Will private rental homes keep a lid on Hong Kong’s runaway property prices?

Hong Kong, already the world’s least affordable city to work and live in, should take a page out of mainland China’s policy playbook and release more government land to develop rental property to tame runaway home prices, industry experts said.

Shanghai already provided a glimpse of the practice last month, when the municipal government sold two residential sites in Pudong exclusively for the construction of apartment projects for leasing. The land sales contract stipulated a ceiling on the monthly rent of units under development, keeping many private developers out of bidding for the land. State-owned developers bought the two sites with their opening bid at less than 6,000 yuan (US$892) per square metre, way below market price in the neighbourhood.

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“This is an initiative we should consider in Hong Kong,” said Nicholas Brooke, the chairman of the Professional Property Services Group in Hong Kong. “It would need a rethink of land policy so that sites could be sold subject to the requirement for development for rental purposes. The land premium charged would need to reflect this.”

Building with the purpose of leasing, known as “build to let,” is common in markets such as the UK, where developers sell the complete housing estates to institutional investors who will hold on to these properties for the long term, he said.

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The sales prices of Hong Kong’s apartments have outpaced rentals in the last 15 months, with prices surging 20.6 per cent, while rents rose 20 per cent over the same period.

“What Hong Kong can learn from China’s latest policy is to increase residential rental properties. It will help easing the buying home demand,” said JLL’s international director and head of valuation and advisory services Lau Chun-kong. “This land disposal model is worth for Hong Kong government to look into.”