen-fai, a professional government committee sitter whose committees include the Long Term Housing Strategy Steering Committee and the Housing Authority's subsidised housing committee.

If things were done properly, each of these two committees would now say whether Mr Wong speaks for them.

Neither will do so, however, as they are political committees set up for loudmouths to tire themselves out in talking where they can do no harm. They agree with him, of course, but their minders in the bureaucracy will stop them from doing so officially.

Nonetheless, I suspect that Financial Secretary John Tsang Chun-wah is of their mind. He is more politically astute than to say in public that he wants home prices to fall by 20 per cent, but he is under pressure to do something and does not like to be told that low interest rates are the primary driving force of high property prices.

With our peg to the US dollar, he can do nothing about low interest rates, and he wants a more visible culprit.

He has thus taken the easy way out by blaming speculators and, like Committeeman Wong, is given to lashing at them with measures that have not overly suffered from thought.

Take, for instance, his latest increase in stamp duty rates, a tool of price suppression that has proved singularly unsuccessful ever since he picked it up three years ago.

The latest measures will not apply to permanent residents who do not yet own a home. That will fix those nasty dirty money speculators from across the border, reckons our John.

The first thing he forgets is that, if he does manage to exclude these speculators, Hong Kong permanent residents will be stung the worst when property prices fall again. He will have done outside speculators the favour of keeping them out of the crash.

I have a hard time believing, however, that speculators from across the border favour tiny flats in downmarket Hong Kong private housing estates. They play their games with bigger luxury flats.

Yet, as the chart shows, prices of small flats have risen much faster than prices of larger ones over the past five years. This is evidence that low interest rates, rather than speculators, are pushing prices up.

But I expect our financial secretary to ignore the evidence as usual. Nasty stuff, that hard evidence. It gets in the way of blaming speculators.

There is also a good reason why prices of small flats may continue to be more buoyant than prices of larger ones. They are typically starter flats for permanent residents, and John Tsang has granted them concessions that will make them more attractive and therefore pricier.

That's what happens when bureaucrats tamper with things they don't understand, such as markets.

Try to club a market down, and it will just club you over the back of your own head. Our man just keeps doing it, with the usual results.

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