It’s common sense that prices of commodities are a gauge of economic conditions.
Hong Kong’s runaway home prices are thus a reflection of land (and property) undersupply and robust demand fueled by the strong buying sentiment among locals.
This buoyant scene is built on the Hong Kong government’s monopoly of land resources.
To sustain its policy regime (as it maintains a policy of low and simple taxes), the government decides the number of plots to be auctioned and the speed of development.
This mechanism works seamlessly with the domination of the property market by a handful of moguls who, convinced that bread has to be more expensive than flour, line their own pockets by hoarding units and dictating prices as they wish.
This is why a home in Hong Kong is more expensive than anywhere else.
Last month, the annual report of the Demographia International Housing Affordability Survey put Hong Kong at the top of its list of the world’s least affordable housing markets.
Using a price-to-income ratio called the “median multiple” (average home price divided by average household income) as the criterion, 86 cities across the globe are categorized into four groups: affordable (a median multiple of 3 or lower), moderately unaffordable (3.1-4), seriously unaffordable (4.1-5) and severely unaffordable (5.1 or above).
Hong Kong’s median multiple is a shocking 17, a new high in the survey’s 11 years of history.
Other cities where a home is also seriously or severely unaffordable include Vancouver, Sydney, San Francisco, San Jose, Melbourne, London, San Diego, Auckland and Los Angeles.
This is just the latest piece of evidence that local home prices are way beyond the means of average Hongkongers.
Homebuyers who depend on a mortgage are destined to be enslaved by their property for the rest of their lives, as they will have to use most of their income to pay back the loan. In this sense, the real owner of the property is the lender.
Those who borrow money to buy a home are thus deprived of the freedom to start their own business, as they must not take any risks but have to stick to a stable job to ensure they can pay back the money.
There must be many promising entrepreneurs in Hong Kong whose wings are clipped for good by their home mortgages.
Since the first day of his campaign for chief executive, Leung Chun-ying vowed he would do everything he could to curb home prices from soaring further.
Now everything is exactly the opposite to what he pledged, with small units undergoing the most significant price surges – surely a great letdown to his supporters.
Leung blames the scarcity of land for his failure to rein in home prices.
Since there is virtually no vacant plot in the urban area, Hong Kong’s country parks – almost 70 percent of the 147 square kilometer area of Lantau Island is devoted to country parks – will unavoidably become the source of future land supply.
The government’s proposal to rezone some land within these parks for residential purposes has stirred up some debate, with fierce opposition from conservationists and green groups.
I do support the government in this regard, unless these people can identify any other chunks of land ready for development.
Also, as I have appealed in my previous commentaries, golf courses – like the 170 hectare one in Fanling, managed by the Hong Kong Golf Club – can also be rezoned to quench our thirst for land.
The government should consider levying a “vacant property tax” to deter developers from hoarding homes. It should introduce regulations at the same time requiring newly finished homes to be available for sale within a certain period of time.
Perhaps there is no one else on this planet with the ingenuity of Hong Kong developers when it comes to how to extract exorbitant profits from their property.
I can only hope these fat cats won’t use their ties to block such a tax.
This article appeared in the Hong Kong Economic Journal on Feb 4.
Translation by Frank Chen
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