Hong Kong Policy Address 2011-12: What To Expect For Housing Policy9 October, 2011, 22:14. Posted by Zarathustra
Tags: Hong Kong, Idiots, Politics, Real Estate
The Chief Executive of Hong Kong Donald Tsang will be reading his final piece of
rubbish Policy Address on the coming Wednesday. The focus will be once again on the housing policy, which does not really matter. Pressure is still on for the government to do something to curb property prices, but what should you be expecting?
Nothing in a sense that there will be nothing consequential, althoughpeople will probably blame the latest measures if the property market corrects significantly after Donald Tsang says something seemingly explosive but rubbish in reality.
I do think that the government will be somewhat compelled by public pressure to do something, such as resuming the Home Ownership Scheme and continue to pledge a certain amount of supply of land. In fact, the Chief Executive Donald Tsang yesterday admitted that the government has made mistakes in housing policy which contributed to the rise in property prices. That should be a signal that the government will do something, including resumption of HOS (which has been suggested by various newspapers in the past couple of weeks).
The government made mistakes, but not in the sense that there was not enough supply: Hong Kong has enough homes to house all people as my calculations have shown, and should be able to buffer a sub-10,000 units supply per year for 2 to 3 years. The private sector will be probably able to provide 20,000 or so units per year 2 to 3 years ahead because of increased land sales in the recent quarters, and that supply level is a number I am comfortable with (for the time being). Even if HOS is resumed, I would expect some modest numbers (in the order of a few thousand per year, with flexibility) of units, and these flats will not come on stream until at least 3-4 years ahead. Thus there is really nothing to fear on that front if these are what the government will do (not that I endorse the resumption of HOS, just that it doesn’t do much harm by itself).
The real mistake is on the uncontrollability of money supply, credit, and liquidity in the banking system, not land supply per se. And the problems created by money and credit are the consequences of the Hong Kong dollar peg, which limits Hong Kong Monetary Authority’s ability to exercise independent monetary policy, thus allowing money supply to grow uncontrollably. On the flip side, currency peg also means that there is nothing one can do if capital outflow occurs such that monetary condition is tightened. The tightening in China, as I have long expected, has taken the steam out of the property market in Hong Kong. Credit crunch in China will have a spill over effect to Hong Kong, as I have explained earlier this year, and the negative impact will be increased if the credit crunch is allowed to continue for longer. Furthermore, the strength of US dollar, if continues, will also be negative for property market as it introduces some tightening bias towards monetary condition.
The property market in Hong Kong has been around its peak since the second quarter, hovering around the peak for 2 quarters with shrinking transaction volume. For the reasons that I shall not repeat here, the real estate market is probably going to correct by at least 20-30% by the end of next year, and possibly close to 10% by the end od this year, and that’s likely to have nothing to do with what Donald Tsang is going to say on Wednesday.