Wednesday, September 04, 2019

Crazy economics have fuelled Hong Kong's protests

Last year a couple sold a parking space in Kowloon (in North Hong Kong on a mainland peninsula across from Hong Kong island's Victoria Harbour) for HK$6m (US$765,000). In 2017 the Straits Times of Singapore reported that a 4,242 sqft (394 sqm2) apartment had sold for HK$560m (US$71m).

This year, Kuala Lumpur, the Malaysian capital, ranked 32nd out of 35 global cities with an average property price of RM494,266 (US$119,738), according to Global Living report by US real estate firm CBRE.

A new condominium apartment of 251 sqm2 (2,700 sqf) in a high-income area of KL, with a private lobby, onsite facilities of a pool, gym, 24-hour security, and 7-day cleaning services, would cost RM2.4m (€540,000; US$593,000). This compares with the Marianella, Rathgar, Dublin 6, development where a 2-bed 96 sqm2 apartment is for sale at €732,250 (US$804,000; including stamp duty).

Ethnic Chinese in Malaysia tend to regard Chinese in Hong Kong and Singapore as arrogant but there is a recognition that economic woes are fuelling the protests.

Dysfunctional housing market

According to the South China Morning Post newspaper last year, the median income (mid-point where half of the number are above and half below) for the first quarter for a household in the city was HK$28,100 monthly, and HK$16,400 for an individual. "So nearly half of flats are renting for 70% of the city’s average monthly household income, or 122% of the average individual’s salary."

The Demographia global house survey published last January reported that Hong Kong retained its title as the world's least affordable housing market for a ninth consecutive year. That means the average median price for a home in 2018 was a staggering 20.9 times the annual median household income in Hong Kong — see chart on top of the page.

The use of the median is important as the average/mean is distorted by very high priced houses.

According to the Chinese University of Hong Kong's Quality of Life Index the price-to-income ratio rose from 4.6 in 2002, based on a 39.9 sqm2 apartment (430 square feet).

About 49% of the 7.5m population in Hong Kong own property in the territory, according to government figures while 91% of people in Singapore are homeowners.

Hong Kong house prices have risen by 300% since 2003.

1) The Hong Kong government owns all the land while being reliant on land lease sales for almost a third of its annual revenues. It restricts supply to maintain high prices as it wants to keep taxes low.;

2) The developer oligarchs are not penalised when they hoard land;

3) Hong Kong's footprint is 1,106 sq km2 in area, but there’s no shortage of land: the 7.5m live in a developed area that accounts for just 24% but only 7% has been used for housing.

4) A writer in the South China Morning Post noted in 2017 that, "Singapore is approximately 65% of the size of Hong Kong, with a population of 5.5m living in a land area of 719 sq km2...Singapore is the more crowded, with an average of 7,792 people living on every square kilometre, compared with Hong Kong’s 6,780 people, but the leafy and spacious cityscape in Singapore makes it feel less congested than Hong Kong...In 2016, the average living space per person in Hong Kong’s public rental housing was 140 sq ft, while in Singapore, each public flat resident could enjoy on average a living space of 258 sq ft...Country parks and nature reserves account for 40% of Hong Kong’s land. The rest is country park and rural spaces that are not untouchable. 14% of the land in Singapore is used for housing, with only 9% set aside for parks and nature reserves."

5) The government's target for public subsidised or rental housing is less than 30,000 annually;

6) Hong Kong chief executive Carrie Lam has proposed a plan to build 1,700 hectares of artificial islands and build more than 1m housing units from 2032. However, there are cheaper options.

The Economist noted last year, "The potential, says Johnny Kember of KplusK Associates, an architectural practice, is vast. Over 1,000 hectares of brownfield sites could quickly be developed, he notes. There is also the 172-hectare golf course in Fanling, whose lease comes up next year. Many of Hong Kong’s fat cats would surely resent giving up their weekends there to help the very people who are out making trouble. But given the souring mood in Beijing, that is what they may yet be forced to do."

The Hong Kong government has agreed to take back 32 hectares of the 172-hectare Fanling site run by the Hong Kong Golf Club after 2023 to build at least 4,600 flats, more than half of which would be for public housing.


The Hong Kong government has accumulated a budget surplus of over HK$690bn over the past ten years and fiscal reserves have now surpassed the HK$1.1tn mark.

In the 2018/19 Budget, the government’s recurrent expenditure is 14.4% of the GDP (gross domestic product) this compares with 18% in Singapore, 44% in Germany and 57% in France.

Oxfam Hong Kong says currently, nearly 210,000 people live in subdivided tiny flats, and despite an almost full employment rate, 920,000 work but remain poor.

Over 390,000 elderly people – people aged 65 or above live in poverty, meaning one in every three elderly persons lives in poverty; the number of non-taxpayers in Hong Kong’s labour force has exceeded 1.5m, which is nearly half of the labour force (45%), and most of them live in poverty and are unable to support their parents.

In 2016, the median monthly household income (excluding foreign domestic helpers) of the top decile was 43.9 times that of the lowest decile. That means, one month’s income in the top decile was equal to the income of 3.7 years of the lowest decile.

Over-reliance on finance and real estate

Last November I travelled from West Kowloon on a high-speed train to Shenzhen, Chinese high tech capital. The 37km trip took 14 minutes.

Deng Xiaoping, China's great reformer, designated Shenzen the first special economic zone (SEZ) in 1980 and it was open to foreign investment.

Deng was also a pragmatist and famously said, "It doesn't matter whether the cat is black or white, as long as it catches mice."

Shenzen has grown from a half million people in 1980 to 12.5m today and in 2018 its annual GDP overtook Hong Kong's.

Today the stock exchanges in Shanghai and Shenzhen consider Hong Kong a competitor, while the authorities increasingly see listings of mainland companies in Hong Kong as a means by which company chiefs can evade capital controls.

The Beijing headquartered China Daily newspaper, noted in its HK edition this month:

"Hong Kong's overreliance on the tertiary industry as an engine of economic growth has... severely weakened the local manufacturing industry, which continues to shrink at this point in time, accounting for only 2.5% of the total employment in Hong Kong. The dominance of real estate and financial industries has also created an imbalanced economic structure, contributing to the widening wealth gap.

The diminishing manufacturing industry has not only resulted in an evident imbalance in industrial structure, but also concealed damages, such as the loss or degradation of labour quality, traditional workmanship, craftsmanship, production expertise, supporting industries, and cooperative opportunities between academia and industrial sector.

Hong Kong has never been short of scientists and business leaders but severely lacks the professional talented workers required for reindustrialization. The success of Hong Kong's Industry 4.0 will largely hinge on the nurturing of an adequate amount of professional talents and the revival of the blue-collar working class."

The Fanling 172 hectare golf course in Hong Kong Source: SCMP