Jake's View

Opinion: Easy scapegoats beget wrong solutions for our housing woes

Hong Kong’s housing market is strong because our currency is pegged to the dollar, and thus held hostage to artificially low US interest rates. Speculators may be easy scapegoats but they have little, in fact nothing, to do with rising prices.

PUBLISHED : Thursday, 04 May, 2017, 8:03am
UPDATED : Thursday, 04 May, 2017, 8:07am

As it takes time for new supply to materialise, the government also introduced several rounds of demand-side management measures to address market exuberance. These measures have achieved notable success.

--Joyce Kok, Principal Assistant Secretary for Transport & Housing,

Letters to the editor, May 2

A notable success indeed. The latest figures show residential prices up an average of 18 per cent from a year ago. Was that what you had in mind, madam?

It won’t do to argue that this is just an anomaly and that the earlier dip in prices from mid-2015 to early 2016 is evidence that the government’s anti-speculation measures have worked.

That earlier dip was the result of the sympathetic effects of a crash on the Shanghai stock market and weak financial markets in the United States, because many investors believed US interest rates would soon be put on a pronounced upward trend.

In the event, Beijing ordered the Shanghai market to stop falling and the market obeyed, while US investors soon came to the conclusion that the interest rate scare was false and interest rate increases would be token only, which is all they have been.

The Hong Kong housing market is strong because our currency is pegged to the US dollar, and thus held hostage to artificially low US interest rates.

Speculators may be convenient scapegoats for our government but they have little, in fact nothing, to do with rising prices.

The government’s own figures, cited by this letter-writing bureaucrat, are good evidence. She says in her letter that only 0.7 per cent of total property transactions in the first quarter involved confirmor transactions, or resale within 24 months, as opposed to 20 per cent before introduction of the special stamp duty (SSD).

This, she says, proves that speculators have been driven out of the market.

I do not dispute the point. It may indeed prove this. It is certainly arguable although it seems a little too easy a victory over speculators, given their known staying power. I would not hold the victory celebrations just yet.

But, if true, it is equally proof that speculation could not have been behind the very strong recent price rise. Speculators out, prices up. If anything, this suggests that speculators exerted a restraining influence on prices.

Similarly she says that purchases by non-local entities accounted for only 1.5 per cent of total transactions in the first quarter, down from 4.5 per cent in late 2012 before the introduction of the anti-foreigner buyers stamp duty (BSD).

To my mind, both numbers are tiny. They show that speculation was never foreign led. It was always predominantly local.

Then she says that the government “aims to reduce investment demand and accord priority to the home ownership needs of Hong Kong permanent residents who do not own any residential property in the city.”

Why? If I was young and restless, and starting out again with confidence in an entrepreneurial venture, I would want to reserve every dollar I could lay my hands on for that business.

There would be time enough later when the business was going to put some of its earnings into owing a flat, but not to start with.

It is bad enough that the Mandatory Provident Fund already siphons away 10 per cent of your total income (more like 25 per cent of disposable income after inescapable costs) but a mortgage on top of that could really stop you from building up your capital.

This may be just fine for those who are happy to stay wage slaves their entire careers, bureaucrats for instance, but I thought ours was supposed to be an entrepreneurial society. Why do we then encourage anti-entrepreneurial drains on people’s income?

I just don’t understand it. On the one hand we have government handing out boodles of money for innovation and technology, and on the other we have it telling people to use their income for mortgages.

Officialdom does not quite say that it should be mortgages instead of technology and innovation but this is what it comes down to.

The fact is that we can do nothing about sky-high home prices other than by breaking our peg to the US dollar, which would possibly have even worse results.

But we can always blame speculators. That’s easy.