Generation 40s – 四十世代

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Why Hong Kong is failing to rein in housing prices

CommentInsight & Opinion
Victor Zheng and Roger Luk say the government’s control measures, which are meant to favour end users, are in fact working at cross purposes due to the over-regulation of mortgages. As a result, the secondary market is stagnant and unable to match supply with demand to moderate prices

Last November, the Hong Kong government again raised the stamp duty for buying residential property, yet housing prices also reached a new high. Apparently, these additional “spicy” measures could not arrest the price hike. For the past four years, the government has endeavoured to stabilise the housing market, but in vain. So, why don’t these demand-side measures work?

When the global financial tsunami hit in September 2008, Hong Kong’s housing market was already grossly imbalanced, with a mismatch in demand and supply. Owing to the city’s linked exchange rate system, low interest rates and quantitative easing in America, excessive liquidity has altered the landscape of the housing market.

Since 2009, the government has introduced various measures in an attempt to cool excessive demand, including increasingly aggressive controls, from 2012 onwards, that are meant to prioritise homebuyers and depress investment demand, particularly from non-residents. Yet, prices had risen a further 50 per cent by the end of last year, notwithstanding the fact that the US Federal Reserve had started to raise interest rates a year earlier, in 2015.

The measures were supposed to drive away speculators and investors, leaving behind end-users. But it has not been the case. Where did the “spicy” measures go wrong?

The taxation measures set out to suppress non-user demand with a levy, while the mortgage measures are meant to give users priority. Together, they are supposed to facilitate the ownership of housing at an affordable price with affordable financing. Unfortunately, as it turned out, the measures worked against each other, with undue restrictions on mortgages offsetting the advantages in taxation.

Mortgages are probably the safest form of lending but our bureaucrats think otherwise. With the financial crises of 1997 and 2008 still fresh in their minds, they fear a recurrence of negative mortgages and systemic risk. Those so-called “countercyclical” measures – including a 40 per cent down payment, stress test, maximum tenure, maximum debt service requirements and so on – induce a sense of comfort among bureaucrats, but they fail to see that the subprime mortgage crisis was unique to America.

The over-regulation of mortgages has brought undesirable side effects. Trading up is out of reach. The secondary market is quiet, thus losing its role of matching demand and supply through price negotiation. When the resale market is not functioning, the primary market (new development) dominates. Around 20,000 units of new private housing come into the market each year, accounting for 5 per cent of the housing stock but 30 per cent of transactions in recent years. Why?

Homebuyers are turning to the primary market due to practical considerations. Developers are counteracting the “spicy” measures with self-financing by way of a second mortgage to help buyers with the down payment. As it is tantamount to a deferral of receipt of payment, sellers in the secondary market are unable to match such terms.

In addition, developers are offering tailor-made units that match affordability. They are building smaller flats while upholding high prices (in terms of price per sq ft). Studio flats of less than 200 sq ft are not uncommon.It explains why many Hongkongers worry about further price hikes despite the government’s control measures.

The taxation measures were supposed to turn the housing market around in the buyer’s favour. However, they have benefited developers simply because the mortgage terms are too harsh. Even genuine homebuyers find it hard to get sufficient financing. The problem with mortgage measures is they are case-based rather than portfolio-based. Regulatory parameters have become the de facto mortgage terms. The collateral damage is a grossly distorted housing market unfavourable to resale.

The “spicy” measures are supposedly contingent and targeted. But the over-regulation of mortgages has thwarted their policy intent and crippled the market. There is no better redress than reviving market dynamics. Actually, banks know better than bureaucrats about credit and risk management. To turn the market around, a two-pronged approach is necessary:

First, abandon case-based regulation, such as setting ceilings on mortgage ratios, debt-service ratios, tenure and so on, and replace it with portfolio- and risk-based regulation. Second, set portfolio-based regulatory parameters in terms of mortgage ratios, debt-service ratios and stress tests. If any bank does not meet them, it should buy mortgage insurance.

The primary argument for demand-side management measures is the prolonged shortage of supply and falling affordability. However, it is not supported by the latest official figures. At the end of 2015, there were 1,092 domestic residences for every 1,000 households on average. The 5 per cent rate of public housing vacancy is structural, but the 14 per cent figure for private housing suggests a mismatch.

One may infer that there are flats seeking occupants and households seeking accommodation. Actually, there has been an excess of private housing for years. If the government’s measures were effective, the excess ratio would not be three times the structural vacancy.

Meanwhile, the policy goal of allotting public rental housing to households within three years of application is still unattainable, and the queue is growing fast. Even if these demand-led measures were needed, they would not help resolve the problem.

Public and private housing are mutually exclusive and interchangeable. The re-emergence of subdivided flats in private housing means that the core problem is not an imbalance but a mismatch of demand and supply. Without a holistic housing policy, the current measures are driving those still eligible for public housing to queue for it indiscriminately, thus distorting the picture. Apparently, the government is still undecided about the policy for subsidised housing, as evidenced by the pilot sale of flats supposedly for rental. Should our housing policy be primarily accommodation-based or ownership-based?

It is often said that businessmen are smarter than bureaucrats in challenging markets. There is no surprise that the “spicy” measures and housing prices are trapped in a vicious cycle as mortgage measures in particular defy market reality. Housing demand and supply are not synchronised. The coexistence of public and private housing only adds to the complexity. Unless and until they are separate markets and market dynamics is restored, the impasse will carry on.

Dr Victor Zheng is assistant director of the Hong Kong Institute of Asia-Pacific Studies at the Chinese University of Hong Kong. Roger Luk is a retired banker and an honorary research fellow at the institute

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Hong Kong needs a data revolution at the very top

South China Morning Post
Comment›Insight & Opinion

Winnie Tang

Winnie Tang calls on the government to build solid infrastructure for spatial data, so citizens and companies can use it to devise innovative solutions for urban living

About two-thirds of the world’s population will be living in urban areas by 2050, according to the UN. The increase in demand for services in these areas will pose great challenges to governments. To meet them, we need smart and sustainable urban planning, and strategies that ensure prosperity is shared among all social classes.

How can we put these ideas into practice? How can we foster innovative ecosystems and citizen engagement to deliver urban services? These are the key topics to be discussed at an upcoming World Bank conference on smart cities, where I will speak about Hong Kong.

Open data is a crucial part of the answer. By “data”, I’m referring to spatial data or geospatial data, information about the geographic location of features, that can be mapped. It can be accessed, visualised, manipulated and analysed through the use of software.

It may seem technical but if you bring it back to basics, you will find that it already plays a key part in our daily life. It is also a key element for driving the growth of a smart city. Many countries and cities recognise spatial data as an important digital asset. The US, Singapore and some European countries have projects that integrate spatial data and make these available to the public.

Last year, the Los Angeles city council launched GeoHub, an online portal providing location-based data. It contains more than 500 categories of real-time (or near real-time) information, such as public roadworks and traffic black spots, and allows anyone to access live, continuously updated data directly from the city’s database, rather than as a static download. The data transparency empowers citizens to take part in the city’s governance. It also features Street Wize, a web mapping app that allows residents to track road-opening permits and construction activities around the city, which will help them to plan their routes.

Here in Hong Kong, different government agencies like the lands, highways, civil engineering and development departments have dedicated spatial data. However, they rarely share such information with each other or make it available to the public. That’s why the GeoInfo Map developed by the Lands Department is so encouraging, as it is open for public use and contains over 180 kinds of spatial data provided by 26 government departments. The Planning Department has also launched a Statutory Planning Portal, which allows citizens to search for planning and zoning information. It has recorded over 16 million page views in a single month.

In fact, the government has offered over 6,000 data sets in 18 categories through the website since March last year. The local technology sector, however, has criticised the government for providing most of the public information in Excel, CSV or PDF format instead of the API format which can be directly used in program or app development. This forms an obstacle for public use. Furthermore, the information is not updated as frequently as it could be. To achieve genuinely open data, the government needs to improve these areas.

A recent advisory paper by the Smart City Consortium suggests that all government services should be “digital by default”, with open data and availability of APIs as the basic standard. To achieve these goals, the government should take the lead in the development of spatial data infrastructure – by collaborating with various departments and the private sector. A high-level government body is therefore required to coordinate the major tasks, including the standardisation of data and setting up a framework to develop guidelines.

In addition, the government should review the relevant regulations for the development of technology and data usage, particularly on the protection of privacy and personal information. This would ensure flexibility to accommodate technological changes and help to overcome potential risks.

A holistic approach would encourage more public engagement, which is essential in building a smart city. After all, such development should be led by citizens, not technology or the government.

Dr Winnie Tang is chairman of the Smart City Consortium Steering Committee

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Can China use its soft power wisely to heal the world?

South China Morning Post
Comment›Insight & Opinion

Kevin Rafferty

Kevin Rafferty says the global system is on the verge of collapse amid myriad flashpoints, and emerging superpower China must both listen and act with 21st-century wisdom to make a difference

Hosting the G20 summit meeting in Hangzhou (杭州) marked China’s international coming of age, which was done with wonderfully colourful showmanship. But the glitter cannot hide that the global system under which we all live has too many dangerous fault lines. Hangzhou and subsequent international meetings in Vientiane and Geneva, and crucial meetings at the UN this week and in Washington, show a system on the verge of collapse, unable to cope with the existing political and economic challenges, let alone new issues.

Can China, as the emerging superpower with global economic muscle and growing political clout, make a difference? On the showing in Hangzhou and subsequently, it is not easy to be optimistic.

In terms of style and delivery, President Xi Jinping (習近平) should be rated an A minus, given the heavy-handed security that closed down the city to ensure world leaders would enjoy sunny days untroubled by encounters with real people.

The single real achievement of Hangzhou was made before the summit opened, and it was a bilateral agreement between China and the US to ratify the Paris agreement on climate change. The G20 meeting itself concluded with a string of platitudinous promises that did little to grasp the real problems of the world.

Chinese media sang the praises of 10 achievements, but commitments to growth, greater economic openness, trade, promoting the digital economy, encouraging entrepreneurship and employment, while defeating corruption, all rank as good things – like motherhood and apple pie. But the last two don’t involve a collision between global and national interests.

China could congratulate itself on a well-organised summit, but Beijing above all insists that global demands must not trespass on domestic necessities, however Xi and his colleagues define them.

North Korea immediately tested international resolve after leaders left Hangzhou by carrying out its fifth nuclear test, almost as if Pyongyang was deliberately thumbing its nose at any idea of a global order. Beijing joined the chorus of condemnation, but stopped there.

Everyone except Kim Jong-un and his colleagues agree that North Korea’s nuclear weapons imperil world peace, but no one has a practical solution to resolve the issue. North Korea’s graduation to a nuclear state is only one aspect of nuclear dangers facing the world.

The nuclear issue is only one multiple-warheaded threat among a galaxy of others endangering the peace and safety of the world.

Summer is supposed to be the silly season when politicians go on holiday, but this year has seen the four horsemen of the Apocalypse galloping across media prime time.

These include death and destruction in Aleppo, an episode in a cruel war waged by proxies of great powers; the continuing flight of refugees now numbering 66 million; the dangerous polarisation of the US election; Brexit’s threat to the post-war order and stability in Europe; increasing hostility to immigrants in the West, and indifference in Asia; and terrorist threats that appear as if in some live whack-a-mole game.

All these have driven from the front pages myriad other potential flashpoints, including territorial claims in the China seas, the unresolvable Arab-Israeli conflict, dictatorship and lack of civil rights in too many countries, and the environmental threat to the planet. But all are alive and dangerous.

All the immediate problems also have medium- and long-term knock-on effects, potentially even more damaging than the original crisis. This is true of North Korea’s nuclear games, of potential conflict in the China seas, the US election or Brexit.

What is truly troubling about the modern world during these weeks of the G20, the UN General Assembly and the annual financial summits of the International Monetary Fund and World Bank, is the inability of so-called “leaders” to comprehend an international dimension in their decision-making.

The only person who does have a global vision is Pope Francis, who has many times spoken out in defence of the poor and vulnerable and the protection of the planet. But how many battalions does the pope have? Or perhaps we should ask how many clicks does he have? – because modern politicians are increasingly driven by the trivia of soap operas that enchant social media.

That is a major factor driving leaders in the West to short-term and nationalist positions without giving a damn for consequences for the rest of the world. That their promises and policies may be based on slogans, half-truths, rumours or outright lies – think Brexit or Donald Trump – does not seem to worry them.

US President Barack Obama, normally a most thoughtful man, was driven to short-termism when he pushed for World Bank president Jim Yong Kim to be approved for a second term this month, even though his existing term still has 10 months to run. You can see why Obama did it – because he feared leaving the nomination to his successor if Trump wins.

Obama’s haste was a betrayal of the promise that the leaders of the global financial system would be chosen on merit, not according to the post-war old boys’ club rules that the US gets to pick the World Bank head and Europe the IMF’s.

Over at the UN, the choice of a successor to Ban Ki-moon led to question-and-answer sessions with the candidates, and leaked secret ballots of the voting intentions of Security Council members. But with only months before Ban’s term ends, secretive debate is still going on. The original old boys’ club, the veto-wielding five permanent members of the council, have made no promises about letting the best person win.
Xi is increasingly driven by how he sees his domestic agenda, on which critical voices are unwanted

That’s why China’s leadership of the G20 was critical and ultimately disappointing. Xi is increasingly driven by how he sees his domestic agenda, on which critical voices are unwanted.

Professors of realpolitik are writing books about the impending decline of the West and arguing when China will be the world’s top dog, as soon as 2020 or as late as 2040. It is natural, they say, that the top economic power should also rule the global political and military roost.

A president Trump might hasten China’s rise if he pulls US troops back from Asia, as key supporters are urging.

But the fragile and battered planet needs to get beyond old realpolitik of war and conquest and top dogs. Any new war involving the US, China or Japan would have disastrous consequences for all.

Beijing would show its real 21st-century wisdom when it uses its soft power – to listen to and accommodate people outside the Middle Kingdom and to understand that we all have to live together in some kind of harmony if mankind is to survive.

Kevin Rafferty is a political commentator