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At What Price our Land?
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 resale.

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 line.

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 development market.

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 government.

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.

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