Bad news for Hong Kong residential developers and owners but good news for young people.
Chief Executive Leung Chun-ying recently told a group of secondary students that he is determined to bring down residential prices with new supply — as many as 86,000 units in the next four years.
“If these units end up being cheaper by HK$1 million each … the total savings will be HK$86 billion,” Leung said.
“This is a significant move. The government must have the political courage to do it.”
But how serious is he?
Imagine how Hong Kong’s biggest landlords would react given that the HK$86 billion Leung mentioned is more than what they made in the past year combined.
No.1 landlord Sun Hung Kai Properties made US$31 billion, followed by New World Development with HK$26.8 billion as of end-June.
Henderson Land and CK Property clocked in at HK$9.8 billion and HK$6.9 billion, respectively, in the first half.
They must be asking themselves the same question: Is Leung for real or is he just mouthing something for political consumption.
(Leung is widely expected to run for reelection in 2017.)
How does this plan square with an expected increase in US interest rates anytime soon?
Secretary for Development Paul Chan echoed his boss, saying the government has a mission to curb residential prices.
The target is HK$1 million off the market price which works out to a 10 percent discount on most units, he said.
Leung and Chan laid out the plan during an appearance at a high school event organised by pro-establishment group Centum Charitas Foundation.
No one from the media was invited, except a government-friendly online news group, Speak Out HK.
The arrangement was seen as a trial balloon to see how much people can afford to lose in the residential market in the years to come.
Surveys predict a 10 to 15 per cent fall in prices in the next two months, with the Centa-City Leading Index reporting the first decline in home prices this month.
That follows a five-year rally which saw many middle class housing estates double in value.
Demand is not the main reason for the rally, even with the emergence of rich Chinese buyers. Supply is, or more precisely, lack of it.
The government has been trying to manage public pressure for more land to mitigate the supply situation.
Just yesterday, the Ombudsman, the government watchdog that deals with complaints against government agencies, took the Housing Department to task for misleading the public about waiting times for public rental flats.
It said housing officials should tell applicants for public housing that they have to wait seven years if they are not on the priority list.
So, would the situation change if housing prices fell 10 percent overnight?
Leung’s hope for a second term rests to a large extent on how successful he is in curbing rising home prices.
So far, he has failed. Then again, he has another year to try again.
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