Lucrative land sales that drive up property prices are a ‘de facto tax’ on homebuyers, Hong Kong government adviser says
Joseph Yam, former Monetary Authority chief, hits out at city’s overflowing coffers, saying money should be spent on housing needs and regulating prices
Hong Kong’s policymakers are imposing a “de facto tax” on residents by failing to increase land supply, which drives up land costs and leads to developers setting unaffordable home prices, a government adviser has said.
On Tuesday, Joseph Yam Chi-kwong, a non-official member of the Executive Council, criticised exorbitant land sales under the administration, saying these unnecessarily shore up the government’s fiscal reserves.
As high land costs trickled down to homebuyers, those who splurged to buy or rent a home would then be paying a form of indirect – or “de facto” tax – set out by the government, Yam wrote in a blog post. The council functions as the cabinet of Hong Kong’s leader Carrie Lam Cheng Yuet-ngor.
The former head of the Hong Kong Monetary Authority said the government, as the city’s sole provider of land, should extensively increase supply of sites for residential housing to change prevailing market expectations that property prices “will only go up”.
Yam added that the administration should use its existing financial reserve to set up a company in charge of land development and supply. Authorities should then release land to the market whenever home prices were higher than the average cost of developing residential sites.
“From the macroeconomic point of view, Hong Kong does not need a massive financial surplus, and this will only drag economic development,” Yam wrote.
“Besides, the income that the government makes from selling residential sites is a de facto tax paid by common citizens buying or renting flats at sky-high prices in the private market. This is against the government’s housing policy.”
Yam’s latest blog post, 10 months from his last one, came as Hong Kong’s home prices rose for 27 straight months until July. In the world’s least affordable property market, a family earning the city’s median income has to save for 19.4 years without any expenditure to buy an average flat, according to a survey by Demographia, which compiles housing statistics worldwide.
And ballooning home prices have fed social instability, with critics linking this to rising levels of radicalism among the city’s youth and calls for independence from mainland China.
The government owns most of the land in Hong Kong and releases sites in phases based on population growth projections. In the 2017-18 financial year, the government made HK$612 billion in revenue, of which 27 per cent was from land sales. The city sits on fiscal reserves of more than HK$1.1 trillion.
In his blog post, Yam said the projected demand for land should be based on people’s needs instead of population growth, which meant there should be an increase of supply whenever housing prices were higher than the average cost of developing residential land.
By doing so, he said, officials could stamp out the commonly held impression that the government deliberately controlled land supply to jack up prices for profits at the cost of housing needs.
“[This move] may indeed affect property prices to a level, but let us not forget that it is in the interest of the public that prices return to an affordable level for Hong Kong citizens,” he said.
Instead of investing surplus wealth in overseas assets such as US Treasury bonds, Yam said the money should be used locally to serve the people. He suggested that the government set up a “special purpose vehicle” in charge of land development and supply.
Echoing views earlier expressed by Lam, Yam said large reclamation should be the way to increase land supply, such as creating a 1,000-hectare artificial island to the east of Lantau Island, and reclamation in Tolo Harbour. He also suggested tapping into the city’s farmlands and parts of scenic country parks for a land bank.
The government is consulting the public on how to plug a predicted shortage of 1,200 hectares of land for the next three decades. The consultation will end late next month.
Emeritus professor Liu Pak-wai from Chinese University said the idea of setting up a company to oversee a land bank delivering land programmes was worth exploring.
“It will offer more freedom for the government to allocate money for land development and the company can also look for other investment options,” said Liu, who is also a member of the previous administration’s Working Group on Long-Term Fiscal Planning.
“Having said that, rules should be laid out to specify what the company can or cannot do.”
Hong Kong’s infrastructural projects, including land formation, are funded by money from the Capital Works Reserve Fund, formed from fiscal reserves and requiring approval from lawmakers when money is drawn from it.
Additional reporting by Olga Wong