8 May 2017 - The Hong Kong Government further tightened its Housing Policy in April 2017 by putting a stop to the stamp duty loophole which allows for first time buyers to evade additional costs by buying multiple properties at a flat rate of 15 percent. Recently introduced in November 2016, the Ad valorem stamp duty as with previous cooling measures introduced by the Hong Kong government though well intended, has failed to curb soaring real estate prices.
As of today, Hong Kong remains one of the most unaffordable cities in the world. With the average apartment valued over 18.1 times gross annual median income, housing policy dominates public discussion and continues to be a fundamental regulatory issue for the Hong Kong legislature.
To fully grasp the issue at hand, we will detail contextual factors which serve to raise property prices, prospective government measures and alternative solutions as outlined by non-governmental stakeholders.
Why Are Hong Kong Real Estate Prices So High?
An interplay of key social and economic factors serve to drive up the costs of home ownership in Hong Kong. Post 2003, artificially low interest rates kept at the fore by Hong Kong’s dollar peg, diminished the cost of borrowing and served to encourage capital inflows from home and abroad into the real estate sector. This taken in tandem with Hong Kong’s low rate of taxation, free flow of capital and an increasingly globalized business environment led to an upturn in property prices with demand effectively outstripping local supply. Government policies further exacerbated this problem.
In 2003, the Home Ownership Scheme (HOS) - which allowed first time buyers and low-income earners access to subsidized flats, was scrapped in the wake of the Asian Financial Crisis. This alongside government restraint on land supply during Chief Executive Donald Tsang’s tenure, dampened housing supply. In addition, demand measures such as the Special Stamp Duty, Double Stamp Duty and the Hong Kong Monetary Authority’s policy of requiring strict loan-to-value ratios and stress tests on mortgage applicants both deterred potential buyers and encouraged home owners within the secondary market to stay put – placing a downward pressure on available housing.
The incoming Chief Executive Carrie Lam aims to tackle the mounting house prices by relaunching the Green Form Subsidized Home Ownership Pilot Scheme (GSH). Under this proposed policy, public housing tenants will be encouraged to buy their own flats, vacating highly sought after housing for those in greater need. More so, homes will be built exclusively for first-time buyers.
Though commendable, unless buyers are required to abide by strict terms of agreement whereby they have to occupy the housing unit bought under the scheme and are subject to restrictive reselling options, the GSH could go the way of the reintroduced HOS in 2011 – prone to speculators and further price increases.
The outgoing Chief Executive C.Y. Leung in his last policy address also pledged to provide 94,500 public flats for the next five years, thus leveraging subsidized housing as a means to increase supply. Though a welcome step in the right direction, as with his other policies which include rezoning land for residential development and government stamp duties, it is questionable as to whether the intended curb on property prices will bear fruit.
Other Policy Options
According to Richard Wong - professor in Political Economy at the University of Hong Kong, public housing policy should be subject to review due to its lack of distinction between first time marriages and remarriages for applicants. Supply is not so much of an issue, rather it is the ongoing trend of smaller households (in part due to increasing rates of divorce and remarriages) which is fueling demand. In his opinion, public housing home ownership is a benefit which should be provided once in a lifetime.
Aside from adjusting the applicant criteria for Home Ownership Scheme flats, it is also recommended that the government change its policy in terms of rezoning land. Currently Henderson Land, Sun Hung Kai and New World are in ownership of 92.5 million sq ft. of agricultural land in the New Territories. Government policy could expedite the process of changing land use thus freeing up residential land for development.
Finally, the tried and tested option of focusing on public housing, building on country park land and hastening approvals of New Town plans are also practicable policy options for the way ahead.