Developers need to consider fallout from soaring prices
Social responsibility is not limited to green and welfare causes, Zhou Bajun points out; developers must control property prices for social interests
Chief Executive Carrie Lam Cheng Yuet-ngor on June 29 announced six measures to improve the housing situation by making subsidized residential units more affordable; increasing subsidized housing units and stepping up planning of transitional housing development; and encouraging private developers to sell completed apartments sooner rather than later. Of the six measures four are geared toward the first two goals while the other two are aimed at the last one — considering a vacancy tax on private housing units withheld by developers from the market; and revising the presale consent issued by the Lands Department to include the requirement that developers must put on the market at least 20 percent of the total number of private housing units listed on each presale consent form every time.
These measures appear designed to suppress private housing market prices by offering more households or individuals the opportunity to keep their dream of becoming homeowners alive on the one hand and pressuring developers to rapidly put completed private housing units on the market on the other. However, the “tough measures” taken by the fourth-term special administrative region government to rein in rampant housing-market speculation and suppress prices have failed to achieve the goal, as market prices of private housing units repeatedly reach new highs. That is why Lam said in her speech at the evening reception celebrating the 21st anniversary of the Hong Kong Special Administrative Region on July 1 that even the six new measures are not expected to push home prices down effectively. At least they represent the current-term government’s determination to be innovative in policymaking.
Those who believe in the free market insist the supply and demand mechanism itself can keep prices rational but they tend to forget it works only if no monopoly exists in the whole free economy. In Hong Kong, as we all know, land supply is highly monopolized and land prices have risen despite changes in local and global economic conditions. Land price and supply are the primary determinants of housing prices, which are why major developers always maintain sizeable land reserves and keep large numbers of completed residential housing units idle to drive market prices up for more profit. This reality is the main reason why the current-term SAR government and its predecessor have failed to rein in housing prices even with those “tough measures”.
Of course there are other reasons as well, such as sustained low interest rates that fuel real-estate investment and almost unmatched market openness that forbids Hong Kong to shut its doors on outside investors seeking to make some quick bucks in its overheating property market. That means raising the cost of real-estate investment for outsiders is the only way to discourage them from entering Hong Kong’s property market. Looking ahead, Hong Kong may eventually raise interest rates now that the United States has done so, giving people some hope for a property market cooling down period. The SAR government could even consider measures to restrict housing purchase by outsiders. Still, only the SAR government and local developers can solve the problem of runaway residential prices by lowering land prices one way or another.
To control land prices and suppress housing costs Hong Kong must accelerate the structural transformation of its economy to reduce over-reliance on the real-estate market and expand sources of government revenue to reduce its over-reliance on land sales and other property-related fees. To that end the government must also adjust its fiscal thinking that bigger is better for the financial reserve; step up efforts to boost innovation and technology industries and support traditional pillar industries in upgrading their production means and modes. Moreover, Hong Kong-based developers should assume greater social responsibility to live up to the expectations of the local community and contribute more to social development apart from boosting economic growth.
Hong Kong’s overall industrial structure is too dependent on the real-estate industry for its own good. The realestate industry is dominated by a few major developers because of its capitalintensive nature — a piece of land or housing development project can easily cost billions or tens of billions of Hong Kong dollars. Particularly worth noting is that several major developers also own services closely linked to people’s daily lives, including power supply, supermarkets and ferry and/or bus services. Moreover, the property market and stock market are vitally interrelated. That is why the structural transformation of Hong Kong’s economy must involve real-estate developers.
When we discuss corporate social responsibility people tend to think of environmental protection and contributions to welfare and charity, all of which we know local developers do on a regular basis. For such contributions by major developers Hong Kong society is no doubt grateful but their corporate social responsibility should not be limited to those two areas only. They can and should heed popular demands for their contribution to reining in private housing prices, even though that means less profit for them. They need to think about the long-term damage persistent housing cost hikes bring to social stability and harmony. Developers habitually use shareholder objection as an excuse to resist public calls for helping curb home prices. However, the law of economics does not allow infinite price hikes, meaning housing market prices will fall eventually and the higher they go now, the worse the drop will be, hurting shareholders later. It’s just a question of when.