Developing Difficulties
Whereas international anxiety over China’s reclamation of Hong Kong has centered on the future of freedom and dissent, the first issue facing new Chief Executive Tung Chee-hwa as he takes office today is a more prosaic one: the exorbitantly expensive real estate.
Though this crowded Asian capital has long been a costly place to live and work, the combination of rising demand, limited supply and relentless speculation in the last few years has sent real estate prices even further into the ozone.
The seriousness of Tung’s dilemma was underscored by his pledge this morning to draw up a comprehensive 10-year housing plan designed to significantly increase Hong Kong’s ownership figures. The plan would boost the number of new units entering the market each year, reduce the waiting time for government-subsidized housing by half and improve transportation to areas where housing costs are lower.
Of far greater interest to the 4,600 Hong Kong dignitaries and business leaders attending Tung’s inauguration speech, however, was his disclosure that he did not plan to immediately impose any new taxes or other anti-speculative measures. Instead, Tung said he would monitor the market and take action “only if it was necessary to do so.”
Here in Hong Kong, any measures affecting the real estate market are generally felt throughout the domestic economy, particularly the stock market, which will not reopen until Thursday due to the long hand-over holiday.
Leslie Chang, general manager of finance for CITIC Pacific Ltd., Hong Kong arm of the powerful Beijing-based China International Trust & Investment Corp., said Tung’s announcement could “determine how well the whole Hong Kong economy performs over the next few months.”
Indeed, Tung’s previous vow to move on the housing issue had dramatically slowed property sales in recent weeks, as potential homeowners, developers and investors wait to see where the pain will be felt.
At Centaline Realty, Hong Kong’s largest real estate company, with 260 branch offices throughout the city, the number of units sold dropped by 50% in the last few weeks, with the greatest slowdown in the luxury market, according to managing director Shih Wing Ching.
Real estate values are of particular concern because so much of the economic activity here is related to or conducted by people involved in real estate. About 40% of the government’s revenue comes from the property sector.
The Hong Kong Stock Exchange, Asia’s second-largest stock market, is extraordinarily sensitive to the health of the property market. More than 60% of the companies listed on the leading Hang Seng index are real estate companies or major developers, and many others have a substantial amount of their assets in property.
Even several of Hong Kong’s largest developers--who have reaped the benefits of decades of close relations with the outgoing British government--acknowledge that the real estate market is dangerously inflated. But they oppose measures that would send the markets into a free fall or signal a move away from the anti-tax philosophy that has made Hong Kong so attractive to business.
“The business community in general agrees this is something that needs to be tackled, even though they make money off it,” Chang said. “But whatever [government officials] do, we hope it will be something not too radical.”
In addition to fueling unhealthy inflation in the local economy, the real estate crunch is creating deep resentment among those frozen out of the market--and concern about the potential for unrest.
Engineer W.T. Cheng is one of the lucky ones as owner of a condominium that has more than doubled in value in just four years. But he worries that the growing spread between the homeowners and the homeless threatens Hong Kong’s future prosperity.
About 9% of Hong Kong’s population of 6.3 million, or 170,000 families, live in substandard housing. Of those who have homes, half live in government-subsidized housing for which there is a 6 1/2-year waiting list.
And the crunch is quickly worsening. Just 21,000 new units are scheduled to open this year, in a market that needs about 35,000 to stay even. And many of the new homes are being bought by speculators who have no interest in ever moving in.
In May, the developer of a new housing project on Tsing Yi, a tiny island near the new Hong Kong airport, received 28,000 applications for 160 units. The asking price for a 669-square-foot, three-bedroom unit was $663,000. Random drawings decide the winners, who often sell their rights to buy the units.
“It’s just like the Lotto,” said Lindy Lee Ma, the head of Centaline’s Monterey Park office, in town for the hand-over. “People sell off the rights to purchase a home” for $130,000 to $260,000 in U.S. dollars.
Tung is inheriting a thorny problem. Any major move will hurt the large property firms that rule Hong Kong.
But anything less could be viewed by an increasingly resentful populace as window dressing. Tensions are running high. Housing Secretary Dominic Wong, who at one time called the speculative activity an “isolated problem,” has been the target of recent death threats.
It didn’t help when, two months ago, the family home of tycoon Eric Hotung on prestigious Victoria Peak sold for $100 million.
Michael Green, a real estate specialist with Salomon Bros.’ in Hong Kong, said he supports any plan that would substantially expand the housing market, though he noted that any new projects would take at least three years to complete.
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Raising the Roof
Scarcity and speculation have more than doubled Hong Kong housing prices in the last six years. Average sale price for a 1,000-square-foot home, in U.S. dollars:
(Please see newspaper for full chart information)
June: $780,000
Source: Salomon Bros. Inc.
