|Contrary to what officials have been saying publicly,
the Hong Kong Government and its controlled organisations,
such as the Housing Authority, the Housing Society, the
Urban Renewal Authority (formerly the Land Development
Corporation), the MTRC, the KCRC and the Government Property
Agency, do not only control Hong Kong's land bank, they
are also the largest consumers. They are the biggest developers
and suppliers (accounting for about 80 per cent) of residential
property, as well as being the most powerful landlords
with a vast amount of property available for immediate
In relative terms, the government's incursion on the
property market has been so significant that the impact
has spread far wider and has penetrated much deeper
than the short-term intrusion on the Hong Kong share
market in August 1998.
Whilst I supported the government's short-term decision
to deal directly in the Hong Kong stock market to protect
our financial markets, I am less convinced that the
government should play such an active, permanent role
in the property sector and in its obvious pursuit of
social rather than economic objectives (namely housing
and transport needs).
I would go further to say that the government is gradually
placing itself in an untenable political situation.
By assuming such a dominant position in the property
market, albeit unintentionally, the government will
be blamed for any changes in the property market. If
property prices rise, Hong Kong's aspiring property
owners will blame the government for dashing their immediate
dreams of purchasing land and residential units.
If prices fall, existing property owners will blame
the government for their negative assets, as well as
for their diminished appetite and ability to consume.
In short, the government is in a no-win situation.
Officials will no doubt say that the government has
no intention of meddling with the free market and that
there is no real or imagined price-fixing policy in
place. This may be true, but the statistical evidence
and potential threat of the government being able to
take up a driving seat in the property market at a moment's
notice will stack heavily against the government's official
It is obvious that the government formed its land development
corporations with a number of social objectives in mind.
However, somewhere along the line, the government has
lost its direction and focus.
In reality, the Housing Authority and Housing Society
were formed to satisfy the community's housing needs.
The Urban Renewal Authority (formerly the Land Development
Corporation) was formed to speed up our urban renewal
process. These corporations have different and sometimes
inconsistent objectives. They have grown considerably
and now occupy a dominant proportion of the entire property
Most probably oblivious to their total aggregate influence
on the market place, each of these corporations is busy
creating its own bureaucratic empire at the expense
of the free market (they are doing this by grabbing
as much free or cheap land as possible). Notwithstanding,
Hong Kong's land resources have proven to be an effective
and handy means for these corporations to obtain indirect
subsidies (in the form of free / cheap land) from the
Given this background, it is not surprising that the
government has either not felt the need or has actually
neglected the need to assess the accumulative economic
impact (over a long period) that these land-subsidy
measures may have on Hong Kong's economy as a whole
and on the property sector in particular.
With heavy subsidies in terms of low land costs, these
corporations can afford to sell their finished properties
at their own pace, with little regard to the real economic
value and the full price these commodities could fetch
on the open market. If these activities are not monitored
and controlled, they could cause potential havoc on
the economic disciplines of our market place.
However, even if these corporations behave rationally
and adhere strictly to fair market rules, the sheer
size and pace of their growth has already crowded out
nearly all of Hong Kong's smaller property developers,
thus inflicting serious harm on the long-term health
of the property sector.
In these circumstances, there can be no plausible excuse
for the government not taking responsibility and openly
thinking through its various property-related activities
from a macro-economic perspective. If it does not, Hong
Kong will risk loosing its once free and vibrant property
sector that at one time accounted for about 40 per cent
of Hong Kong's GDP.
In the long term, I cannot see how the property sector
can function efficiently and in accordance with free-market
rules, given that there appear to be so many conflicting
agendas at play.
Also, I do not see how our government officials with
their public speaking skills can 'talk' themselves out
of this unpredictable and confused situation. If nothing
else, we need a fundamental policy shake-up to try to
restore true economic rules to the market place.
Given the government is responsible for all these corporations,
I think it would be better to manage them and their
related functions, ie land purchase, development and
sales of developed flats, under one 'roof'. The government
could then manage all of these housing corporations
in the short term according to open-market disciplines
to minimise any adverse influences (this is similar
to what the Exchange Fund Investment Corporation is
doing with Hong Kong shares.)
This same 'managing' body should also make it a priority
to cap the government's total market share at, for example,
no more than 20 per cent.
The government must demonstrate that it is embarking
on a path which will lead to a diminished role in the
property market. This could be done by publicly floating
all of the housing corporations, with perhaps the exception
of the Housing Authority.
Adapted from 'Letter to Hong Kong' aired on
RTHK on 17 June 2001. The full text can be found on
Eric Li's website at http://www.ericli.org. Eric Li
is the LegCo Accountancy Functional Constituency Representative.