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Hand-wringing over sky-high prices

Publication Date : 06-09-2012


Up on the Peak, set against lush green forest, the Opus shimmers with reflections of the city's famed harbour.

The undulating glass-clad oeuvre of architect Frank Gehry, it made waves last Thursday when it was announced that one of its 12 apartments was sold for HK$430 million (US$55 million).

This makes the 6,755 sq ft unit Asia's most expensive flat on a per square foot basis, and the second-most costly in the world after London's One Hyde Park.

Splendid news for the Opus developer. But for the city's residents, it is yet another statistic that shows how out of whack the property market has become.

Government data shows that the price index began climbing from the first quarter of 2009. It barrelled past the previous 1997 peak, and every quarter since last year has registered new highs.

This means that in just 21/2 years, property prices have increased 85 per cent.

The average price of a standard-sized 600 sq ft apartment is about HK$4.5 million, says Eva Lee, head of Hong Kong and China property research at UBS.

Meanwhile, Hong Kongers' median monthly incomes increased 15 per cent, from HK$17,500 in 2009 to HK$20,200 last year.

One way of measuring affordability is the price-to-income ratio. Hong Kong weighs in at 18.6. This means that a household has to save 18.6 years of its annual income without consumption to buy a standard flat.

By contrast, a four-room Build-to-Order HDB flat in Bukit Panjang takes the average Singapore household three years to pay off, while a resale five-room flat in Ang Mo Kio takes 7.3 years.

In the United States, anything more than three years is considered unaffordable.

It is estimated that Hong Kong prices have to fall by 19 per cent to 30 per cent before the "sandwich class" earning between HK$20,000 and HK$30,000 can have a look in.

No wonder Hong Kongers were waiting with bated breath for promised measures to cool the market. But these left the analysts and industry players cold instead.

Among the 10 points in Chief Executive Leung Chun Ying's proposal, unveiled last Thursday, are that the government will speed up the approval process of presale consent for private flats; sell public flats meant for rental; and re- zone government, institution or community (GIC) sites for homes.

If all goes well, some 150,000 housing units, private and public, will enter the market in the next five years. The number will go some way to plug the gap.

Based on population trends, Lee says Hong Kong needs 25,000 flats a year. With the under-supply of 5,000 flats a year from 2003 to 2009, she estimates that 185,000 units will be needed by 2017.

But a closer look at the measures shows it is unlikely that all the promised 150,000 units will materialise, and even if they do, it will take quite a while.

Brokerage firm CLSA said scathingly that Leung's press conference was a "non-event". His measures raise supply in the coming year by 10 per cent and were "hardly much solid" beyond that, it said in a report.

"Despairing home buyers who have been waiting for a policy reaction from the government to slow home prices will make their way back into the property market - and prices will rise further."

The government's hands are tied, because of some factors.

First, the record-low interest rates. The Hong Kong currency is pegged to the US dollar, meaning that rock-bottom interest rates set by the US Federal Reserve are feeding the city's housing boom as well, notes Dr Edward Yiu of Hong Kong University.

Another key issue is politics. Analysts agree that boosting land supply is the direction to take "but there aren't a lot of sites in the government's inventory".

One interim measure is to rezone the GIC sites, as announced. But it is expected to be a fraught process with opposition from local residents and councillors, and may be difficult for the government to push through, given its low popularity.

Even if successful, it will take two years to re-zone, be vacated, and take another three years to build the homes, say analysts.

Attempts to look at farmland outside the congested city have been stymied.

A project to redevelop 533ha in the North East New Territories to provide 135,000 homes met with protests by farmers and environmental groups.

Lucia Kwong, head of Hong Kong and China real estate research at JPMorgan, notes: "Farmland conversion is a very effective solution, but the process is very slow - cases drag on for decades due to issues such as environmental assessment, the lack of local community support, etcetera."

Without consensus, Hong Kong's long-term land reserves could run low after next year, she says.

All this, even as the government struggles with the sword of Damocles hanging over its head - Leung will remember how he had advocated that former chief executive Tung Chee Hwa build 85,000 flats a year, a policy that was later blamed for the 2003 property market crash.

Hardly any less formidable is the power held by property tycoons and the lack of competition among them. Critics have accused the government of collusion with developers - to keep land supply low and prices high.

Even Donald Choi, executive director of medium-sized developer Nan Fung Group, calls for a change in the law "so that we have a more equal playing field and fairer competition".

He cites how sites at MTR stations are highly sought after. But as the government sells them in large parcels - at HK$10 billion price tags - only major companies can snap them up.

"The government should sell different scales of sites so that big and small companies can participate," he argues.

Meanwhile, what else can be done? Some talk of demand-side measures such as increasing downpayments and having higher mortgage rates for multiple homes.

For instance, a special stamp duty introduced in 2010 to tax buyers who resell their homes within two years could be toughened by imposing it on those who do so within three to five years. Officials say a review will be conducted only next year.

Others suggest converting vacant government lots now used by short-term tenants like carparks.

Last night, the government announced that a committee to ponder Hong Kong's long-term housing direction has met.

Whatever it decides, one thing is clear: More will need to be done.

US$1 = HK$7.76


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