ANALYSIS: HOUSING POLICIES relatively stable and free market atmosphere in HK, residential properties are regarded as attractive investment vehicles to both local and overseas investors, notes Tse. “Coupled with favourable financial mortgage packages, and no rent control, the price of residential property rises to such an unreasonable high level that they are beyond the affordability of an average household in HK,” he explains. Poon notes that property prices in the last two years since the financial tsunami have actually bounced back and that the country even had a record high in 2011. That’s the key reason why the government came up with various cooling measures in an attempt to curtail them. With housing prices remaining hardly achievable, UBS economist Silvia Liu tags current housing efforts as ‘far from satisfactory’, noting that today’s housing shift is largely reacting to the overheating property market. Thus, the motivation is only to stabilise the conditions and not to build well articulated long-term housing solutions. Going forward, Liu says Hong Kong is unlikely to see a plunge in property prices, as was the case in the late 1990s. “First, the current annual housing target of 40k is quite modest when compared to the 85k tabled in 1997/98. Not to mention that the new supply will not come on line until a couple of years later Second, mortgage rates remain very low. This helps keep mortgage payment to income ratio (the gearing ratio) from being excessive. Third, real interest rates will remain negative, a condition typically supportive of real asset prices,” she says. At best, UBS only expects a 10-15% correction in residential prices in 2012. Colliers shares the same view with Poon, noting that Mainland Chinese and wealthy locals will continue to drive property prices up. A comprehensive and holistic review Tsang will be succeeded by a newly elected Chief Executive in mid-2012, and there will certainly be questions on the continuity of the current administration’s housing policy. However, UBS believes that the direction of the policy to increase both private and public housing supply is unlikely to change in light of the housing shortage. Nevertheless, UBS notes that whether and how the new administra-
tion will redefine its role in housing is critical to watch. Liu argues that as we look through the housing policies in perspectives, most of the shifts we are seeing today are mere rectification of the 2002 measures that aimed to clear the housing backlogs. “A well articulated long term housing strategy is still missing,” says Liu, noting that the government must consider a comprehensive review of future housing demand which takes into account the potential changes in demographic and socioeconomic conditions before formulating a housing supply target and its composition. The last time the government conducted a comprehensive housing strategy review is back in 1997/98. “Certainly, the housing market dynamics has evolved so much over the last decade that it warrants another comprehensive review,” says Liu.
“At best, UBS only expects a 10-15% correction in residential prices in 2012”
Mainland Chinese buyers According to UBS, amongst the demographic and socioeconomic condition changes to consider include a growing realisation that Mainland Chinese are no longer just marginal buyers in some residential segments. In the luxury segment for instance, Centaline estimates show that Mainland Chinese accounted for 15% of the purchases of new luxury homes in 1H2011. To explain this phenomenon, UBS looked at the impact of the Capital Investment Entrant Scheme (CIES) which was introduced in early 2003. It allowed Chinese nationals to apply for residency in Hong Kong by investing no less than HK$6.5 million in the permissible assets. As of September 2011, 19k applications have been received under CIES, of which almost
16k is Chinese. UBS notes that even if we assume all applicants invested in property, the cumulative number of purchases is negligible compared to the cumulative property transactions of 830k during 2003 and 2010. Over the last decade, Hong Kong has become a more integral part of China. According to Liu, this fundamental shift is also contributing to the changing socio-demographic. “The movement of labour and people between Hong Kong and China has become much easier over the last decade. This, plus China’s rapid growth, has resulted in the rising number of well-educated Mainland Chinese working in Hong Kong. For people who have worked in Central — the financial district in Hong Kong — in the past 10 years, the growing presence of Mainland Chinese professionals is palpable. Some of them may end up buying property in Hong Kong,” she says. Long-term strategies RICS’ Tse, meanwhile, recommends that the government must adopt a holistic approach to formulate and implement a long-term housing strategy. By this, he means that the approach should cover both the private and the public housing markets, side-by-side with an effective land use and supply policy. Strategies and policies should be sustainable and feasible irrespective of the ups and downs of the property market. The ultimate goal is to provide adequate and suitable housing units like small-sized flats to meet the housing needs, not of foreign investors but of different sectors of the HK population over the longer term.
Residential flat completions
Source: DBS Vickers EstimatesCEIC and UBS calculations HONG KONG BUSINESS | APRIL 2012 35