Tycoons shoot selves in foot

The Standard leads with the latest prediction for Hong Kong’s property market: Deutsche Bank’s estimate, using a scientific formula necessarily plucked out of thin air, that a 25 basis-point rise in interest rates will bring prices down 33%. But halfway through the story, the newspaper goes off at a tangent, reporting a think-tank’s proposal to privatize public housing – as if it were a deliberate attempt to avert the coming plunge. There is no causal connection between the two. Presumably, the opportunity to shoe-shine the tycoon-infested think-tank overwhelmed the paper’s usual urge to talk up housing prices.

The proposal comes from the Our HK Foundation, a group led by former Chief Executive Tung Chee-hwa, apparently to push his old Financial Secretary Antony Leung as Hong Kong’s future leader. Tung says he was shocked by the plight of common folk unable to afford a home. Translation: his buddies need a post-Umbrella populist gimmick to give their man a chance of displacing CY Leung.

The OHKF solution calls for new-build public housing to be sold at half the market price on easy terms (5% down). Unlike other subsidized sales schemes, it freezes the land premium that the buyer would need to repay if and when they sell the apartment.

This sounds generous – but it is really just the fair price that everyone should be paying for private-sector homes. This is what housing in Hong Kong would cost without the developers’ rip-off (bloated cartel margins) and without the government’s rip-off (over-inflated costs of artificially scarce land).

Note that the scheme assumes continued long-term increases in Hong Kong housing/land prices. Indeed, as cynics, we could go further and suggest that this proposal is intended to enable the current double-rip-off property-scam to continue, and to lure the less well-off into it. The buyers would have an opportunity to trade up to private housing and join the middle class in passing half their family income and purchasing power over to the property cartel for decades.

Note also that this proposal applies only to newly built public housing, not to existing stock. (Selling off the existing stock cheaply would be a massive game-changer, hugely boosting market liquidity and narrowing Hong Kong’s wealth gap at a stroke. OHKF advisor Professor Richard Wong is a past advocate, but apparently not now.) This restriction, the tycoon caste might presume, would increase public clamour for more construction of housing. Which leads us rather predictably to…

…the issue of opening up country parks for development, as the OHKF is proposing in tandem with the rest of the scheme. This is environmental protection tycoon-style – conserving the idle New Territories land hoarded by the property cartel for development as high-end luxury projects for future generations of money-laundering Mainlanders, fleeing African dictators or whatever.

So there it is – a not-very-tempting concession, which will leave many young people who want a home underwhelmed and as eager as ever to get a dirt cheap public rental unit.

What is interesting about the OHKF plan is its self-defeating innate selfishness. These tycoons seriously want CY Leung out, and they calculate – reasonably – that offering the population a more-humane, less-exploitative housing system could tilt the scales. But when they come up with the details, they just can’t stop themselves from keeping the basic parasitic wealth-extraction scam as intact as possible. CY can relax.

No, the rest of you should.