ANALYSIS: HOUSING POLICIES
Hong Kong housing policy proves futile
Will the government redefine its role in housing, or will they churn a new policy that will save the day? Krisana Gallezo reports.
H
ong Kong is in the midst of its third major housing policy shift since 1997, but current efforts appear inadequate since homeownership rate has remained just above 50% or has shown little change since late 1990s. The data from UBS Investment Research also highlight that Hong Kong is well below 80-90% compared with Singapore and Taiwan. In terms of distribution, only around half of the 2.34 million households benefit from low income housing while more than 30% are living in public rental housing. Colliers International executive director Ricky Poon says that one of the reasons why Hong Kong lags behind peers is the government’s lack of engagement in housing matters. “In Singapore for instance, the government always encourages the people to buy properties and that’s the main reason why their homeownership rate is so high. Also, they encourage the people to use their mandatory retirement plan to buy properties. In Hong Kong, it’s totally different,” he says. Housing affordability challenges Propelled by the housing shortage, the Hong Kong government has pushed
34 HONG KONG BUSINESS | APRIL 2012
“Hong Kong is well below 8090% compared with Singapore and Taiwan”
forth a number of long-term supply side measures which includes a reintroduction of the annual construction target of 40K flats and an enhanced subsidized housing scheme dubbed ‘My Home Purchase Plan’. Despite all these efforts, Hong Kong continues to suffer from the perennial problem of housing shortage, which has dramatically increased land values. According to David Tse, chairman of RICS (HK) Housing Task Force, there has been a continuous shortage of flats, failing to meet the increased number of households over the last decade. Furthermore, there is a serious mismatch between types of flats supplied and demanded. “Over 50% of the total residential property transactions between 2002 and 2009 involve small-sized flats of less than HK$2 million, and only 12.2% of new completions in the same period are small-sized flats of less than 40sqm,” he says. In mid-2011, Hong Kong chief executive Donald Tsang himself admitted that the government’s housing policy has allowed the supply to dwindle. As a consequence, housing affordability deteriorates. According to UBS, the price-to-income ratio
of a 50sqm flat in Hong Kong now stands at around 11 years, down from the peak of 12 years in mid-2011. It still takes a household 11 years of total income to buy a 50sqm flat. This compares with 14 years at the height of the last big housing bubble in 1997, and the 4-5 years that is conventionally deemed reasonable. Meanwhile, based on the estimates by the Centaline, the income gearing ratio now stands at around 40%, up from 28% in late 2008. This means that a typical household with a mortgage will spend 40% of its monthly income to pay the mortgage. Tse meanwhile notes that aside from the rapid increase of large-sized flat or house prices, probably due to investment demands from both local and overseas investors, the price of other types of flats (including smallsized flats which are target flats for first-time homeowners) also soared rapidly or became less affordable to many Hong Kong citizens, especially those Sandwich Class households whose earnings exceed the ceiling for application to live in PRH. Attractive investments On the other hand, owing to the