Mind the Gap

Here are a few subversive thoughts for breaking Hong Kong’s property deadlock

PUBLISHED : Monday, 24 July, 2017, 8:01am
UPDATED : Monday, 24 July, 2017, 8:01am

I once asked an elderly mainland Chinese man about the changes that have taken place in China and if he felt any sense of historical injustice that his best years were wasted in the Great Leap Forward or Cultural Revolution compared to today’s younger generation.

He chillingly said, “To make progress, one generation must be sacrificed.”

But it’s an understandable perspective from the older, post-Long March generation who long suffered through sacrifices needed to reform a system to lift China out of poverty. It also represents that sense of fatalistic destiny innate in Asian culture.

But, it certainly doesn’t exist in Hong Kong. I don’t see any of the business elite or property developers prepared to make any sacrifice in their business models to move Hong Kong ahead; to work with and accept government policies that reduce their profits for the public good.

Cheung Kong Property Holdings and Sun Hung Kai Properties lead a roster of Hong Kong developers in recent apartment sales, followed by Wheelock Properties, New World Development and Henderson Land Development.

The city’s five largest builders sold HK$85.7 billion (US$11 billion) of residences during the first half of the year, according to Centaline Property Agency’s data.

Hong Kong’s residential prices, already the most expensive in the world, have soared 20 per cent in the past 12 months. Some projects saw 20 buyers queuing up for every available unit.

Improving land policies to increase private and public apartment won’t make much of a difference, because demand is so strong from Chinese buyers and speculators. And the city’s property cartels have established land banking strategies to withhold and control the supply of apartments.

Decisive government interventionis absolutely necessary in order to control the distortions caused by property cartels and failed government policies. Controlling how Hong Kong properties are bought and sold could include policies used in other countries to limit speculation and foreign ownership.

For example, restrict the sale of new and secondary-market private apartments smaller than 1,000 square feet (93 square meters) to only Hong Kong’s permanent residents. Flats over that size are considered luxury and can be freely bought and sold by foreign investors. Creating and controlling a two-tier private flat market effectively creates a separate market of Hong Kong flats for Hong Kong’s permanent residents.

Or break up developers’ land banks and force them to sell apartments according to a schedule, rather than withhold them to maximise marginal profits. End the “winner takes all” kind of Hong Kong attitude that exploits consumers and produces excessive profits.

Every property market participant has contributed to decades of market failure. Government land policies ensured high revenue through artificial land scarcity; developers figured out how to game the system and profit from building poor quality, undersized units for the mass market; mainland capital was allowed to circumvent Hong Kong’s public good by buying flats as if they were gold certificates- stores of wealth.

But the buying public in Hong Kong was equally guilty of treating residential property as ammunition and speculative commodity, rather than homes to live in.

Only a radical reform in how apartments are bought and sold will compel a healthier, more communitarian capitalist attitude in this city.

Perhaps change in the property deadlock in New Territories is possible after the passing of New Territories strongman and former Heung Yee Kuk leader Lau Wong-fat. The leader was best known for his fight to include an article in the Basic Law - the city’s mini-constitution - to ensure that indigenous interests were still under protection after the 1997 handover. But today, that privilege has mutated into yet another obstacle in reforming the territory’s land problems.

These ideas sound as subversive to Hong Kong’s mythical free market as the demands of Occupy Central, or the independence activists.

Sure, young people love risks because they can’t imagine the consequences. And old property developers love building golden tombs and sealing all of us in with them.