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Archive for October, 2008


Hong Kong’s Property Quagmire

Friday, October 3rd, 2008

Hong Kong’s single-most-serious problem is its inordinately high property price which impacts negatively many far-reaching social and economic issues that the government should try to address. Traditionally property prices have always been closely linked to income; however in the last 30 years or so the increases in property prices have far outstripped income growth. This causes a higher proportion of the working class not to be able afford to purchase property and moreover it increases the overall cost of living.

It can be argued that the low birth rate and the negative growth in population is caused by the high property prices; the rationale being that young couples can no longer afford to purchase an apartment to start a family - in many instances they wait until they are financially-abled or abandon the idea completely because the financial burden of having a family is so great. Without families, there are no children and hence the population falls.

The high property prices also causes high living costs; every retail commodity will be more expensive because all businesses will pay rent for the premises in which they operate, be it retail or commercial. All expenses will be factored into the final product or service sold.

Hong Kong’s property market is quite well-organised and is effectively controlled by the 5 developers who together own all of the Hong Kong prime commercial and residential buildings and complexes. The developers have been instrumental in driving up prices and maintaining them at these artificially-high rates; understandably for commercially -motivated reasons. A prime example of artificially-controlled property pricing is the high end residential complex Sorrento (in Jordan) completed in 2004; hitherto, only 50% of apartments within this complex have been sold and this is 4 years after the completion of the complex. The developer is offering the apartments at around HK$ 10,000 / sq. ft. which is considered very high in view of location and other factors. Instead of lowering the selling price to attract more buyers, the developer has chosen to maintain the original pricing level even though it’s not being absorbed by the market; in so doing, this props up the property prices of all new developments and all the property prices in the vicinity. If all developers behaved in the same way; Hong Kong can be assured to maintain higher than market price property rates everywhere.

This practice is very beneficial to developers and property investors, however it negatively impacts our society as a whole and reduces the competitiveness of businesses operating in Hong Kong.

The solution to fix this problem is for the government to levy expensive taxes on properties that are empty so it becomes economically not viable for property developers to sit on vacant premises for prolonged periods of time.

Any thoughts?

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