Hong Kong’s fiscal health does not look good. A recent land auction in Stanley for luxury homes had to be called off because all four tenders fell short of the baseline price set by the government. Another plot in the Kai Tak area above Sung Wong Toi MTR station fetched only $794 per square foot, almost 25 percent below market expectations, and no different from 2014 prices.
Meanwhile, the volume of apartment transactions in November last year fell to a four-year low of 3,730. In December, it went down further to 3,565, down 50 percent over the year from 2021. For the entire year home prices fell about 15 percent. With revenue falling and spending hiked, Financial Secretary Paul Chan Mo-po has predicted that Hong Kong will face a fiscal deficit at least HK$100 billion ($12.8 billion) for the current fiscal year.
2022 marked the third negative growth year in four years. Although there have been factors beyond Hong Kong’s control which caused this, such as the onslaught of COVID-19 and the riots and political upheaval of 2019, some problems could have been avoided. The Hong Kong Special Administrative Region government is right to make housing the top issue to tackle and solve. It has also launched a series of measures to do this. However, some key policies need to be adjusted in order to achieve the desired results.
First is the homeownership issue. The government is right in trying to promote homeownership, as homeowners have a stake in the HKSAR’s economic well-being and social and political stability, and they have a sense of “We are here for good”, and so tend to have a stronger sense of community. However, a problem with our traditional approach of defining a target group who can qualify to buy a government-subsidized flat at a below-market price and who have the potential to capture a significant capital gain produces the incentive that people would rather “stay low” to capture the benefit. Moving up the economic ladder will disenfranchise them from the benefits. The irony is that some taxpayers who are not qualified for the Home Ownership Scheme (HOS) end up having to pay premium prices to buy run-down units from former HOS and Tenants Purchase Scheme (TPS) owners, who can then enjoy the luxury of being able to buy better homes in the private market.
2022 marked the third negative growth year in four years. Although there have been factors beyond Hong Kong’s control which caused this, such as the onslaught of COVID-19 and the riots and political upheaval of 2019, some problems could have been avoided. The Hong Kong Special Administrative Region government is right to make housing the top issue to tackle and solve
I therefore propose that every Hong Kong family should be entitled to buy a flat, which meets the basic needs of the family in terms of living space, hygiene and amenities. The locations may vary, but prime sites that are preferred by the well-to-do, such as those commanding sea views or great views, should be reserved for auction at the premium prices that they command. Buyers can buy at, say, eight to 10 times the median household income for economically active families in Hong Kong. They must live in the flat, and would not be allowed to own other properties in Hong Kong. Under these terms, the owners will move out to private homes when they can afford better housing.
Second is the Special Stamp Duty and Buyer’s Stamp Duty issue. It is empirically proven that SSD has significantly reduced transactions, implying that “trading up” activities have fallen significantly since the launch of SSD. This reduces the supply of entry-level homes and the demand for better homes, resulting in sharper entry-level home price increases and much slower price increases for superior homes. This again is empirically proven. The government is collecting lower land prices from prime land sales. First-time homebuyers are forced to buy smaller and smaller flats. Those who cannot afford to buy are forced to wait in line for public rental housing. Everybody is suffering, except developers who produce many tiny “nano-flats” and owners of rooms subdivided from flats. SSD needs to be scrapped right away. Scrapping SSD will definitely lead to more turnover in the housing market, lending strength to the prices of superior flats and houses but reducing the prices of entry-level homes. The greater turnover activities will lead to a train of economic activities that will boost the profits of many sectors, and help heal Hong Kong’s fiscal health.
I have no objection to Buyer’s Stamp Duty if it applies only to buyers from overseas who do not live in Hong Kong. But there is a case to remove it for those who come to work and live in Hong Kong. Refunding BSD after seven years will not help lure talent to Hong Kong.
Finally, I will address the subdivided flat issue and public rental housing. There will always be a need to provide adequate affordable rental housing to those who cannot afford to buy. If landlords observe the building code, the fire code, and modifies the flat into several units that meet basic standards for renting according to the law, they should be allowed to do so. Both the government and the private sector have a positive role to play. In a previous China Daily Hong Kong column (Subsidies to Convert Existing Flats a Better Way to Spend HK$30 Billion, Dec 13, 2022), I proposed that, instead of spending HK$30 billion on light public housing, the government would do better spending the same amount of money assisting with the production of private rental housing units that meet basic standards, and regulating such “public-private partnership” housing to allow it to yield reasonable and still attractive profits.
The author is the director of the Pan Sutong Shanghai-Hong Kong Economic Policy Research Institute, Lingnan University.
The views do not necessarily reflect those of China Daily.
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