By Keerthi G
Earlier this year, Hong Kong was named the most unaffordable city in the world for
the ninth year in a row, and with good reason. About one in five people live below the
poverty line. The wealth gap is so extreme the most expensive neighborhood in the
city overlooks the restaurants where locals that can’t afford rent are forced to sleep.
Housing costs are skyrocketing to such inane values that residents are considering
moving into houses rumoured to be haunted—being the sites of suicides, murders
and accidental deaths—for the sole aspect of their being significantly cheaper than
other, ‘normal’ houses. There are also thousands of residents living in 'cage homes', spending months on end in incredibly cramped spaces.
The current average salary per month is 19100 HKD (2430 USD) for male workers
and 14700 HKD (1875 USD) for female workers. The average price for a
home is 20.9 times the annual household income in Hong Kong, which is why a
mere 49.2% of the population owns property in Hong Kong.
As of April 2019, Hong Kong’s government has said the solution is to find more land.
The city needs at least 2,965 acres more land for housing, economic development
and improving quality of life, according to a government-commissioned study in
2016.
Though dormant, the government has hardly been comatose in the face of the need
to improve the situation.
One potential (and impractically expensive, costing 80 billion dollars or over half of
Hong Kong’s total fiscal reserves) plan has been to build 4,200 acres of artificial
islands in the South China Sea, between the existing Hong Kong and Lantau islands.
Critics, however, have thought the island plan unreasonably pricey, bad for the
environment and prone to catastrophe given the accelerating dangers of climate
change.
But land reclamation potentially involved digging up marine mud from the seabed
and building on top of the then sand-filled area, injecting cement into mud at the
bottom of the sea to create columns strong enough to build on, or dropping giant
steel cells filled with debris onto the seabed to anchor seawalls supporting an
artificial island. All these methods affected aquatic life or tended to be too unstable to
take the risk of implementation this time. Some of the population are in favour of rent controls to keep the property price
affordable.
Another alternative that has gained public support is repurposing existing former
agricultural land for housing, which would only cost a fourth of the reclamation
project and provide more than a million housing units. However, private businesses
that are difficult to shutter without compensation and relocation are operated on
these sites. This housing policy, favouring private developers over public need, is
considered a reason for the rising prices of rentals, and reducing supply of affordable
units.
Another factor is Hong Kong’s tax system, which has resulted in higher property
values meaning more government revenue. The government decision in 1997 to halt
public housing construction planning (at the time the Asian financial crisis hit) has
also been blamed for Hong Kong’s housing crunch, especially since it never returned
to pre-crisis construction levels even as it recovered in 2004.
About 30% of Hong Kong’s population lives in public rental housing.
For all of Hong Kong’s economic ups and downs, home prices have risen a
whopping 210% since the end of 2008, when the U.S. began cheapening money to
cope with the global fiscal crisis. Because the Hong Kong currency is tied to the U.S.
dollar, the city must mirror Fed moves.
THE COVID-19 FACTOR
In response to the pandemic, the city has converted a newly built public housing
complex with nearly 5000 apartments into a quarantine facility, one of the largest in
Hong Kong. Police have erected barricades around the entire complex to ward off
protestors that had previously torched another high-rise Hong Kong had been
planning to use as a quarantine facility, fearing that the virus could spread in their
neighbourhood.
Hong Kong also has a home quarantine program for lower risk population. But the
rising unemployment rate (highest in 9 years) due to COVID 19 and social tension is
affecting local housing prices.
Concerned professionals seem to have different views on the subject of real estate
impact. While Henry Mok, Senior Director of Capital Markets at JLL in Hong Kong
said, 'As the current state of unemployment is mostly concentrated in the lower-
income segment, the impact on prospective buyers remains relatively small,’ Nelson
Wong, Head of Research at JLL in Greater China commented that , ‘higher
unemployment will likely erode housing demand as some prospective buyers retreat,
while more owners may choose to sell, tilting the market dynamics to favour buyers
more.’
Either way, real estate agents consider it unlikely that prices will drop to the extent of
the last pandemic, despite popular belief to the contrary. The (limited) fall in real
estate prices, while already sparked from the social unrest, and dating back to the
Asian financial crisis, has only been acerbated by the pandemic. The root cause,
however, for both of the latter, remains rising unemployment rates.
In short, real estate in Hong Kong has the delightful medley of dual aspects of
functioning: a battered retail and office sector with fortunes tied to the broader
economy that contracted 8.9% in the first quarter, co-existing with a resilient housing
market that seems impervious to the disaster around it.
Home transactions are likely to rise again, since Hong Kong still suffers from a
crippling supply shortage. Citigroup analyst Ken Yeung opined that the worst is over
for home prices, which could rise between 5% and 10% by the end of 2020.
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