Date
21 July 2017
Amid rising home prices, government land sales revenue is expected to hit a record HK$100 billion for the fiscal year ended March 2017. Photo: HKEJ
Amid rising home prices, government land sales revenue is expected to hit a record HK$100 billion for the fiscal year ended March 2017. Photo: HKEJ

Home price hedging tool can be a way to save for a new home

While benefiting landlords, surging home prices have left young people upset about the dimming prospects of owning their own place.

Here is a wild idea that might help.

The government can create a home price tracking fund and open it for subscription to locals below 40 without any property.

The fund’s market price will move in tandem with housing prices, and investors can redeem anytime. Each qualified person can buy up to, say, HK$3 million (US$387,000).

At present, many young people are in a rush to buy a home two to three years after graduating from college.

Although they are still living with their parents, they want to buy a home now, afraid to be left behind as home prices roar ahead.

In other words, it’s more like a kind of investment demand.

While such a fund won’t do anything to boost supply or ease rigid demand, it will give them a hedging tool and reduce the rush to buy a home to lock in the price.

In fact, housing demand has always been highly volatile.

Most people seem desperate to buy a property given the spiking home prices in recent years. But during the market downturn between 1998 and 2003, demand suddenly plunged.

Suppose there is such a housing price tracking fund, young people can invest their savings so that it will grow in value if home prices go up, effectively hedging against the risk from home price inflation.

The entry threshold could be set as low as HK$10,000 to accommodate different budgets.

The government could use part of the fund to purchase properties from the Housing Authority to gain rental income and meet redemption needs.

The higher home prices go, the more land sales revenue the government will get, so the scheme would not be a burden.

As it takes time to increase home supply, this fund could be a good stop-gap measure.

This article appeared in the Hong Kong Economic Journal on Feb. 20

Translation by Julie Zhu

[Chinese version 中文版]

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RT/RA

Hong Kong Economic Journal columnist

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