Hastening the inevitable

The Hong Kong government might penalize property developers who hoard newly built apartments in the expectation that prices will continue to rise. At least, that’s what Chief Executive CY Leung says (he actually hints that the real estate industry has a social responsibility to ensure a ‘timely’ supply of homes). REDA, the property cartel’s lobby, has the nerve to whine that this would ‘infringe the principle of a free-market economy’. (They said the same about the special stamp duty on non-residents’ apartment purchases. These are also the same scumbags who claimed that a regulation requiring them to advertise true rather than inflated apartment sizes would go against the Basic Law’s constitutional guarantee of freedom of speech.) I have a lot of time for free-market economics, but my most cherished principle is that if the property tycoons hate something it must be good, so I would say: go for an anti-hoarding tax.

Reasons it won’t happen are numerous. It sounds like exactly the sort of thing you would promise to consider if you are trying to mollify critics who expected tougher action on housing prices in last week’s policy address. The number of extra apartments this policy could open up is in the few-thousands range, which might soften prices slightly, but hardly significantly. Also, it would be a far more radical move than it initially sounds. Drip-feeding (and, we can be sure, coordinated) supply of units onto the market, with pro-tycoon newspapers helpfully reporting apparent rushes of buyers, is one of the pillars of developers’ margins. And, as cynics will note with glee, one of the biggest hoarders of unsold apartments is Hang Lung, run by the slightly wacky Ronnie Chan, who is one of the few tycoons to back CY rather than Henry Tang when the former’s bid for CE looked no more than a grandiose publicity stunt. Still, you can’t help but detect a hint of nervousness when a solidly pro-tycoon editorial voice says “The so-called vacancy tax is far-fetched, and won’t work. Many people are saying that.”

A far more effective – and hugely radical – measure would be to penalize private investors’ empty units. The exact number of these seems to be a bit of a mystery, with some people saying 240,000 and others saying more like 100,000. Administratively, it sounds like a nightmare; how do authorities know whether an apartment is empty? Morally, it comes down to whether property rights apply to people who hoard necessities of life that fellow-citizens need. The best argument, reinforced by a couple of recent hikes through Hong Kong’s countryside, is probably environmental. Why cover more land (or coastal waters) with concrete to duplicate existing but unused infrastructure? (Unless the alternative is to continue the current trend of dedicating countryside to canines, in which case, pave it over.)

Property bulls will dismiss Hong Kong’s 13.6-times-income affordability ratio as misleading ‘because half the population live in public housing’. But that’s putting the cart before the horse; property is too expensive for half the population to buy. In Manhattan, this sort of trend is leading to the banishment of the (lower- and middle-) middle class. In Hong Kong, we don’t have a New Jersey next door to move to. As it stands, the housing situation almost looks designed to bar families from becoming middle class and even force some of the younger generation back down the economic ladder.

Articulating it this way would be a great way to prepare the ground for the inevitable market crash. It seems pretty clear that CY and his team see this coming and don’t want to take any blame. If they had a sense of adventure, they would talk the market down now. They should announce plainly that anyone buying a flat in City One Shatin for over HK$10,000 a square foot is stupid and shouldn’t waste time crying about it when they end up in negative equity. Furthermore, they should publish a formula based on current and estimated incomes and financing costs and other factors to produce official target affordability ratios for households in different income groups. Pledge to deliver that (say, it might work out at HK$5,000 psf in City One) through suspending land premiums, building ‘artificial islands’ or whatever it takes in the years to come – and watch as prices halve and much of the problem solves itself.

CY Leung also pledges, among all this, to boost home sizes. While we’re waiting for that, meet the tiny-house people.

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12 Responses to Hastening the inevitable

  1. Bela's Helpful Household Hints says:

    It’s the most depressing day of the year, according to the UK’s Daily Mail: the third Monday in January. So it must be time to discuss property.

    We obviously need some hard-and-fast rules for CY to cling to in the snake pit he is lowering himself into. Those Kwoks and Tiens and Lis writhing, all with stings in their tails and dripping fangs in their hideous, gaping, frothing maws.

    Leung’s First Law:

    “The more houses you build, the more land you need.”

    Leung’s Second Law:

    ” To effect real change in Hong Kong, you have to kick people up the ass, not tread on their toes.”

    Leung’s Third Law:

    ” The more you explain yourself in Chinese societies, the more you look weak. Silence is power. Tell them how it’s going to be and shut up.”

    Leung’s Fourth Law:

    “Wearing a grey suit makes you look old, weak and dubious. Black or dark blue please. No stripes. And cut the pink shirts honey. Dis ain’t no metrosexual fashion shoot.”

    (That’s enough Laws. Shut up and buy a house.)

  2. Stephen says:

    In the past Hong Kong’s property prices always rise unless faced by external and unforeseen circumstances (Asian Financial Crises, SARS etc). As you rightly point out 50% of the population is frozen out and forced to live in quite depressing public housing estates, as private housing is way beyond their reach on the pitiful salaries they are paid.

    The private residential market has always been a cozy club between the Developers (who have massively enriched themselves) and our overly cautious bureaucrats (who pretend to be governing) who run the economy.

    Is CY is going to pick a fight with the Henry Tang supporting cartels and will the Developers refuse to play anymore and boycott auctions ? (Remember the old Li Ka Shing threat to take his money out of HK, which he doesn’t use anymore or the answer of ‘go on fuck off’ would be deafening !)

    If so is his plan to bring in the big mainland developers (China Vanke etc) to become our new Developers ? Changing of the Guard ?

  3. Property Developer says:

    The recent tax on foreigners and on quick resale, although discriminatory, proved finely judged, as it made the market drop slightly for a couple of months. CY should presumably produce more of the same, since now is not the time for innovation or experimentation.

    Remember, CY (et al) already caused one 70% drop: he can’t be seen to produce another major slump. So, however Hemlock finesses it and however much the market is over-priced (it should be about half its present level, in my view), he can’t, by word or deed, take any explicit radical measures. All the more so, given the Chinese preference for action over words and his considerable unpopularity.

    Of course he could secretly tunnel under the property sector, then remove the props one by one, provided he had a lightning quick exit strategy.

  4. PCC says:


    In describing the residential property market as a “cozy club” between developers and government bureaucrats, you left out a critical third member of the Iron Triangle: the banks.

  5. Real Tax Payer says:

    Talking of Laws, I think Newton got it right centuries ago:

    Newtons’s 1st Law : every property remains in its state of vacancy or uniform occupation unless acted on by an external force (whether market force or new govt tax)

    Newton’s 2nd Law: F = M x A where F = the external force, M = the size of the property ( gross, not net value) and A = the acceleration of the change

    Newton’s 3rd Law : Action and Reaction are equal and opposite *

    (*Also known as CY’s 5th Law and Sod’s Law : “whatever I try to do to make HK a better place to live in for the 99.9% of us who are not tycoons, the pro-dems, people power, emily lau and long hair try their damnest to do the opposite”)

  6. Aghast says:

    Some funny figures flying around here.

    In fact less than 30% of population are in public rental housing.

    53% of HKers live in owner-occupied flats. That’s a higher rate of urban ownership than UK, and considerably more than France and Germany. It’s a bit less than Korea and Denmark. Nothing remarkable.

    It’s hardly a ‘cozy club’ if more than half the population are in on it.

  7. Jeff says:

    Hong kong housing. Where to start. A few random thoughts:

    First off, in Hong Kong today, if your’re middle class, you’re screwed. Be wealthy, or be poor. Do not be in between. The policy address made this quite clear. Thanks for your taxes, now fuck off. Forget about affordable housing, and forget about affordable English schools too.

    The Donald dropped the ball in 2005, and allowed housing prices to rise for over 7 years without any controls whatever. The entire city pays for this every day. Incredible neglect of duty. What an retarded ass he is.

    We now have the perfect ‘I’m all right jack’ divided middle class. Owners, and renters, whose interests are completely at odds. This is anything but ‘harmonious’.

    Owners and buyers here, again thanks to the Donald, now routinely expect 10 percent and more rises in value every year. This is absurd.

    I don’t resent those who were wise and bought in the early 2000’s, and live in their flats. Good on them. It is the speculators with empty flats, those who own 2 or more flats, and charge twice their mortgage in rent, and recent buyers who continue to inflate prices should be shot on sight.

    Speaking of charging twice your mortgage in rent: Good on you, but it should be illegal. Why should I pay your reasonable mortgage and also put additional money in your pocket every month, while my shop fails, or my flat does not get painted by you?

    Where was any mention of controls in the policy speech? Can’t have that I guess, even if this is not Hong Kong 1950 any more and the city desperately needs rent controls. If any city in the world has all of the pressures and forces on housing prices that call for rent controls, it is Hong Kong. Heritage Foundation Nazis wouldn’t tolerate it, therefore let’s not do it. Good one.

    As for those who have bought the last two years, and speculators, I drool at the prospect of watching them writhe in negative equity agony. And if they expect to receive government aid for their plight, by asking for my taxes? Fuck off very much, I think not.

    We need to tax hoarded land, not flats, and we need to tax property over the life of the building, not with a one time premium. This of course was not addressed by CY, making his address in my view, and specifically his housing strategy, a complete failure.

    I finally know the patterns. Next time I’ll be ready, when the fed wakes up and raises rates 2 points, and the moron who bought last month is working at McDonalds nights, I’ll be there, to buy his flat at half what he paid, its true worth. Hee Hee, I can’t wait.

  8. Jason90 says:

    Easy to say at the moment if a residential apartment is unoccupied – minimal electricity usage. Unofficial figure is 4% of residential.
    This will change if owners start heating, cooling and lighting empty apartments to avoid tax.
    Then we can switch to gas usage – we will be able to spot the empty apartments by the smoke and flames….

  9. Real Scot Player says:

    Just a sidenote on the two photos. Not actually contradictory. The second one is a reminder that OUTSIDE parks large mutts should be on leads. The first one encourages canines INSIDE same to shit and pee off the leads

  10. Chimp says:

    It’s called “the art of the possible” for a reason. Not a bad result from CY… cautiously optimistic, on my part.

  11. For most of the 53% who own their own home, it is the largest and quite often the only major investment they possess. Any government stupid enough to be seen to engineer a major slump in the market (however sorely needed by those not already on the ladder) would probably face a tsunami of protest that would make Article 23 seem like a ripple in the bath by comparison. People don’t like to see their life savings evaporate. On the other hand, current price levels are clearly unsustainable and eventually external forces (a new financial crisis or SARS-like epidemic) will force the drop anyway. In the meantime all the government can really do is fiddle with the system to try to stop prices rising even further.

  12. Churchill fan says:

    In 1909 a dangerous subversive explained the issue thus. “Roads are made, streets are made, services are improved, electric light turns night into day, water is brought from reservoirs a hundred miles off in the mountains – and all the while the landlord sits still. Every one of those improvements is effected by the labour and cost of other people and the taxpayers. To not one of those improvements does the land monopolist, as a land monopolist, contribute, and yet by every one of them the value of his land is enhanced. He renders no service to the community, he contributes nothing to the general welfare, he contributes nothing to the process from which his own enrichment is derived … the unearned increment on the land is reaped by the land monopolist in exact proportion, not to the service, but to the disservice done.” Churchill in the Guardian. Tax landlords.

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