An "Inflated" Policy Address

[The Chinese version of this article was published in Ming Pao Sunday October 17, 2010.]

This is the original English text that I wrote:-

Despite many people’s wish for government to do something to rein in surging property prices and to help those who need subsidized housing, the administration seems determined to let the bubble grow bigger and to do the utmost minimum for the needy.

In the first paragraph of the housing policy section, Tsang clearly points out that “apart from public rental housing, the major role of the government is to supply land”, and he sees subsidized housing schemes as “an intervention in the property market”.

Yet on the land supply side, no clear determination can either be seen in ensuring adequate supplies. The “Application List” method, which places timing and site choice initiatives on developers’ hands, is allowed to continue. Only when “there is an upsurge in residential flat prices and developers do not actively apply for land under the Application List system” - only then will government put up land for auction. Apparently, Tsang does not think there is currently an upsurge in residential flat prices.

It is ironical that ceding control of land supplies (and therefore of housing prices) to developers is not regarded as intervention while providing subsidized housing to the needy against a background of highly unaffordable prices is considered market intervention. If the largest land supplier, who is supposed to also be the fair market regulator, lets some large, profit-driven, landowners/developers take over the land supply control, will there ever be a fair and balanced market? Judging from the tone of the Address, there is an apparent lack of sincerity to deal with current imbalances in the market.

The so-called “My Home Purchase Plan” (先租後買) is supposed to be government’s magnanimous way of helping the sandwich class to put a roof over their heads. But when one looks at the details, one would discover that the targeted tenants would have to pay market rent with no subsidies under the Plan, and, after five years, would be able to use half of the total rents paid as a downpayment to purchase either that rental flat or any other private flat.

The total stock of flats to be made available under this Plan is only 5,000, not to mention that the first such project will only be ready by 2014. Perhaps the CE has forgotten that 30,000 applications were received for 800 “Sandwich Class Scheme” flats earlier this year. Does the sandwich class really need government to help them save their own money, especially when potential tenants under the Plan have to pay market rent any way? God only knows what the market rent will be like in four years’ time. Perhaps a more pragmatic and direct way of helping the sandwich class to solve their urgent accommodation problem would be to introduce residential rent control with immediate effect.

It is not known whether Tsang is aware that the private residential rental index for flats sized 40 square meters or below in the 2nd quarter this year rose 19 percent over the same period last year and that the rental surge is likely to continue unabated in the foreseeable future. By the time the first project under this Plan is available, and given that the current property market surge is likely to carry on over the next few years, the Plan may as well be laid to rest.

Still, giving credit where credit is due, there are two positive points in the policy address. The first is the removal (albeit temporary) of real estate from the investment asset classes under the “Capital Investment Entrant Scheme” – Tsang has finally heeded public opinion on this issue. The second is Tsang’s proposal to legislate residential flat sales regulations, including the regulation of saleable floor areas of projects on sale. On this latter proposal, the problem of basing prices on 實用面積 would mean that the price per square foot would become inordinately high. One simple, no fuss, rule to follow would be to require that the total floor area to be sold in a single project must not exceed the total floor area that is stipulated as maximum buildable gross floor area in the Conditions of Sale or land lease.

On the other most controversial issue of wealth gap, proposals in the Policy Address only focus on patchy measures to aid the poor rather than on achieving social justice and a more even distribution of wealth over time. But then, not many people would expect Tsang to tackle deeply rooted issues like the land system and the tax system in the remainder of his term.