Mar­ket com­plex­i­ties make solv­ing the hous­ing short­age harder

China Daily (Canada) - - HONG KONG -

In his lat­est pol­icy speech to the leg­is­la­ture, Chief Ex­ec­u­tive Le­ung Chun­y­ing gave an im­pres­sive ex­po­si­tion of his ef­forts in in­creas­ing the sup­ply of land to ad­dress the hous­ing short­age prob­lem that is a ma­jor source of pub­lic dis­con­tent.

He also said high prop­erty prices that barred many as­pir­ing first-time homes buy­ers from re­al­iz­ing their dream re­mained a chal­lenge. The prob­lem lies not in the lack of ef­forts on the part of the gov­ern­ment but rather in the com­plex­ity of the real es­tate mar­ket that is dom­i­nated by an oli­garchy con­sist­ing of a hand­ful of large de­vel­op­ers.

The in­ter­lock­ing in­ter­ests of the gov­ern­ment, which is the big­gest land­lord in town, and the ma­jor de­vel­op­ers re­spon­si­ble for build­ing the ma­jor­ity of the hous­ing units for sale to the pub­lic is widely con­sid­ered to have dis­torted the free mar­ket mech­a­nism. As a re­sult, the in­crease in land sup­ply does not nec­es­sar­ily lead to a price de­cline.

Take for ex­am­ple the re­de­vel­op­ment of the old Kai Tak Air­port site. Parcels of land on that site were sold at record prices to main­land en­ter­prises which out­bid all the large lo­cal de­vel­op­ers in a high­pro­file gov­ern­ment auc­tion. That rep­re­sents a siz­able chunk of rev­enue for the gov­ern­ment.

An es­ti­mated 16,000 new res­i­den­tial units will be built on the en­tire site. De­spite the pro­jected large sup­ply of new flats, no­body is naive enough to be­lieve that hous­ing prices in that district will come down.

On the con­trary, a rough cal­cu­la­tion by prop­erty ex­perts shows that the de­vel­op­ers who paid dearly for the Kai Tak land will have to price their apart­ments con­sid­er­ably higher than the pre­vail­ing prop­erty prices in the vicin­ity to make a rea­son­able profit on their in­vest­ments. Th­ese de­vel­op­ers are will­ing to take the risk be­cause of the pub­lic’s seem­ingly in­sa­tiable de­mand for hous­ing.

That de­mand is fed by pub­lic ex­pec­ta­tions of fur­ther in­creases in prop­erty prices. Such ex­pec­ta­tions have helped con­vince many prospec­tive homes buy­ers that if they don’t buy now, they will never be able to af­ford it later.

Such is the state of the Hong Kong prop­erty mar­ket. The pro­jected in­crease in hous­ing sup­ply com­bined with gov­ern­ment mar­ket cool­ing mea­sures can help slow down the price hike. It would prob­a­bly take a con­fi­dence-drain­ing fi­nan­cial cri­sis to bring down prop­erty prices. By then, no­body would want to buy.


The gov­ern­ment is re­solved to ad­dress Hong Kong’s long-stand­ing hous­ing short­age prob­lem with the aim of meet­ing its sup­ply tar­get of 460,000 units over the next decade.

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