Nov 26, 2020 in Management

4.1.2 Land supply. Land supply and how government change land supply housing policies

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The land in Hong Kong is owned by the government. Sources of land for housing development projects, including reclamation, urban renewal, as well as redevelopment (Lui 2007, p. 1939). The methods that are used for land disposal in Hong Kong include tendering, private treaty, and public auction (Lai & Wang 1999, p.145). Up to 80 percent of land in Hong Kong is mountainous; therefore, the government restricts supply (Lai & Wang 1999, p.145). Hong Kong Housing market is unique because, though the country is considered a free market economy, the government still plays a significant role in the development of urban centres in that country (Peng & Wheaton 1994, p. 267). The land in Hong Kong is solely owned by the government. In most cases, the government enters into lease agreements with private developers. During public auctions, lessees with the highest bids are awarded land for a lease period of 75 years in case such land is for non-institutional use.

Lessees are required to pay premium as well as annual rents. The system ensures that the government reserves certain special powers that it uses to regulate land use (Mayer & Somerville 2000a, p. 647). Therefore, it is the government that determines the land to be supplied to the market, when to supply that land to the market, and the purpose for which that land is supplied to the market. Political considerations play a significant role in land disposal (Wong & Staley 1992, p.17). For instance, in late 1960s when revolution occurred in China, land disposal fell significantly. Consequently, between 1966 and 1967, no new land was disposed for housing development (Ho & Wong 2008, p.228). In addition, there was increased land release between 1979 and 1981 that was accompanied by high prices for real estates (Himmelberg, Mayer & Sinai 2005, p. 85). As a result, the government set apart a portion of land according to the Sino-British agreement (Peng & Wheaton 1994, p. 268). The current government has put in place a strategy to ensure that a number of sites become available for residential use. It is estimated that from 2014-15 to 2018-19, more than 210,000 residential units will be developed from these sites, 70 percent of these will be public housing units. Various District Councils have been consulted to enhance planning of the sites. Moreover, the current government says that it plans to relax some of the existing restrictions and streamline procedures so as to promote land development (Peng & Wheaton 1994, p.283). For example, the government made it public that it was going to lift its plan to develop moratorium around Wah Fu Estate to allow the development of public houses. Likewise, there has been a pilot scheme to enhance arbitration on land premium (Saiz 2010, p.96). It will help to discus and agree on land premium for lease modification or land exchange applications.

4.1.3 Public housing. Land supply and how government changed public housing policies

Apart from the government of Hong Kong controlling land supply, it has also been playing a critical role in supporting the provision of low-cost housing (Brueckner 1995, p. 397). Importantly, housing in Hong Kong is supplied through public rental housing (PRH), private housing, as well as subsidized home ownership scheme (Legislative Council Secretariat n.d., p. 2; Poterba 1984, p. 743). PRH as well as subsidized home ownership are under the Hong Kong Housing Authority (HA) and Hong Kong Housing Society (HKHS) (Hong Kong Housing Authority 2013, p.5). HA is a statutory organization that was formed in 1973 to implement public housing programs, specifically to low-income families that cannot manage to pay for private rental accommodation. For instance, by the end of March 2012, PRH that is under HA had managed to put up 761,000 flats and subsidized sale flats at the same period stood at 391,000 (Legislative Council Secretariat n.d., p. 2). In fact, by the end of the fourth quarter of 2012, 30.6 percent of people lived in PRH flats and another 15.8 percent lived in subsidized housing flats. However, private housing at the time still accounted for the highest percentage at 52.9 (Legislative Council Secretariat n.d., p. 2).

In 1987, the Hong Kong government came up with what it called a Long-term Housing Strategy that addressed a number of objectives. First, the strategy was to ensure that the people of Hong Kong got adequate housing at reasonable prices and rent (Hui & Yue 2006, p. 321). Secondly, it was also to ensure that the government satisfied demand for home ownership that was growing each passing day. Indeed, the government had estimated that through the strategy, it would increase home-ownership in the country to 70 percent (Lai & Wang 1999, 145). The strategy enabled Hong become one of the largest public housing providers during the 1980s, only dwarfed by Singapore (Lum 2002, p.137). The numbers of people occupying separate housing units have dropped significantly because the government of Hong Kong provides public housing. It means that while more housing units were provided by the government, there were a number of units provided by the private sector. As public housing becomes less expensive compared to private housing, many people have shifted to buying houses provided by the government Zabel & Paterson 2006, p. 68).

In 1999, the government introduced the Application List system whose aim was to supplement the yearly sales program. However, the government came up with a strategy to restore public confidence in 2002 following the Asian financial crisis (Lai 1994, p. 9). Thereafter, the Application List System was resumed in 2004 to improve the supply of residential sites. A total of 88 plots covering 94.93 hectares were sold from 2004 to 2013 (Legislative Council Secretariat n.d, p. 4). Moreover, in 2010, the government of Hong Kong fine-tuned its land supply plans, and decided to sell land through public auction and tender based on the existing market conditions at the time (Tse 1998, p. 1379). It implies that, even though the Application List system was still in place, the government was disposing additional sites through tender.

The current government has promised that during its term, it will continue to speed up the development of public housing as well as public rental housing (PRH). Consequently, from 2014-15 to 2018-19, approximately 77 100 public rental housing units are expected to be completed, where 23,300 units are to be completed during the 2015-16 financial year. The Long Term Housing Strategy is to ensure that 20,000 public rental housing units are constructed every year in the next decade. Hong Kongs current Chief Executive Officer says that the current plans will be achieved through a closer coordination with the relevant departments, proper planning, as well as through the provision of suitable community services. The Housing Authority is expected to add 2700 and 2000 flats in 2015-16 and 2016-17 respectively. Likewise, HKHS is expected to provide 1600 subsidized sale flats for pre-sale in 2016-17. Following the government request that was made in 2013, 1000 of the units will be in Sha Tin while two sites will be in Tseung Kwan O and Tuen Mun respectively. The two sites are expected to provide a total of approximately 600 units.

4.2 Impact on First time buyers, Hong Kong Residents and Non-Hong Kong Residents

4.2.1 Impact on first-time buyers

The government of Hong Kong announced in 2013 that it had taken various stamp duty measures to control what it calls exuberant property transactions. The measures that took effect in 2013 stipulate that the ad valorem duty charged on residential as well as non-residential properties would be doubled to 8.50 percent from 4.25 percent. Besides, the stamp duty on property whose value is HKD 2 million or less was expected to rise from what used to be HKD 100 flat fee to 1.5 percent of the transaction value (KPMG 2013, p.2). However, permanent residents of Hong Kong who are first-time home buyers were to be exempted from the new stamp duty rates (British Consulate-General Hong Kong 2014, p. 4; KPMG 2013, p.2).

4.2.2 Impact on Hong Kong residents

Special stamp duty (SSD) arises under a number of circumstances. First is when a transaction is involving purchasing and selling or transferring a residential property. Two, when property acquisition by a seller or a transferor took place from the 20th of the second last month of 2010, and finally, if property disposal by the person selling it is accomplished within 2 years to 2 years two months following acquisition date (Inland Revenue Department 2014, p.1). In a property transaction, both the seller and the buyer become jointly liable for paying special stamp duty. The buyer and the seller must specify in the Provisional Agreement for Sale and Purchase (PASP) as well as in the Agreement for Sale and Purchase (ASP) document who between the buyer and the seller should pay the special stamp duty (Inland Revenue Department 2014, p.1). If it is agreed that the person selling should be paying the SSD, then the buyer has to specify in the PASP and ASP that parts of the sale proceeds will be held to pay the special stamp duty.

Property withholding period of less than six months attracts special stamp duty of 20 percent rising from 15 percent that it used to be before 2010. The property withholding period of 6 to 12 months had SSD rise from 10 to 15 percent, for property withholding period of 12 to 24 months SSD rose to the current 10 percent from 5percent where it was in 2010. Lastly, property withholding period of between 24 and 36 months currently attract a stamp duty of 10 percent as opposed to 0 percent that it used to be before 2010 (KPMG 2013, p.2). The government argued that its move was aimed at curbing speculation. Double Stamp duty (DSD) also known as Buyers Stamp Duty (BSD) is paid by the buyer or the transferee of the property. Paying BSD was effected from the tenth month of 2012. However, if a buyer or a transferee of the property is a permanent resident of Hong Kong acquiring the property for him/herself, then such individuals are exempted from paying BSD. Limited companies regardless of whether their shareholders are permanent residents of Hong Kong are required to pay BSD if such companies acquired residential properties after October 2012 (Inland Revenue Department 2014, p.1).

4.2.3 Impact on Non-Hong Kong residents

In October 2012, the government of Hong Kong raised Buyers Stamp Duty to 15 percent for non-local and corporate property buyers. It is argued that the move was aimed at curbing speculation. The impact of increase in tax rate is to lower house prices (Leung 2007, p. 243).

4.3 Private Housing Market in Hong Kong- Luxury, Middle Class & Low-income

4.3.1 Impact to luxury market

The government of Hong Kong has undertaken to continue with steady supply of land for private residential development (Hwang & Quigley 2006, p. 426). This has been happening through land sales as well as land grants that include urban renewal together with railway property development. Importantly, the Lands Department continues to review and modify leases to promote land development. The strategies are based on the fact that Hong Kong is currently experiencing a serious imbalance in supply and demand of both private and public housing (Transport and Housing Bureau 2014, p. 1). Indeed, the demand for luxury residential in Hong Kong has continued even with new policies that the government of the country has put in place.

There has been momentum in public rental housing, home ownership program as well as village house markets. For instance, Knight Frank (2010) in its report says that the prices of luxury homes rose by 0.8 percent. The Knight Frank report further states that the imbalance in supply and demand witnessed in the luxury property market was because the government had failed to change land policies following the Asian economic crisis that occurred from 1998 to 2003. Even though the government had begun to increase the supply of residential land, it could take several years for supply of residential housing to normalize because of the construction cycle (Knight Frank 2010, p.2). Therefore, before supply of luxurious housing becomes adequate, prices are expected to continue rising because of strong demand, which is driven by money printing initiatives by various central banks around the world.

The Knight Frank report concludes that based on the governments latest measures, housing supply would remain fixed in the near future; thus, it would not meet end-user demand. To support its argument on fixed supply, Knight Frank says that Kai Tak redevelopment was likely to provide only 4000 units by 2015. The governments rent-to-buy program could provide approximately 1000 units by 2014, the governments reclamation program required at least eight years in order to provide the housing units that were proposed. It would also do the re-zoning of the about 30 hectares of commercial and industrial land into commercial land that was likely to supply 23,000 units during the same time. However, the conversion was dependent on the willingness of landowners to convert their land (Knight Frank 2010, p. 2).

4.3.2 Impact to middle class market

As the demand for housing continues to outstrip supply in Hong Kong, the middle class are expected to scramble for the a few housing units that are available (Pozdena 1988, p. 6). Apparently, most of the middle class citizens will not be able to compete effectively with the higher class and corporate for the luxurious housing properties, which are provided by the private developers (Yiu,Yu & Ji 2013, p.117). Apparently, demand will surpass supply, and this could make luxurious properties very expensive (Sutton 2002, p. 47). Unless the government continues to institute policy changes that support cheap and affordable housing, most of the middle class permanent residents of Hong Kong may not be able to afford housing.

4.3.3 Impact to low income market

Just like the middle class group, the low-incomers may not be able to afford the exorbitant charged by the private developers for housing units. The low-income market segment is expected to receive little or no housing from the private developers in Hong Kong. Apparently, the developers will continue to develop housing units that generate more profits (Mikhed & Zemcik 2009, p. 371). This means that the low-income groups have to receive the support of the government in the form of policy initiatives to be able to buy the units developed privately (Blinder 1991, p.93).

4.4 Empirical Studies of Singapore

In Singapore, the government charges stamp duty on any immovable property. Documents that relate to more than one matter have their duty charged differently in Singapore. For instance, a stamp duty can be charged on a document for sale as well as lease-back for the same property (Inland Revenue of Authority of Singapore 2015). In Singapore, stamp duty is paid in accordance with the terms found on the document such as tenancy agreement. Stamp Duty act helps to determine who should be paying stamp duty whenever a clear specification on the document of agreement is not given. In Singapore, there are three types duties are payable namely; Buyers Stamp Duty (BSD), Additional Buyers Stamp Duty (ABSD), and Sellers Stamp Duty (SSD). Buyers are required to pay BSD for sale or purchase of property that are found in Singapore. BSD is computed on the purchase price with reference to the market value of the property being purchased or the purchase price that is indicated within the document or that which is higher between the two. Currently, the first $ 180,000, the BSD rate is 1 percent while the next $ 180,000 attracts a BSD rate of 2 percent. The remaining amount is charged 3 percent (Inland Revenue Authority of Singapore 2015, p.1).

Anyone who buys or acquires a residential property (including land) on, or before 8 December 2011 could pay Additional Buyers Stamp Duty. This means that the buyers who are affected will have to pay BSD as well as ABSD. Liability for the ABSD depends on the buyers residency status, the number of residential properties that the buyer holds, and if he/she is by him/herself or it is a group. Therefore, if buyers of a property have various profiles, then the buyer with the highest ABSD rate applies. Individuals who are citizens of Singapore or who have applied for permanent residency and can give proof to that effect are bound to enjoy lower rates of ABSD (Inland Revenue Authority of Singapore 2015, p.1). The number of residential properties held by the buyer is considered based on partial/joint ownership, date of agreement, if the properties are held on trust, properties that are held outside Singapore, and properties listed for acquisition. Anyone who bought or acquired a residential property as at 20th February 2010 or industrial property as at 12th January 2013 is required to pay if the properties are sold within the holding period (Inland Revenue Authority of Singapore 2015, p.1).

Currently, more than 80 percent of Singaporeans occupy flats that were constructed by the Housing and Development Board (HDB). This is based on the philosophy of home ownership that the government introduced in 1964. The aim of the scheme was to create a means between affordable housing and home ownership. Therefore, affordable housing that is witnessed in Singapore is due to the governments strategy of providing a 99-leasehold or resale of flats by the HDB (Lee Kuan Yew School of Public Policy 2014, p. 3). Apart from the houses that were built by the HDB, Jurong Town Corporation (JTC) also constructed flats in the Jurong and Sembwawang industrial parks for low-income families. The project commenced in 1974 and was completed in 1982. However, HDB took over the activities of the JTC, thus it is the exclusive provider of public housing in Singapore (National Library Board Singapore 2015, p.1).

Apart from building flats in the new estates, HDB also renews old estates through a plan known as Estate Renewal Strategy (ERS). The coordinated approach include Main Upgrading Programs, the Selective En block Redevelopment Scheme (SERS), the Lift Upgrading Programme (LUP, as well as other strategies for improving older estates. In 2007, the Home Improvement Programme (HIP) replaced the Main Upgrading Program (MUP). Notably, HIP was introduced in 2012 to provide various options for the elderly. These improvements fall under the Enhancement for Active Seniors (EASE) programs that aim to provide not only safe but also a comfortable environment for the elderly to live in (Housing & Development Board 2015, p.1).

In 2011, the government of Singapore introduced the Additional CPF Housing Grant (AHG) to help low-income families purchase their flats. Later, in between and 2009, the program was extended to cover more income groups including lower-middle income groups. At the moment, families that earn between $ 5000 and $ 40,000 per month qualify for the AHG. In 2011, the Special CPF Housing Grant (SHG) was introduced over and above the AHG to help low income families flats (Housing & Development Board 2015, p.1). Since 2010, the government of Singapore has increased supply of state land for sale to private developers. This is expected to reduce housing deficit as more private developers that acquire land. The government has put in place pervasive intervention efforts in the housing sector as well as land supply (Lai, & Wang 1999, p. 147). This strategy is characterized by a dominant public housing sector

Chapter 5.0: Data Analysis

Increasing housing prices in Hong Kong can be attributed to high demand. The recent property boom can be attributed to both economic and demographic factors. Notably, Hong Kong has witnessed significant economic growth because of political confidence from both the people of Hong Kong as well as international organizations. As a result, the demand for homes has surpassed supply. As the population grows, the demand for accommodation also increases. Even though there has been a dramatic change in the population of Hong Kong, housing production has not been at par with the changes in demand (Arshanapalli & Nelson 2008, p.43). The kind of disparity between demand and supply has led to the rise of housing prices as well as rent (Campbell 2000, p. 1519).

The population of Hong Kong has one prominent feature that is the majority of people belong to the most productive age bracket of between 25 and 44. Undoubtedly, these groups of people are mostly potential first-time home buyers. Often, they have stable sources of income as well as adequate personal saving that they can use to pay the initial deposit or down payment required for the small flats (Ho & Wong 2009, p. 63). Similarly important is the labour force engaged in professional as well as managerial and other high paying jobs. Therefore, the ability to save and accumulate wealth is no doubt quite substantial (Jud, Wingler & Winkler 2006, p.17). This is a major reason behind the constant high demand for housing, particular in the residential segment.

The questionnaires contained questions regarding inflation rates, anti-speculative laws (BSD), mortgage affordability, bank interest rates, the Long Term Housing Strategy (LTHS), and the selling strategy of private developers.

5.1. Responses to whether Anti-speculative Laws have Contributed to the Rise of Housing Units in Hong Kong

Table 1

Response

Strongly agree

Agree

Do not agree

Respondents

38

8

4

Percentage

76

16

8

From the data presented, a total of 84 percent of the respondents either strongly agreed or agreed that anti-speculative measures had contributed to the rise of property value in Hong Kong. Only 8 percent of the respondents did not think that the laws had contributed to the rise of property value. Speculative activities were very common in Hong Kongs housing sector where developers pre-sold their property units to buyers at the developmental stage. The pre-sales were often settled by staged development where a significant percentage of the property price was paid at the time of construction, and the remaining balance was paid during issuance of permit to signify formal completion of property development. As a result, speculators often came on to the scene hoping to gain quickly by exchanging the pre-sold housing units with a capital sum of a lesser percentage of the full price, which depended on what stage of development the construction was at (Chan 1991, p.19).

The government sought to dampen speculation, which it believed was driving the high housing prices, by instituting legislative measures to reduce speculation and stabilize the market (Flood & Hodrick 1990, p. 87). For instance, the government increased special stamp duty of properties withholding period of less than six months to 20 percent from 15 percent that it used to be before 2010, properties withholding period of 6 to 12 months had their SSD rise from 10 to 15 percent, for property withholding period of 12 to 24 months, SSD rose to the current 10 percent from 5percent where it was in 2010, and lastly, property withholding period of between 24 and 36 months currently attract a stamp duty of 10 percent as opposed to 0 percent that it used to be before 2010. This measure temporarily cooled down the market prices. Indeed, from the interviews, MR. Eric Chu, the Sales and Marketing Manager of New World Development acknowledged that the high rates following the adjusted stamp duty may reduce the incentive for investors who want to purchase properties. The investors may go into a quick time out as they seek new strategies and then come back with new and better alternatives to keep the prices high. Apparently, quantitative easing may likely lead to significant inflow of funds. In addition, mortgage rates have remained low (Glindro, Subhanij & Zhu 2008, p.347). Consequently, homeowners do not feel the agency of selling their property quickly. It means that the property market also will not experience any significant growth in the short-term. Even though it may appear attractive to bank on the government measures of cooling down the property market, what cannot be ignored is the fact that the side effects will put more pressure on the property market. In that regard, the vicious cycle is bound to be created, where there will be high demand, but because the market does not grow, the prices of property will shoot up again. But, as it stands, the less strict duty rate as well as loan-to-value ratios may small and mid-sized properties more attractive. Therefore, the policy may benefit first-time homebuyers, but what must not be forgotten is that the first-time buyers are also the most vulnerable group when rate increments or market changes occur. However, the market has picked up again because of the wealth that is coming from the booming stock market as well as low interest rate.

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5.2. Responses to whether High Mortgage Interest Rates have Contributed to High Property Value in Hong Kong

Response

Strongly agree

Agree

Do not agree

Respondents

19

5

26

Percentage

38

10

52

The results indicate that less than 50 percent of the pespondents believed that mortage rates are high, thus contributing to the high property values in Hong Kong. A significant percentage of the respondents (52%) did not think that the current mortgage rates are high, and thus contributing to the high property values. Hong Kong has experienced only moderate inflation, mortgage rate as well as average economic growth. It has made housing somewhat affordable for middle class individuals who might have disposable income to cover monthly mortgage repayment charges. Rising income encourage ownership as middle class households can afford the required down-payment. Besides, more people, residents of Hong Kong, want to improve their living environments. However, the low rates of mortages can be counterproductive because investors or individuals with disposable income can scramble for housing property, and this may result in soaring prices. Low interest rates appear to stimulate interest in the property market (Wong, Hui, & Seabrooke 2003, p. 163).

Furthermore, the interviewees noted that in a bid to support the governments anti-speculative measures, banks had restricted mortagage loan to 70 percent of the market price while the government at the same time had increased stamp duty. This is aimed at cooling down the property market. Low mortgage rates will encourage property development in the new territories. For instance, the same trend was witnessed in 1993 where there was a slight slump before prices of luxury flats increased by 25 percent while small and medium residential properties increased by up to 10 percent (Hang Seng Bank Limited 1993). After some time, it is expected that high prices would rebound .

5.3. Responses to whether Changing Inflation Rates have Contributed to High Property Value in Hong Kong

Response

Strongly agree

Agree

Do not agree

Respondents

27

13

10

Percentage

54

26

20

Nearly 70 percent of those who responded gave an indication that high inflation rates also contributed to high property values in Hong Kong. The New Town Policy was cited as a major factor that had contributed to the changing rates of inflation and subsequent high property value in Hong Kong. Since the 1970s, the government of Hong Kong had resorted to developing new towns in the New Territories because of unavailability of new land supply for residential development in urban areas (Qian 2008, p.497). Some of the new towns have included Tuen Mun, Junk Bay, Ma On Shan as well as the New Territories in the northern part of the country. Undoubtedly, the New Town Policy has been critical in meeting the housing needs of residents in the previous years. However, there has been a mismatch, especially between the population and their jobs because of the need to commute.

Apparently, the transport infrastructure has not been capable of dealing with the increased demands in areas near the new towns. There have been consistent traffic congestions as more people occupy the new towns. The congestions have led to increased costs of journey to work. This has led to a shift in demand of housing to urban areas where most people go to work. People seek residential housing in convenient towns such as Kowloon, Hong Kong Island among other towns. To sum up, as the cost of journey to work rose because the concentration employment opportunities in urban centres, so has been the shift in demand away from the new towns with abundant housing supply to the urban centres with limited supply. Therefore, the mismatch in demand and supply between the new towns and the urban centres has led to price inflation in urban areas. Many people have shifted to urban centres where they have bought a few residential houses. However, as people strive to buy the a few houses, the prices have equally shot up.

5.4. Responses as to whether the Governments Policy of Providing Public Housing has led to Underproduction

Types of responses

Strongly agree

Agree

Do not agree

The Number of respondents

39

11

0

Percentage of respondents

78

22

0

Nearly everyone that respondend noted that the governments policy of providing cheap public housing to low-income had not succeeded. In Hong Kong, housing is supplied either by the government or the private sector. The Hong Kong Housing Authority and Housing Society are responsible for the provision of public housing. However, the Housing Society does not play a major role. Completed flats are offered for sale to eligible applicants who belong to various income groups. For instance, by the end of the month of March 2014, there were a total of 5000 successful applicants. From the successful applicants, 3 983 had applied to obtain Certificate of Eligibility so as to purchase (Transport and Housing Safety Bureau 2014, p.2). For example, during the Chief Executives 2014 address, he noted that the Home Ownership Scheme (HOS) would lead to the supply of nearly 470,000 housing in 10 years, with 40 percent of that number coming from private developers (Transport and Housing Safety Bureau 2014, p.1).

On the other hand, the private sector has no prescribed program for housing because developers are free to offer for sale completed houses whenever they deem appropriate. However, from the interview with Mr. Shi Chong Bun, the Senior Project Manager with Hien Engineering Limited, it became apparent that the Rating and Valuation Department (R&VD) of the government carry out regular surveys regarding production timing of private developers. However, what is evident is the fact that the number of housing units supplied each year, both by the private developers and the government has not been able to meet the demand.

The government role in housing production remains significant because it provides approximately 60 percent of low cost housing. The Long Term Housing Strategy (LTHS) that was promulgated in 1987 and has been reviewed over the years was adopted by the Hong Kong Housing Authority for public housing production. The LTHS strategy of ensuring annual production of public and private housing amounting to 40,000 and 30,000 units respectively has not been met according to the interview held with Mr. Shi Chong Bu of Hien Lee Engineering Limited.

Underproduction of public housing has been attributed to a shortfall in land supply, as well as lengthy and complicated administrative procedures that have to be followed in order to acquire land (Zhong, Zhu & Li 2006, p. 157). Mr. Shi noted further, that the amount of land that is offered for the production of public housing time and again deviate from what has been agreed with the Land Commission. From the interviews, Mr. Dave Tsui, the Sales and Marketing with Hong Kong Land and Mr. Eric Chu, the Sales and Marketing Manager with New World Development both agree that even though the government has urged the public tenants to buy private sector housing units through the provision of Home Purchase Loan Scheme, the response has not been very high. Apparently, lack of interest has been credited to the rising prices arising from the tightening of mortgage lending ratio.

5.5. Redevelopment

The government has also put in place a redevelopment plan that to some extent has not been successful in alleviating the problem of high demand and low supply of housing in Hong Kong. Over the years, the government in its redevelopment plans has over-estimated flat production by the private sector. From the interviews with the private developers, it was noted that supply of housing from the redevelopment plans cannot be guaranteed due the complicated as well as lengthy completion processes that the private developers have to go through (Cheshire & Sheppard 2005, p. 656). In addition, private developers tend to slow down the development of housing units whenever the future becomes uncertain so that profitability is not guaranteed. A good example is in the current situation where stamp duty has been increased significantly. These have contributed to low production of housing units, thus low supply and high demands. Consequently, the prices have raised considerably as a result of the redevelopment plans.

5.6. Profitability

From the interview with Mr. Eric Chu, the Sales and Marketing Manager of New World Development, one thing became apparent. The private sector produces housing units with the expectation of making profits. The current long construction and completion duration of housing units can be attributed to the decisions that were made before. Consequently, the volume of houses developed is often based on lagged construction, housing prices, as well as expected price increases once such development are completed (Mayer & Somerville 2000b, p. 94). However, supply cannot meet the current strong demands in short-term. The ever rising prices as well as an active market are bound to encourage private developers to increase the pace of production of residential housing projects. In contrast, if residential development slump down or in case of unfavourable market conditions, private developers will slow down the production of more housing (Xiao & Liu 2010, p. 927). For example, around the year 1991, there was the Asian Crisis that discouraged many private developers, thus there was insufficient supply of housing to meet the market demand between 1992 and 1993. Inadequate supply tends to encourage increase in prices (Green, Malpezzi & Mayo 2005, P. 336).

5.7. Lease Agreement Requirements

Lease conditions require private developers to complete housing projects within a given time period. Consequently, the possibility of hoarding residential land is minimized. However, putting the developed housing units in the market is at the discretion of the developers. Certainly, developers would want to sell the units immediately they are completed except where the market experiences a slump down. It is no doubt that in most cases, only the big developers may be able to withhold their property developments from a weak market for a long time before releasing to the market (Cheshire, & Sheppard 2004, p. 626). Hoarding may make housing developments unavailable, thus pushing the market price high. Under the consent scheme for new developments, private developers must seek consent for pre-sell flats from Land Authority. Initially, before the governments adoption of the anti-speculation measures, developers could apply and be granted pre-sell consent several days before a flat is completed. This has accorded developers the freedom of timing on when to offer flats for sale as well as the opportunity for speculators to resell the yet to be completed buildings (Homm & Breitung 2012, p.199). Moreover, there was the internal allocation quota where 50 percent of the developed flats were made available for sale, and this is believed to have encouraged speculation. When 50 percent of the flats were out of reach of the public, a false impression was created that houses are in short supply. Consequently, prices of the available flats rose further making housing properties more expensive.

5.8. Monopolistic Competition

From the interviews, it was noted that the governments monopolistic tendency in the face of competition has led to price increments in the private sector. For example, when the government banned the re-sale of unfinished properties in a bid to curb speculation, developers complained of the move being a killer to the property industry (Dong & Sing 2013, p. 18). Furthermore, when the government tightened the banking lending policy, most of the developers have had to offer more attractive payment terms so as boost sales. However, this move may harm small developers who cannot afford more financial resources. Likewise, a lot of capital may be tied up in it, thus hampering redevelopment plans as well as the capacity to initiate new projects. The anti-measures have strengthened monopolistic tendencies of the big developers. In fact, before, government representatives argued that financial institutions, not the developers, should offer financial loans.

5.9. Market Distortion

Even though the government intervention strategies have proved to be undesirable in most cases, it has failed to come up with proper mechanisms to deal with the problem of rising housing prices. Government officials have managed to suppress housing prices marginally and believe that the existing vacant flats will supplement shortage of supply; this might not work in the long run. Apparently, when all the available vacant flats are eventually sold or absorbed by end-users, the market might become dormant. In the meantime, the government of Hong Kongs policy has not taken into consideration how prices flow in a free market economy. In all markets, prices are determined by the quantity of goods supplied and the amount demanded by the customers. Thus, decision making of both producers and consumers is determined by price movements. Therefore, when the supply of a product is higher than its demand, then price of that particular product is expected to fall, but when its demand is higher than supply, then the price is expected to be higher. Regarding the rising prices, it is evident that increasing demand for housing has been occasioned by lagging supply. Even with the upsurge, the government has not put in place any significant measure. Instead, it has allowed private developers to achieve their profit motives through temporary increased supply. Unfortunately, the government may have misinterpreted such increases in price as being caused by speculation. The end result is the rising housing prices that ordinary people, especially low income earners cannot afford. Thus, the administrative measures that the government has put in place to contain speculation may cause housing price downtown. Notably, this directed drop of prices of housing property may send a wrong message to the whole market as well. Consequently, property developers who foresee a likely occurrence slump down in the property market as well as lack of incentives in the residential property market may abandon everything. This would lead to inadequate supply, thus increased prices as well.

5.10. Recommendations

The current measures put in place by the government such as increasing stamp duty may have stifled rising housing prices in the short run, but housing supply may not increase in the long run. Apparently, suppressing speculation may only temporarily affect demand; thus, it cannot solve the problem of falling supply. The shortfalls in supply have been cumulative thereby creating a structural problem. This calls for immediate measures to solve the severe problem.

First, the government needs to be flexible in its planning strategies and standards because this will allow increase in plot ratio. Increasing plot ratio will certainly provide more floor area for housing development. Even though town planners may be worried about the effect of increasing plot ratio on infrastructure such as transportation, such worries are not warranted. Notably, it is the population, not the building size that will impose demand on infrastructure. As can be seen, the ever increasing population in Hong Kong is already creating more demand even before implementing the plot ratio strategy. Moreover, there is need for greater flexibility at this critical point to provide more housing to stabilize the market. The government has to agree with developers that they (the developers) provide proper landscaping indicating how plot ratios have increased.

Secondly, it is appreciable that even though the demand for larger housing units has been on the increase due to improved economic status of most residents of Hong Kong, the government can help manage it. It could urge property developers to build small but many housing units to cater for the low-income and middle class groups that may be purchasing flats for the first time. The increasing population is a clear indicator that there will be more first time home buyers for small units. Consequently, the government policy needs to focus more on this group of the population.

Thirdly, the government needs to change its administrative measures including making changes on pre-sale activities for private developers. Allowing private developers to undertake pre-sale agreements may free tied up capital. Such funds can be re-invested into more housing developments to enhance supply. The government needs to appreciate that speculative activities in the housing sector enable current prices to reveal the possible future demand; thus, planning production to respond to the changing demand. Speculators often help in smoothening price fluctuations (Otalo-Magne & Rady 2004, p.294). On the other hand, eliminating speculators is likely to increase information costs to the producers and consumers, thus dampening investment (Grimes & Aitken 2010, p. 342).

Moreover, land acquisition processes need to be reviewed from the current complicated and lengthy procedures. The Housing Authority has to make simple its administrative procedures to enhance planning and tracking of transactions. In this regard, there is need for inter-departmental coordination to oversee the procedures as well as acquisition and development activities (Peng & Thibodeau 2012, p. 925).

Finally, the government could introduce capital gain in taxation where owner-occupiers are granted tax exemptions. Taxing home occupiers every time they move to new houses may cause liquidity. Apparently, the Inland Revenue Authority of Hong Kong needs to follow closely and ensure that home owners declare all property transactions and that all taxes are collected. This is likely to reduce speculative activities.

6.0. Conclusion

In this research, the government of Hong Kongs policies on the property market and their impacts have been examined. The government of Hong Kong plays a vital function in acquisition and development of land. Most of these policies and strategies that the government has come up with are meant to be helping and cushioning permanent residents, especially low-income earners and the middle class that form the bulk of the population. What became evident is that over the years, the government has adopted various recommendations, with some having positive effects while others have negative effects on housing supply. For instance, the new stamp duty that endeavours to reduce speculation may benefit buyers because it minimizes aspects such as pre-sale agreements. However, private developers are bound to feel the negative effects the policy and this may reduce housing supply. Reduced supply of housing units is bound to affect the ability of low-income earners and some middle class citizens to purchase houses, especially first time buyers. However, it is appreciable that low mortgage rates charged by financial institutions in Hong Kong have been helpful for buyers. As the economic situation of Hong Kong continues to improve, more people will have disposable income that they will be able to use to re-pay mortgages. Reducing lease period from 999 to 99 years is an idea by the government that will ensure property developers, develop and sell housing units immediately development is completed.

Mismatch between demand and supply of housing units has been identified as a critical issue that needs to be addressed. Private housing supply has so far been below the government projections. On the other hand, the government also has not been able to provide adequate housing; there have been fluctuations in the recent past. This low production, particularly at the time when demand is growing has led to increase in price. Important government institutions that will remain critical in containing price increments include the Inland Authority of Hong Kong, the Housing Authority and Hong Kong Housing Society.

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