Why Hong Kong’s property bubble won’t burst anytime soon

July 19, 2018 09:02
Policymakers must now have the courage to shut the market to all except Hong Kong identity card holders, or at least use tax and other measures to make the Hong Kong market no longer attractive to outsiders. Photo: HKEJ

If you think Hong Kong’s insane property market will magically find sanity one day, don’t hold your breath. You will only suffocate. Forget that dream about owning a flat anytime soon. It will remain a dream unless you are filthy rich, have wealthy parents, or win the Mark Six. Short of a full-blown US-China trade or military war, a mainland invasion of Taiwan, or a SARS-like killer disease epidemic, our homes market will only go in one direction – up.

You’re wrong if you believe what goes up must come down. As I have said before, this law of gravity doesn’t apply to Hong Kong. It may have done so in the distant past but not anymore. Property crashes in the recent past came not due to an overheated market but because of the Asian financial crisis, the SARS outbreak in 2003, and the global financial meltdown in 2008.

Hong Kong’s property market bounced back very quickly from the 2008 meltdown. It has been overheating ever since, defying every government cooling measure. This is clear proof we have an irrational homes market.

When former chief executive Donald Tsang Yam-kuen slapped measures to tame the market, developers and buyers shrugged them off. His successor Leung Chun-ying toughened those measures for local and foreign buyers. The market kept on climbing.

Chief Executive Carrie Lam Cheng Yuet-ngor kept up the pressure this month with new measures that included de-linking the price of subsidized homes from the private homes market. But just days after doing that, developers still jacked up prices and frenzied buyers still scrambled to buy. Just last Sunday a long line of buyers took only several hours to snap up flats put on the market by Sun Hung Kai Properties.

Under current cooling measures, local buyers must pay a 15 percent stamp duty to buy a second flat. Foreign and corporate buyers pay an extra 15 percent. Owners who sell flats within three years of purchase are hit with a stamp duty of up to 20 percent. Yet Hong Kong remains the world’s priciest homes market.

This is what John Tsang Chun-wah said in February 2013 when he slapped further cooling measures as financial secretary in the Leung Chun-ying administration: “The risk of an asset bubble is increasing. If we allow the bubble to grow, in the end it will affect the macroeconomy and also the stability of the financial system. It will be very damaging to society.”

That was more than five years ago. No one will deny our property market is now in a dangerously irrational bubble, yet there are no signs it will burst anytime soon. How can the bubble burst when developers keep on raising prices but find ways round the cooling measures to tempt people to buy? How can buyers believe the bubble will burst when they are convinced prices will continue to soar and the government is impotent to stop it?

Financial Secretary Paul Chan Mo-po told me several times in TV interviews that buyers should think hard about the overheated prices, their financial situation, and rising US interest rates before deciding to buy. Such warnings have fallen on deaf ears. Cooling measures have failed as a policy after being tried and tested for many years without success. Our policymakers need to break out of their one-track mind. They need radical new thinking.

As I have said before, Hong Kong’s property market no longer serves only the city’s seven million people. We now must also serve a country of 1.3 billion with a growing number of rich people anxious to get their wealth out. Hong Kong’s red-hot property sector is a perfect place for rich mainlanders and international investors to park their money. Their hot money, combined with the local psyche that prices will continue to climb means the bubble will never burst.

I repeat my plea that policymakers must now have the nerve to shut the market to all except Hong Kong identity card holders, or at least use tax and other measures to make the Hong Kong market no longer attractive to outsiders. This will have an immediate cooling effect. Centaline founder Shih Wing-ching’s idea of separating the market into a more affordable one for locals and one for outsiders is also worth trying.

No other solution can work. Taxing vacant flats is just a gimmicky band-aid with no lasting effect. Land reclamation, using the fringes of country parks, building more public housing, using the Fanling golf course, and ending the small house policy are all long-term solutions. But we are in desperate need of a short-term fix.

De-linking the price of subsidized homes from the private sector, and diverting land earmarked for private housing for subsidized homes instead help those who qualify for such homes. But it will make private homes ever pricier for those who don’t qualify for subsidized homes yet can’t afford private sector homes. How is it fair to use my tax dollars to help others buy cheaper government-subsidized homes yet flats remain unaffordable for me?

As the Greater Bay Area takes shape, more mainland and foreign firms will set up offices here. That means we’ll see an even greater influx of mainlanders. They will need homes. And as we have seen, they are not deterred by irrational prices. This means the private homes market will become even more out of reach for Hong Kong people who don’t qualify for subsidized or public housing.

It is the final call. Carrie Lam, Paul Chan, Development Secretary Michael Wong Wai-lun, Transport and Housing Secretary Frank Chan Fan, and others involved in housing policy must admit current cooling measures have failed. There is only one solution left – Hong Kong homes for Hong Kong people only.

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A Hong Kong-born American citizen who has worked for many years as a journalist in Hong Kong, the USA and London.