More Land Is the Answer, Or Not?

(Note - My recent idea was to blog about light-hearted topics like music, films and books on this blog, while keeping more serious subjects on my Asia Sentinel blog. But lately the Asia Sentinel has been undergoing a change of server, and links to my A.S. blog posts don't seem to work any longer. So I'm re-posting my two latest A.S. blog posts separately here for interested readers' convenience.)

Here's the second last post "More Land Is the Answer, Or Not?":- 

Amidst Hong Kong’s clamoring for sky-high property prices to be reined in, there have been incessant calls for the SAR government to increase land and property supply. I, for one, was at one time besotted with the thought that releasing more land could eventually dampen prices, if still skeptical over the prudence of dishing out more land to the same cartel that is already sitting on huge land banks (because highest-bidder-wins-policy would ensure that deep-pocket developers would, more often than not, end up the winning bidders).

Having observed this year’s government land tender results, it seems the larger tracts, like always, have fallen into the hands of leading developers or State-owned mainland developer (to quote a few examples: a sizable Yuen Long lot went to Sun Hung Kai Properties; two large Tseung Kwan O lots went to Wheelock Properties, two Kai Tak lots went to China Overseas Construction). Owing to bidders being able to use nominee companies (whose parent companies may also be nominee companies) in land tenders, it is impossible to know from officially announced tender results who actually got the other sizeable plots.

As for the land tender prices, they are, as always, marked closely to the property market, where prices have barely fallen from the historical peak. The palliative buyer stamp duty and special stamp duty – the so called “piquant measures” – have so far only managed to reduce property turnover, but hardly the prices. But already property vested interests are nagging for a repeal of those measures, which have been introduced for only a few months.

It would seem that my earlier tinge of optimism about increased land supply being an effective impetus to eventually bring property prices down to more affordable levels seems misplaced. I unwittingly overlooked the crucial fact that the government and the leading developers have never ceded their firm grip on land and property prices, simply by virtue of their collective ownership of almost all of Hong Kong’s buildable land. They have a common interest in keeping prices high, though for different reasons. The former wants to maximize land sale revenue for its fiscal health, so that it can continue to trumpet to the world that Hong Kong has the unique advantage of a low-tax regime. The latter want to continue to fatten themselves with development profits and rents. They are no different from a clique of bakers who have monopolized the supply of wheat flour – they naturally have the power to manipulate the price of bread.  

It is apparent that, as long as the high land price policy that the Hong Kong government embraces with all its life force remains intact, no matter how much land is released into the market, it’s not going to have the desired impact on property prices, much less on the entrenched status quo. History shows that every market dip in the past was caused by an external event or internal chaos rather than an increase of land supply (of course the property cartel would try to dupe the public into believing the latter being the culprit). On the other hand, past experience has taught many of the older generations (including civil servants) that their best bet is “if you can’t beat them, join them”. Such an attitude towards buying and owning properties has been institutionalized over the years, and is deeply embedded in the social consciousness. Naturally, homeowners would want to see prices stay up, whose expectation can be self-fulfilling. Homeowners would rather use all their savings to buy more flats for their offspring than see property prices fall significantly for the greater and long-term good of society.

The only problem is, at least some clear-thinking and independent youngsters and individuals who have a sense of justice are finding that this game only favors those already with capital (equity in homes) and is grossly unfair to those without at the starting point. They can see that Hong Kong’s addiction to properties is stifling healthy innovation and creativity, the lack of which is taking a toll on its economic development. For those who are grassroots and those who by a stroke of bad luck have slipped onto the lower social echelons, living in decrepit sub-divided flats as well as enduring bitingly high rent is their only option until subsidized flats become within reach, if they ever will. These unfortunate have-nots, along with the haves, all need to pay a lot more than would have been necessary for their daily needs and consumer goods because of obscene rents.

The SAR government’s vacuous vows to increase land supply or to search for more land to build affordable flats are at best a feckless attempt to teach guileless Hong Kongers simple Economic theory about supply/demand equilibrium, and at worst a red herring aimed at diverting the public’s anger away from its perpetual collusion with the property cartel (which should now include powerful mainland developers).

Thus, CY Leung and his administration, knowing full well that the Gordian knot to Hong Kong’s social and economic ills (including the much condemned wealth gap) lies in the government’s high land price policy, its addiction to financing itself with land revenues and the regressive tax system but lacking the courage to touch them, can only put “band-aids on top of band-aids”, as one internet commentator jeered. At the same time, society’s institutionalized belief in the magic wand of properties is providing good excuses for inaction on government’s part.