16 July 2019
New property projects continue to draw large queues as home prices keep hitting new records. Photo: HKEJ
New property projects continue to draw large queues as home prices keep hitting new records. Photo: HKEJ

Why it’s dangerous to relax the home policy

Chief Executive Leung Chun-ying recently wrote in his blog that there is a time lag of four or five years in housing supply.

The message was probably intended to defend his housing policy over past five years, during which Hong Kong’s home price index soared more than 50 percent despite various cooling measures.

Meanwhile, Financial Secretary Paul Chan Mo-po dismissed a relaxation of these tightening measures over concerns that such a move could prompt “marginal” homebuyers to rush into the red-hot market.

In fact, his remarks make sense as this is precisely what happened in 1997.

At the time, then Chief Executive Tung Chee-hwa launched the Home Starter Loan Scheme to help citizens purchase their own homes.

Under the scheme, the government granted HK$18 billion to provide housing loans of up to HK$600,000 each for 30,000 families and HK$300,000 to non-elderly single persons. Applicants were allowed to repay interest or mortgage from the fourth year.

Data shows more than 9,000 single persons and more than 20,000 families participated in the scheme.

However, housing prices started to plunge in the second half of 1997 amid the Asian financial crisis. A major housing price index halved in a year.

As a result, a great number of homebuyers who participated in the scheme went bankrupt under the loan repayment pressure as most of them were not financially strong enough.

That’s why it is quite fair for Chan to say the government won’t launch measures to help “marginal buyers” buy their first home given that the current housing prices are already at an exorbitant level.

Both Leung and Chan have kept saying Hong Kong would have 96,000 units of new home supply in the next three to four years. They intend to persuade potential homebuyers to be patient.

Nonetheless, young people saving for a home continue to see themselves at a huge disadvantage as lots of better-off parents are buying for their children, which keeps pushing up new home prices.

It is true that housing is getting increasingly unaffordable. Looking at the optimistic side, as parents scramble to get a flat for their children, part of the future demand has already been settled.

When the supply in the pipeline actually hits the market, the overall demand-supply picture will be more balanced.

This article appeared in the Hong Kong Economic Journal on June 6

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal columnist

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