There is always political pressure on the government to provide cheaper and better public housing to everybody. In this, Singapore has done a superb job. For-sale housing units developed by the Housing and Development Board are affordable and available for all Singaporeans who have accumulated decent savings.
For those who cannot afford to buy, Singapore offers small rental flats, but to qualify, applicants must meet strict requirements, and they must renew their leases periodically and demonstrate their continued eligibility.
Singapore’s housing policy set out that goal when the island gained independence in 1965. With that goal in mind, Singapore has aggressively created land for the purpose. In 2010, Singapore had residential land totaling 100 square kilometers, far more than Hong Kong’s 77 sq km. With our residential land at only 77 percent of that of Singapore and a much bigger population, no wonder we have to put up with smaller living spaces and at much higher costs. Singapore’s residential land area is set to expand to 130 sq km by 2030.
Currently, about 36 percent of Hong Kong’s households have paid market prices with their hard-earned income and savings to become homeowners. For many of these households, apart from being taxpayers who contribute significantly to the government’s coffers, their homes represent their main “store of value” and the bulk of their life savings.
Currently, about 15 percent of Hong Kong’s households have paid significantly marked-down prices to purchase their Home Ownership Scheme (HOS) or Tenant Purchase Scheme homes. The greater the gap between HOS prices and private market prices, the more people will want to buy these subsidized homes, and the fewer will want to buy costly private homes. As the government responds to the surging demand for subsidized homes and for even deeper price markdowns on political grounds, demand for private homes falls, and the government is squeezed financially because its revenue will decline, and its expenditures will rise. Homes in Hong Kong have become unattractive as a store of value. Many opt to buy overseas properties rather than locally. This creates pressure on the Hong Kong dollar. Falling demand for Hong Kong homes and falling home transactions, especially following the imposition of the Special Stamp Duty (SSD), weaken the economy, significantly affecting the government’s fiscal position. Obviously, the politically popular policy is not an economically viable policy over the long run.
President Xi Jinping in 2016 stated that “homes are for living and not for speculation”. This advice has been taken as a key guiding principle for the Chinese mainland’s housing policy. However, residential properties form an important store of value and an important vehicle of investment for many households. Many governments agree with President Xi that homes are mainly for living in. Therefore, the principal residence is generally exempt from a capital gains tax.
Instead of levying a capital gains tax to curb speculation, Hong Kong has opted for the SSD, but the SSD is a transactions tax that causes much inefficiency and is immensely costly to society. Because the social costs far outweigh social benefits, I have been urging the Hong Kong Special Administrative Region government to abolish the SSD. As these costs become more and more onerous, many political parties now are calling for rescinding the SSD and relaxing the Buyer’s Stamp Duty to attract talents who choose to work in Hong Kong and buy a home.
Unlike Hong Kong, Singapore makes every effort to ensure that those who benefit from low-cost rental housing must meet the stipulated requirements, so that when they are financially less strained, they must leave. In 2020, about 52,000 households lived in rental flats in Singapore, representing less than 4 percent of all households in Singapore. Singaporeans living in subsidized rental flats have to renew their leases from time to time and prove that they continue to be eligible. In particular, they must not own real property of any kind in Singapore or overseas. This is quite different from Hong Kong, where over 30 percent of households live in public rental housing (PRH) and their tenure is effectively permanent. According to the stipulated rules, once admitted into public rental housing, there is no need to report income or assets for 10 years. Although public rental tenants who own a flat are supposed to have to give up their PRH flats, this rule was found not to have been enforced. Moreover, after the first 10 years, they can still stay in a PRH flat unless their income exceeds the prevailing limits set for normal tenants by five times (i.e., US$238,077) or their assets exceed 100 times the monthly income (or US$397,436).
These generous terms, plus the right to buy HOS flats without paying the land premium, have made PRH and HOS housing a fantastic vehicle for reaping huge profits. HOS flat-owners are able to reap tax-free capital gains selling their flats in the HOS secondary market. With the prices of new HOS flats marked down further in recent years, the potential for profit has grown bigger. There were even cases of HOS flats kept vacant for three years so they can be resold at a handsome profit without the need to pay the SSD.
With the onerous SSD in place, homeowners have less interest to trade their homes for a better flat. Potential homebuyers prefer to try their best to maintain their eligibility for PRH and HOS housing by “lying flat”. Housing and land prices are falling, and the government is deeply in the red.
I very much hope that in the upcoming Policy Address, the chief executive will review Hong Kong’s housing policy. Singapore keeps its economy vibrant by maintaining rules that foster self-reliance. Hong Kong, on the other hand, has policies that are hard on our middle class and soft on rules and on rule-breakers.
The author is director of the Pan Sutong Shanghai-Hong Kong Economic Policy Research Institute, Lingnan University.
The views do not necessarily reflect those of China Daily.
