Full-scale homes price, rent curbs look the best an­swer

China Daily (USA) - - HONG KONG -

By rais­ing the tax on prop­erty trans­ac­tions, the gov­ern­ment has drawn the ire of de­vel­op­ers who’re of­fer­ing homes buy­ers cash re­bates to di­lute the im­pact of the dras­tic mar­ket cool­ing mea­sure, while the de­bate on its ap­pro­pri­ate­ness and ef­fec­tive­ness rages.

Op­po­nents of the hike, in­clud­ing New World De­vel­op­ment Chair­man Henry Cheng Kar-shun, ar­gued that the gov­ern­ment has un­nec­es­sar­ily dis­torted the free mar­ket’s price set­ting mech­a­nism. The mea­sure, they say, is not do­ing any­thing to ad­dress hous­ing de­mand which, ac­cord­ing to Cheng and oth­ers, is in­elas­tic.

They have made a valid point. Prop­er­ties in land scarce Hong Kong are seen as the surest in­vest­ment by many Hong Kong peo­ple. With­out ad­e­quate pen­sions, Hong Kong peo­ple re­gard own­ing prop­er­ties for rental in­come or cap­i­tal ap­pre­ci­a­tion as their best in­vest­ment to pre­pare for old age.

The gov­ern­ment has re­it­er­ated that the prop­erty tax is needed to min­i­mize price dis­tor­tions caused by the acute im­bal­ance in sup­ply and de­mand, em­pha­siz­ing that first-time homes buy­ers won’t be sub­ject to the in­creased tax. In­deed, the surge in de­mand by both homes buy­ers and in­vestors since ear­lier this year has been largely fu­eled by ex­cep­tion­ally low bor­row­ing costs.

The buy­ing spree has been fur­thered fanned by ma­jor banks of­fer­ing in­creas­ingly at­trac­tive terms to com­pete in the mort­gage lend­ing busi­ness. Although the gov­ern­ment has made tremen­dous ef­forts to lift land sup­ply, it’ll take years be­fore the mar­ket can see a large enough in­crease in the sup­ply of new apart­ments to de­press prop­erty prices.

De­vel­op­ers have the op­tion to choke off sup­ply now by with­hold­ing sales of newly built apart­ments or de­lay­ing com­plet­ing projects if they see a sig­nif­i­cant fall in de­mand. They have suf­fi­cient re­sources to play the wait­ing game when nec­es­sary. This tac­tic would have the ef­fect of fur­ther driv­ing up prices of prop­er­ties avail­able in the mar­ket.

Some ma­jor de­vel­op­ers are try­ing to en­tice buy­ers by of­fer­ing to shoul­der part of the tax hike. But, the money, you can bet, won’t come en­tirely out of their pock­ets. They can be ex­pected to find some ways to raise homes prices to cover the ex­tra costs.

The surest way the gov­ern­ment can ex­ert its will in the mar­ket dom­i­nated by the prop­erty oli­garchy is, as rec­om­mended by some economists, to in­tro­duce full-scale price and rent con­trol.

That’s not en­tirely with­out prece­dent even in this free mar­ket econ­omy. It had worked.

PRO­VIDED TO CHINA DAILY

Although the gov­ern­ment has made tremen­dous ef­forts to lift land sup­ply, it would take years be­fore the mar­ket can see a large enough in­crease in the sup­ply of new apart­ments to de­press prop­erty prices.

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