22 July 2018
Property sector has contributed significantly to Hong Kong's economy over the years. Photo: HKEJ
Property sector has contributed significantly to Hong Kong's economy over the years. Photo: HKEJ

Why high property prices aren’t necessarily bad

With “double spicy measures” in place to curb skyrocketing property prices, Hong Kong has seen many property owners get affected.

There has been concern as people — no surprise here — always want their asset values to keep appreciating solidly. Still, what is noteworthy is that many of the property owners have remained silent on government interventions.

I would call it an interesting social phenomenon.

Since many underprivileged families are living in cage homes, subdivided flats, or even taking shelter under footbridges, as they can’t afford the high property prices, it would be deemed inappropriate if the landlords stand up against the government policies.

That said, the wealthy need not really fret about the real-estate. Over the years, no matter how hard the government tried, property prices have largely been in only one direction: up. This has been true for the past 50 years.

Assume, for example, that you purchased a flat — for earning rental income — at the worst of times like the peak of the 1997 Asian financial crisis. If you invested at that time, your investment decision would now be considered not too bad and may have in fact proved highly lucrative.

Property prices have generally doubled and you would also have reaped substantial rent income for 19 years, helping you pay off the mortgage.

Half a century ago HK$50,000 was sufficient for buying a unit of over 1,000 square feet. Right now such apartment would cost over HK$10 million, meaning a two hundredfold investment return. During the course of history, many Hongkongers have become rich in this way.

In the popular discourse, we hear only about the disadvantages of high property prices but not so much about its merits.

High property prices, admittedly, do make business operations difficult and housing unaffordable. However, we should bear in mind the fact that had it not been for the government’s land policies, under which authorities auction a limited number of sites each year with sky-high price tags, the city wouldn’t be able to run a low and simple tax regime.

Also, the property sector has contributed substantially to the city’s economy by drawing large amounts of foreign investment over the years.

We should remember that it is not only Hong Kong that is experiencing high property prices. It’s the same phenomenon in almost every first-tier or cosmopolitan city around the world.

Individuals, regardless of being rich or poor, are flocking to affluent cities in search of opportunities. And if land is scarce, how can property prices not go up?

The property market of the United States has been stagnant overall over the past decade. But you don’t see any signs of decline for markets in New York or San Francisco.

Property markets in cosmopolitan cities, given the globalization era, have also become international, drawing capital from around the world.

In this situation, it is inevitable that young people of average incomes find it difficult to secure proper housing. The poor living environment suffered by these low-income groups is something that governments should look at and come up with solutions.

Yes, it is absolutely unfair for people to expect that the conditions should be such that they will be able to afford a home easily, without a lot of sweat and toil.

For those looking to point fingers, blame it on capitalism if you will.

This article appeared in the Hong Kong Economic Journal on Nov. 2.

Translation by Darlie Yiu

[Chinese version 中文版]

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HKEJ columnist; art, culture and food critic

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