Other forces, not CY’s ‘lag effect’, will bring down home prices
Chief Executive Leung Chun-ying hopes his efforts to tame the property market will be his legacy; the truth is, the market is headed for a fall sooner or later
Poor CY. The outgoing chief executive considers housing to be his most important policy area. Yet, when Leung Chun-ying walks out of the door in less than a month, he will leave behind an uncertain legacy.
To his credit, he has significantly increased housing supply. This is despite the fact that the target of 470,000 new private and public units by 2025 is likely to fall short. On the other hand, prices just keep going up and up. Year-on-year home prices have jumped more than 20 per cent so far.
In his own defence, he wrote on Facebook about a “lag effect”, which he estimated would be resolved in about four years given the 96,000 new flats that are coming on the market. In other words, we will see the ultimate success of his housing policy, but we just have to wait a few more years. Well, in this manner, any retiring leader can claim success for their time in government.
In the next three to four years, there may well be a major correction in home prices, otherwise known as a market crash. In Hong Kong, something horrible tends to happen to the stock and property markets every seven to 10 years. It could be the 1967 riot, deadlock in talks over Hong Kong’s return to Chinese sovereignty, the Tiananmen Square crackdown, the Asian financial crisis, the dot.com bubble, the Sars scare, or the US subprime housing crisis.
The trigger is always different, which is why the timing is basically unpredictable for most pundits and experts. But, as the financial mathematician Didier Sornette wrote, when a system has reached a critical state of instability, any push or trigger is enough to topple the whole house of cards.
So, after more than a decade of price rises, it seems a fall is overdue rather than “a lag effect”, which is Leung’s way of hoping for a soft landing for the property market.
Leung may, however, take heart that people no longer complain about “property hegemony”, as they did when he first took office. But that’s mostly because so-called red capital is taking over. Mainland buyers, for example, have won 53 per cent of Hong Kong’s land sales auctions and tenders since last year as they squeeze out local developers.
So, when the next crash comes, mainlanders and locals will suffer together, even as they hate and despise each other during the good times.