What next after a vacancy tax on developers hoarding empty flats?

CY Leung’s expression of regret on housing highlights conflict between reality and political expediency – but are we doomed to repeat mistakes of the past

PUBLISHED : Sunday, 17 June, 2018, 3:01pm
UPDATED : Sunday, 17 June, 2018, 9:35pm

As expected, the city’s developers wasted no time in forming a united front to challenge the effectiveness of the coming vacancy tax on empty new flats they have been hoarding.

They raised one key question: why only target them while giving a free pass to speculators who are also holding on to vacant flats in the second-hand market?

Their concerns are understandable. The crux of the matter is how much of a difference it will make to taming the city’s runaway housing prices, even with the release of all the 9,000 flats that developers are estimated to be hoarding. Not to mention that developers are accusing the government of inflating the figure by using a different method of calculation.

While the answer is quite obvious, it now seems a greater deterrent is inbound after the latest round of interest rate increases by the US Federal Reserve.

Hong Kong Monetary Authority chief executive Norman Chan Tak-lam has warned potential homebuyers and mortgage bearers of the growing financial burden, and expressed hope it will help ensure a “more healthy development” of the property market.

So, which works better, a new tax or higher interest rates – or a combination of both, as is the case now?

Last week former chief executive Leung Chun-ying expressed regret that the first post-1997 administration headed by Tung Chee-hwa had to abandon its ambitious but controversial annual goal of building 85,000 flats due to opposing public opinion, “especially the opposition bloc in the Legislative Council” at the time.

Copying Singapore’s approach to flat sales could drive down cost of land and stop Hong Kong developers hoarding flats, say former government advisers

Leung, widely regarded as the mastermind behind this annual goal, added: “If we had followed reason instead of the masses … listened to insights and stuck to facts instead of focusing on feelings only, I believe today’s housing problem would have been resolved.”

These remarks were very telling, given Leung’s close relationship with Tung and the fact that he was very much involved in the scheme, which was suddenly declared non-existent by Tung after the Asian financial crisis sent the property market into a tailspin and reduced many Hongkongers to “negative equity” owners.

Leung’s words marked deep self-reflection, if not self-criticism, over their failure to resist political pressure and push ahead with their plan for the greater good.

Looking back, Leung, who took the housing issue seriously even before becoming the city’s third leader, had plenty of reasons to push ahead with the plan – he felt giving up something they were convinced would work should have been the very last resort.

Hindsight can be a reminder, but it can’t solve the problem. Unfortunately, it was a time that was also widely seen as economically and politically unfit for the realisation of the 85,000-flats-a-year dream.

One cruel reality in this city, and perhaps anywhere elsewhere, is that when it comes to defusing political bombs, there must be give and take.

In Hong Kong, where the free-market philosophy has prevailed for decades, the popular choice has been to rely more on the “invisible hand” of the market – although that has ironically manifested in the very much “visible hand” of the Fed’s interest rate mechanism. Also popularly accepted is the government-led initiative of increasing land supply.

The reality cannot be more telling: while what the Fed decides is out of the Hong Kong government’s control, it faces growing political and financial risks with any cooling measure when the higher interest-rate cycle arrives.

No Hong Kong housing crisis if ex-leader Tung Chee-hwa had stuck to goal of 85,000 flats a year, Leung Chun-ying says

Meanwhile, looking for land remains a long-time uphill battle, just like water sprayed from afar can hardly put out a big fire.

Leung’s regret shows one hard truth: political pressure can defeat political will under certain circumstances.

The new vacancy tax is but a small step in the long march of the government’s efforts to adjust, if not tame, the property market, which can be affected by internal as well as external factors.

Will history repeat itself?