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Of late, discussion about Hong Kong's property market has been heating up. Some days ago, during a question and answer (Q&A) session in the Legislative Council (Legco), Chief Executive Donald Tsang Yam-kuen expressed deep concern over the current situation. Later, former Chief Executive of the Hong Kong Monetary Authority (HKMA) Joseph Yam Chi-kwong and convener of the Executive Council Leung Chun-ying also commented on the property market. Joseph Yam is against imposing restrictions on non-Hongkongers buying properties in the SAR, while Leung Chun-ying is for increasing land supply. The housing issue strikes a chord with the people,but the issue is not easy to deal with as it involves complicated interests and technical factors.
Nevertheless, the housing issue is only one aspect of the overall economy and people's livelihood in Hong Kong. That the property market has become a hot subject for discussion also shows growing concern in society about the overall economic situation and Hong Kong's future. Various problems (in our society and economy) are related to the property market, which thus indicates where the overall economy is heading for. In the Legco Q&A session, Chief Executive Donald Tsang pointed out that (residential) housing prices were already higher than in 1997, reaching a dangerous level, with the amber and red lights turned on for affordability and investment returns. This is a very serious assessment of the current property market. It also shows the Chief Executive is fully aware how tough the current situation is. However, if this is the case, is there a significant difference between the property market and the overall economy?
Despite the good signs of strong growth and high employment, Hong Kong's economy in fact also faces enormous potential risks. The property market is an important part of the economy, and real estate is one of the pillar industries. Hence any trouble in the property market also means trouble in the overall economy. As a matter of fact, our economy is facing the problem of "twin-inflation": both consumer goods prices and the property bubble keep growing. And these two factors are locked in a vicious interaction with each pushing up the other.
Inflation pushes up housing prices, which in turn pushes up rents and other living and production costs, resulting in higher inflation.
Non-property related inflation in Hong Kong is also worrisome. Right now,inflation is stimulated by both internal and external factors. On the surface, growth of the consumer price index (CPI) is still below 4%, but it is expect to rise to at least 6% within this year. There are two external factors pushing up inflation:imported inflation resulted from the devaluation of the Hong Kong dollar in tandem with the greenback, and price hikes of commodities affected by imbalance between demand and supply. There are also two internal factors pushing up inflation: housing prices and wage increases, both of which tend to rise significantly. If the two external factors are basically beyond Hong Kong's control,then the two internal factors are, to a great extent, an outcome of government's behaviour in that the government either fails to take cooling-down measures or has adopted some measures that have in effect only served to fan the flames even more. Both mistakes are noticeable in the hikes in housing prices and salary increases.
The jobless rate in Hong Kong has dropped to its lowest level in recent years, with full employment restored. Such circumstances bring the risk of inflation, causing prices of goods and salaries to spiral in vicious interaction. What is fortunate is that non-growth development in Hong Kong in recent years has kept salary increases to a modest level. What is unfortunate is that two latest developments have sharply increased the pressure on salary growth. One is the eventual imposition of the minimum wage which pushes salaries up from the very bottom.
The other is that pay raises for civil servants are higher than expected even by the civil service unions themselves. Naturally, both have aroused fierce controversy in society. However, sensibility and fairness aside, they will increase the pressure on wages and inflation to rise, though how it will turn out remains to be seen.
It must also be pointed out that the performance of the property market and the overall economy is closely bound up with government policies. Surely the government is not omnipotent and a government policy is not a cure-all. But a policy still has its effects. Taking the property market for example, how has it developed to the dangerous state that the Chief Executive has warned about? In fact, various social sectors and citizens had long ago voiced concern, and the authorities should have taken precautions promptly rather than lowering their guard simply because housing prices were still below the 1997 level. Being forward-looking is crucial for the administration. It is too late to react after something happens. On the other hand, if right now both the red and amber lights are already on as the CE put it, then isn't it the time for the government to take some moves instead of waiting until the CE unveils measures in his Policy Address? Not to mention that, as the CE said, it takes some time to implement a policy, such as restoration of the Housing Ownership Scheme (HOS) or reclamation of land. Given the slow progress of construction projects in Hong Kong, even if restoration of HOS were to be announced right now, it would be just like drawing a cake and calling it a dinner. Moreover, it cannot be ruled out that some individuals may seek a judicial review on reclamation of land. If the government really believes Hong Kong now is in a dangerous situation, then it must not remain indecisive but must start to do what it has got to do.


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