Short-term fixes for soaring house prices are not the answer

Cooling measures do not address the fundamental problem of too much demand and too little supply

PUBLISHED : Friday, 14 April, 2017, 2:02am
UPDATED : Friday, 14 April, 2017, 2:02am

In Hong Kong they are referred to as “spicy” measures, but bland or flavourless might be a better description.

Housing chief Anthony Cheung Bing-leung and Chief Executive Leung Chun-ying made a show this week of finally closing a loophole for property speculators which could have been shut almost six months ago.

They had barely finished making the announcement when Cheung Kong’s new estate, Harbour Glory in North Point, practically sold out in five hours.

The developer even offered a special queue for buyers of three or more units, precisely the kind of people the latest measure targets. The loophole had allowed buyers of multiple flats to pay 4.5 per cent stamp duty as a single transaction, instead of 15 per cent on each flat.

Leung and Cheung need to be seen doing something. But they should admit they are out of bullets, and property prices are still going up. Spice or no spice, such measures are now irrelevant, if not harmful.

Wily buyers work around stamp duty rule by splitting purchases under different names

After the first measures were rolled out in late 2012, Leung declared victory. “The property fever has subsided,” he wrote in a blog in August 2013, “and the demand for property from overseas and local investors and speculators has been suppressed, thus reducing the tremendous financial risk associated with an inflating housing bubble and its eventual bursting.”

I am surprised no one is laughing at Leung for this, given his legions of enemies. Of course the market didn’t stabilise. Prices just continued to go up and up.

In the first year or so, the measures did succeed in cooling speculation and sales transactions, but crucially, not prices. Prospective first-time buyers who had bought into the government story would have deferred buying, hoping for prices to drop; so what was once affordable became out of reach or a lot more expensive.

All this reminds me of Alan Greenspan’s infamous warning in late 1996 about “irrational exuberance” in the US stock market. Imagine sitting on the sideline for the next four years while everyone looked like an investment genius.

Soaring prices are like a virulent bacterium. Antibiotics may work for a while, until it becomes super-resistant. There is too much pent-up demand for housing due to the misguided policies of the last two administrations. Leung deserves credit for reversing course. Our new leader Carrie Lam Cheng Yuet-ngor must do even better in increasing housing supply.