It’s time for Hong Kong to kick a colonial habit. Cash from China – more and more of it since the 1997 handover of the territory – has helped inflate residential property prices at the high end. And the scarcity of cheaper accommodation is causing social tensions. CY Leung, the Chinese Special Administrative Region’s chief executive from July 1, finally wants to release more land.
The policy of keeping land prices high dates back to British rule. The government was sparing in its release of acreage before the handover. And for homeowners, a change in policy was potentially painful. Tung Chee Hwa, the first chief executive, became unpopular and eventually stepped down, partly because his effort to address the shortage of low-income housing was blamed for bursting a property bubble.
The outgoing administration of Donald Tsang has continued the old tradition of squeezing revenue out of land. Sales of land brought in 21 percent of the government’s revenue in 2010-2011, almost double the 11 percent seen in 2005-2006. But public spending on housing as a percentage of total government expenditure fell to 5.6 percent in 2010-2011 from 15.2 percent a decade earlier.
Investors from the mainland – responsible for 25 percent of Hong Kong prime property purchases in 2011, according to Knight Frank – have meanwhile pushed prices out of the reach of many aspiring local homeowners. Medium-sized flats on Hong Kong Island cost an average of more than $17,000 per square meter in 2011, government figures show. Manhattan’s average apartment price was about a third cheaper, according to Douglas Elliman. High home prices sparked a protest a year ago, and the city regularly ranks among the most expensive worldwide for housing. In a survey by the Hong Kong Transition Project in February, respondents identified affordable housing as the most urgent issue facing the next chief executive.
Official data show as much as 93 percent of land in Hong Kong is undeveloped. The government could release more. Leung could also encourage developers to use what they already have. The Big Four developers, Sun Hung Kai, Cheung Kong, Henderson Land and New World, own about 10 million square meters of farmland, two-thirds of the new land need for housing in the next six to seven years, according to Credit Suisse. Hong Kongers have long believed a clique of a dozen or so property tycoons play the government – or play alongside it – to maximize their profit. Leung’s plan may mean taking them on. But an end to over-tight control of land supply is overdue.