I am often asked by global investors what is the most pressing challenge facing Hong Kong in the New Economy that is being driven by technical innovation and the globalization of capital flow.
When I explain that the very old-world problem of property prices is the core issue, they protest that this would seem to be a rather simple issue to confront.
It is hard to explain why the government of a highly economically successful and efficient city like Hong Kong would lack action and conviction and causes of the housing problem we see today.
It is now time for the government to act and confront a problem within which it is the key protagonist.
The first step the Hong Kong's government needs to take is to change the mindset that its sole role within the system is to seek the highest price for land.
Simply put, this is out of line with the government's responsibility to see that all sectors of Hong Kong society have access to safe and affordable housing.
Some believe selling more land at lower prices may only benefit developers, who would then hoard but not increase supply.
However, government policy can maximize the benefit to the larger society by managing volume through mandated construction and completion timing.
The second step is that Hong Kong needs to shorten the time between land acquisition and presale in order for developers to minimize price risk in what would become a far more dynamic market. In Singapore, for example, developers typically pre-sell apartments six months after land purchases.
As price changes within six months are usually lower, developers would be keen to take on lower margin projects, as profits can be boosted by a quick launch followed by reinvestment of proceeds.
This also increases the Singapore government's influence over housing supply as land sale enters the housing market as presales quickly.
Last, the Hong Kong Government can no longer be afraid of Tung Chee-hwa's 85,000 units. Confusing the impact of the Asia financial crisis with falling housing prices in Hong Kong has seemly paralyzed government action for too long.
Moreover, it is not the government's job to guarantee that housing prices only rise. Hong Kong is a free market and returning risk to asset prices is the underlying key to ensuring a healthy property sector.
So how could the policy work itself out. Let's look at some simple maths.
Hong Kong's three largest developers together own 90 million square feet of developable farm land. The conversion rate over the past 10 years has been under one percent.
If the government allowed a 3x plot ratio at a price that would allow for middle-class housing, you are looking at half a million apartments or 25 years of private supply.
This would allow Hong Kong to continue to grow, provide housing for new families seeking to make Hong Kong home and provide ample returns for both government and investors.
The choices the government needs to make are not complex. Instead, it's all about political vision. Providing fair and reasonable housing opportunities for all sectors of Hong Kong's society is a worthy goal.
Keeping market prices high, guaranteeing returns and making the most money possible from the market is not a viable strategy.
Hong Kong's banking sector is well placed to see prices moderate, levels of equity in existing housing stock are high and, as we learned in the Asia financial crisis, Hong Kong people can absorb a property cycle.
It's time to act now.
Jonathan Slone is chief executive of
CLSA, a CITIC Securities company