On January 13, 2016 Chief Executive CY Leung delivered his annual policy address, and reaction to it so far has been dominated by words like “mediocre” and “dissatisfied.” With a disproportionate amount of attention going to the “One Belt, One Road” economic strategy (“You can count how many times he mentioned OBOR. He just kept reapeating it,” notes Simon Smith, Savills head of research and consultancy) and not enough to issues of cross-border friction and LegCo gridlock, Leung’s last PA before potential re-election raised eyebrows for the wrong reasons. On the property front, it was much of the same — meaning very few new ideas to solve what has become something of a housing crisis — though some would argue Leung’s address set the right direction for the property market.
Major Concession
One thing to Leung’s credit was his admission that property was indeed unaffordable, both in sales and rentals, stating, “The current property price and rental levels are still beyond what people can afford.” The address went on to boast, however, that, “Efforts to develop and increase land supply have begun to deliver results. Property and rental prices have started to fall, and we can see the first glimmer of hope for solving the housing problem.”
Some of the solutions on tap include nearly 100,000 new units courtesy of the Hong Kong Housing Society and the Housing Authority over the next five years, with 3,700 at pre-sale levels coming later this year. That will complement the approximately 87,000 private homes over the next four years. All of it, however, is dependent on real implementation in the coming months and years.
Where the land will come from is the big question. In the short and medium terms, rezoning, use reviews and increased development intensity will remain the order of the day, with Leung claiming the land use review has borne fruit: 74,400 flats are expected to be built as a result of 150 site re-examinations. An additional 39,000 units stemming from rezoning started in 2013 are also on the horizon. But on top of those, the former Cha Kwo Ling mine and the Anderson Road Quarry are set for residential development. For the long term, the plan is still to focus development in Kowloon East, the New Territories, Lantau and extended New Towns. “We are planning the future development of Lantau and New Territories North, and considering projects such as reclamation on an appropriate scale outside Victoria Harbour, development of artificial islands in the central waters, as well as the use of rock cavern [for sewage treatment works and service reservoirs] and underground space … Kwu Tung North and Fanling North NDAs, Tung Chung New Town Extension, Hung Shui Kiu NDA and Yuen Long South Development can provide over 197 000 units for occupation starting seven years from now.” Finally, finding ways to maximise New Territories brownfield sites is ongoing. There was no mention of developing the parks despite alleged murmurs to the contrary in recent months.
Rapid Response
Part of the plans for Lantau include making the island into a major residential as well as commercial hub, something the WWF Hong Kong would like to see more caution on as just a start, noting the Lantau Development Advisory Committee is placing an inordinate amount of emphasis on economics. “The government should come up with a holistic strategy to increase the ecological, recreational and cultural value of southern Lantau, and minimise the ecological impact of the urban expansion of northern Lantau on country parks and other areas of high conservation value,” said the WWF in a statement. It added that any rush to developing an artificial island near Kau Yi Chau would also be premature, particularly in light of LegCo’s refusal to fund a preliminary study on the matter. WWF did, however, approve of developing brownfield sites over green belts.
But developing Lantau is necessary in the long run. “The government’s existing land bank is not sufficient for the future development of Hong Kong,” argues Dorothy Chow, regional director with valuation advisory services for JLL. “We have to develop new districts to secure sufficient land supply in the long term.” Chow also believes it’s time to review how land premiums are assessed as well, noting that the number of flats supplied by land exchange schemes has fallen significantly in the last decade.
Knight Frank Executive Director Ainwick Chan likes the recognition of rock caverns and underground space as part of the land supply solution — with some words of caution. “The major problems for rock cavern development include high costs, controversies in the community, the large number of parties involved and the considerable time needed for change of land use,” warned Chan. “We are concerned about long-term land supply, and therefore recommend the government to accelerate the timetable for rezoning and plan implementation.” Other issues will revolve around developer incentives, amending building code and, again, adjusting the land premium scheme.
Savills’ Smith voices the overriding sentiment about the ’16 address being one that most analysts expected. It’s too soon to dismantle the previous years’ cooling measures just yet, and Leung remained focused on the supply side, which is a market weakness. “That’s very much what we’d expect. Most of the projects he went over we were aware of previously. [Property] is not as volatile as the stock market or as variable as politics. It tends to be long cycles and you can’t rush change too quickly. Values are only just beginning to turn. A drop of 15 to 20 percent would return us to affordability and we’re a long way from that, so it’s steady as she goes … I don’t think any major diversions from previous policies would have done anyone any good. It’s probably the right approach to take at this point in the cycle,” he notes.
Looking further down the road, there isn’t a solid long-term plan for Lantau that addresses traffic, infrastructure and reclamation. And while the plans for Lantau sound viable and land supply measures will help meet supply targets in the coming years, “There will be difficulties to secure enough land for development beyond 2020,” said Chan. “Therefore, it’s time for the government to accelerate the formulation and implementation of new housing supply development strategies.”
