Over­com­ing over-re­liance on the property mar­ket

Zhou Ba­jun ar­gues that Hong Kong can­not deal with its over-de­pen­dence on the real es­tate sec­tor sim­ply by build­ing more pub­lic hous­ing or in­creas­ing land sup­ply — ul­ti­mately the best so­lu­tion lies in de­vel­op­ing new pil­lar in­dus­tries

China Daily (Hong Kong) - - COMMENT - ZHOU BA JUN

Since the cur­rent SAR gov­ern­ment took of­fice four and a half years ago the Chief Ex­ec­u­tive and his ad­min­is­tra­tive team have been work­ing very hard to fix the struc­tural prob­lems of Hong Kong’s real es­tate mar­ket. On the one hand such ef­forts in­clude build­ing more pub­lic hous­ing to meet the needs of low­in­come fam­i­lies for res­i­den­tial space, in­creas­ing land sup­ply for pri­vate hous­ing de­vel­op­ment, and en­cour­ag­ing de­vel­op­ers to build more pri­vate homes. On the other, ef­forts in­clude main­tain­ing fi­nan­cial curbs such as higher sales tax to sup­press ram­pant mar­ket spec­u­la­tion by non-lo­cal in­vestors, and im­ple­ment­ing fa­vor­able mea­sures to help per­ma­nent Hong Kong res­i­dents look­ing to buy homes for the first time.

Pri­vate hous­ing prices in Hong Kong ex­pe­ri­enced a slight drop be­tween Oc­to­ber last year and April this year but have risen again af­ter­ward to al­most match their his­tor­i­cal high. The Global Real Es­tate Bub­ble In­dex pub­lished by UBS in Septem­ber shows Hong Kong’s property mar­ket bub­ble in­dex this year stands at 1.52, which is lower than last year but still above the 1.5 bor­der­line. The property price-to-in­come ra­tio, on the other hand, has reached 18.5, mean­ing a full-time worker in the ser­vices in­dus­try needs to save all their salary for 18.5 years with­out spend­ing a cent to buy a 60-squareme­ter pri­vate hous­ing unit in an ur­ban area.

Fig­ures re­leased by the Hous­ing Au­thor­ity show the num­ber of pub­lic hous­ing ap­pli­cants on the wait­ing list stood at 284,800 in March this year and in­creased to 288,300 at the end of June. Among them the num­ber of gen­eral ap­pli­cants grew from 150,500 to 153,000; while non-se­nior sin­gle ap­pli­cants in­creased from 134,300 to 135,300. The av­er­age wait­ing pe­riod for gen­eral ap­pli­cants and se­nior sin­gle ap­pli­cants is 4.1 years and 2.4 years, re­spec­tively, an in­crease of 0.2 and 0.1 years, re­spec­tively. This means the “three-year wait be­fore mov­ing in” prom­ise by the gov­ern­ment may prove im­pos­si­ble to keep.

Par­tic­u­larly note­wor­thy is that pub­lic hous­ing ap­pli­cants aged 30 and younger in pro­por­tion to the to­tal have in­creased from 39 per­cent in 2014 to 40 per­cent in 2016. Many of them ap­plied for pub­lic hous­ing as soon as they reached 18 years of age even though they were still in school. And those of them who cited “cur­rent liv­ing space is too small” as the rea­son to ap­ply in­creased from 22 per­cent in 2014 to 29 per­cent this year. Mean­while, an­other wor­ry­ing sign looms with the me­dian monthly in­come of gen­eral pub­lic hous­ing ap­pli­cants hav­ing shrunk to HK$2,500 this year from HK$3,200 in the pre­vi­ous two years, a drop of 22 per­cent.

It seems the SAR gov­ern­ment has done ev­ery­thing it could to “fix” the over­heat­ing property mar­ket but still can­not “cure” it. There are two main rea­sons: The gov­ern­ment has not done enough to keep out­side in­vestors from push­ing lo­cal hous­ing prices up with wild spec­u­la­tion; or op­ti­mize and up­grade in­dus­trial struc­ture.

Hong Kong is one of the most open mar­kets in the world, but in­creased re­stric­tion on pur­chases of pri­vate res­i­den­tial prop­er­ties by out­side buy­ers may se­ri­ously dam­age Hong Kong’s free-mar­ket rep­u­ta­tion. That is why the gov­ern­ment must be very care­ful with such curbs. It also means more ef­forts are needed to ad­dress the hous­ing prob­lem by im­prov­ing the in­dus­try’s struc­ture and up­grade mar­ket con­trol.

In Hong Kong it is much eas­ier for property prices to rise than fall, be­cause the lo­cal econ­omy as a whole and the gov­ern­ment’s rev­enue are both highly de­pen­dent on the real es­tate mar­ket. The property mar­ket ac­counts, di­rectly or oth­er­wise, for more than half of Hong Kong’s GDP and the gov­ern­ment’s an­nual rev­enue. It has been feed­ing not only mul­ti­ple gi­ant de­vel­op­ers and sin­gle-in­ter­est groups but also lo­cal res­i­dents’ ad­dic­tion to spec­u­la­tion as well as the gov­ern­ment’s de­pen­dence on the hous­ing mar­ket.

The SAR gov­ern­ment tried very hard to tweak the property mar­ket dur­ing its first term in of­fice but did The au­thor is a se­nior re­search fel­low of China Ever­bright Hold­ings.

It seems the SAR gov­ern­ment has done ev­ery­thing it could to ‘fix’ the over­heat­ing property mar­ket but still can­not ‘cure’ it. There are two main rea­sons: The gov­ern­ment has not done enough to keep out­side in­vestors from push­ing lo­cal hous­ing prices up with wild spec­u­la­tion; or op­ti­mize and up­grade in­dus­trial struc­ture.”

not build up new growth en­gines to keep the econ­omy run­ning when the real es­tate mar­ket was dev­as­tated by the Asian fi­nan­cial storm later on. The property mar­ket crash hit Hong Kong’s econ­omy so hard the gov­ern­ment had a se­ri­ous fis­cal deficit for years as a re­sult. In the sec­ond and third term the SAR gov­ern­ment was re­luc­tant to push for an eco­nomic trans­for­ma­tion (re­struc­tur­ing) and shelved plans to build sub­si­dized hous­ing while re­duc­ing land sup­ply for pri­vate res­i­den­tial de­vel­op­ment, leav­ing the mar­ket to de­te­ri­o­rate even fur­ther.

All these facts high­light the need for con­crete steps to add growth en­gines while re­struc­tur­ing the in­dus­trial mix, so that nei­ther the econ­omy nor fis­cal bal­ance will be so vul­ner­a­ble to property mar­ket whims in the fu­ture. Pres­i­dent Xi Jin­ping told Chief Ex­ec­u­tive Le­ung Chun-ying at a meet­ing in Lima, Peru, dur­ing the 2016 APEC Sum­mit last month that the cen­tral gov­ern­ment author­i­ties hope the SAR gov­ern­ment will fo­cus on im­ple­ment­ing “com­pre­hen­sive poli­cies”. It’s a timely re­minder to Hong Kong that in­creas­ing land sup­ply for hous­ing de­vel­op­ment and build­ing more pub­lic hous­ing alone can­not end its over-de­pen­dence on the property mar­ket for eco­nomic growth. It must de­velop new pil­lar in­dus­tries what­ever that takes.

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