Property

Solving the housing dilemma with supply increase

Purchasing pressure

Hong Kong’s soaring home prices have made it near impossible for young Hongkongers to become home owners. The hope for the Government to address the housing problem was dampened by the disappointing and short-lived results of the cooling measures which saw home prices skyrocket again when the temporary relief of the cooling measures subsided. Last Monday, a development near the Tsuen Wan West Station set its home prices 10-15% lower than nearby housing estates, which attracted 22,500 registered offers - a new record since 1997.

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Colleagues working on the field reported that developers are taking registrations very seriously nowadays. Apart from requiring clients to appear in person, they also request a form of photo identification to ensure the absence of fake offers. It is evident that the housing market is incredibly heated, however, high property prices are merely a result of demand exceeding supply. The increased prices effectively reduced demand and forced out buyers who are unable to afford property. Nevertheless, at the end of the day, the soaring prices and home-buying difficulties are the result of the lack of supply.

As we can’t reverse the situation, it is unrealistic to hope that home prices will drop. Lower prices will lead to greater affordability and subsequently a larger number of buyers. If the curbed prices are a result of the tough economy, buyers must examine how their respective industries and incomes are thriving in the overall environment. But if it is the Government policies that are keeping housing prices in check, don’t get your hopes up – as track record shows, the short-term benefits will soon wear out.

I am most curious about the type of measures Carrie Lam is going to put forward. A likely breakthrough is to disassociate the prices of Home Ownership Scheme flats from market prices. In other words, making new Home Ownership Scheme flats affordable and accessible for most middle-class Hong Kong families. However, while this may solve the problem of high property prices, it raises the question of how to distribute the available units. The last scheme cycle received a staggering 100,000 applications. Given that only 5,000 units are made available each year, if this number doesn’t change, it will take 20 years for the supply to meet the current demand. So, what will happen if these flats become more affordable? It is safe to assume that the number of applications will increase and the 20-year wait will stretch even longer. Therefore, the only solution is to increase the supply, otherwise the housing conundrum will always exist. A boost in property supply will give hope to home buyers and relieve the pressure on the private market, particularly for smaller units.

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