What can the government really do about home prices in Hong Kong?
With new towns crucial for boosting supply, Hongkongers must learn to strike a balance
Hong Kong property prices hit a record in June, raising questions about the effectiveness of the government's measures to cool down the property market.
The Rating and Valuation Department's monthly price index for private homes climbed to a record 249.8, 4.1 per cent higher than its level before the government released several measures in February last year.
Property prices have rebounded as home seekers decided to buy flats once they saw prices did not fall significantly after the measures were released.
To some extent, the government-imposed extra stamp duties have already dampened the buying interest of upgraders, local investors and mainlanders.
But housing demand remains strong, and people are cash-rich.
The measures can't have much impact in the face of low interest rates, which mean the monthly mortgage payment is not a big burden to buyers and investors.
Upgraders are also reluctant to sell the flats they live in. It is difficult for them to buy a new flat because the government has tightened mortgage requirements, and prices of three-bedroom flats have risen to an unaffordable level.
The government should increase further the buyer's stamp duty to dampen speculative demand from non-residents and corporate buyers.
The tight supply of land is another problem.
The government did not create new towns after the 1997 handover. Now we are paying the price.
The most recently developed new town is Tung Chung on Lantau Island, which was begun in 1989 and completed in 2011.
Development at another new town, Tseung Kwan O, began in 1982, and it has remained the major source of land in the past decade. About 14 per cent of the flats completed this year will be in Tseung Kwan O and 17 per cent next year.
One of the reasons the government did not create any new towns in the first few years after the turnover was that property prices had collapsed following the 1997-98 Asian financial crisis. Developers had to cut prices sharply because of oversupply in the market.
That property price crash cast a long shadow, leaving the government reluctant to develop new towns and resume regular land auctions even after the market recovered in the second half of 2003.
Although the government began to increase land supply in 2012, it was too late. Without creating new towns, it will be hard for the government to release more sites for sale.
But Hongkongers have become more involved in town planning, so new towns would be likely to provoke protests for environmental reasons.
Hongkongers, not just the government, have to figure out how to strike a balance between development and protecting the natural environment.