House Speculation in Hong Kong

Topics: Real estate, Hong Kong, Property Pages: 6 (1131 words) Published: April 25, 2014
Housing
Speculation
GE1401 Assignment 3
Tsang Ka Lam, 52613613

11/12/2012

Housing Speculation

Tsang Ka Lam

SID: 52613613

Housing Speculation
For most Hongkongers, owning a house may be an impossible dream. As housing speculation by both local and non-local speculators is rampant, the low and middle classes tend to face the high cost of housing. Housing speculation is defined as “a form of investment, driven by expectations of short-term capital gain …... associated with the expectation of housing occupation” (Levin and Wright, 1997). To counter the activities of speculators, there are a number of possible solutions for the government. Increasing the supply for first-time users, however, is the most comprehensive method to solve this problem. The following paragraphs will first analyze the seriousness of housing speculation. Then, it will introduce three-fold possible solutions and discuss the best solution to curb the speculation.

Housing speculation has become serious since 2009 in when people overcame the financial tsunami. In fact, average residential properties prices increased by around 24% in 2010 following a 30 percent up in the previous year (Yung, 2011), but Hong Kong average income rate only rose by 3.3 percent from 2009 to 2010 (the Census and Statistics Department, 2011). Comparing the two figures, it is unaffordable for many Hongkongers below 40 years of age to buy their own houses or apartments because their salary increment may not correspond to the rapid increase in housing price. If housing speculation continues to deteriorate continually, the benefits of real users will be harmed as well as social stability.

2

Housing Speculation

Tsang Ka Lam

SID: 52613613

First, the government can collect Special Stamp Duty (SSD) from speculators to curb the speculation but it cannot counter the activities of large speculators. Conpa CPA Limited (2010) states that 15 percent SSD will be charged if the sold property has been held for 6 months or less. Furthermore, It will be regressed to 10 percent if the property is held within 6 to 12 months and 5 percent if the unit is owned within 12 to 24 months. This can reduce the short-term benefit of speculation by increasing the property transaction cost. Some small speculators may not have sufficient extra funds to invest in the property market. However, it is affordable for the large speculators to buy the properties in short-term and hold those in long-term. Consequently, they still control the property market and the cost of SSD will be transferred to the real buyers or renters. In other words, SSD can lower the intention of small speculators but ultimately increase the property prices.

Second, the ‘HK Flats for HK people’ project introduced by the Chief Executive Officer Leung Chun Ying (CY) is expected to relieve housing speculation but only focused on non-local speculators is its constraint. Two land parcels in the Kai Tak development area include around 1,100 flats for Hong Kong permanent residents with a regulation that the flats can only be sold to local permanent residents by held within 30 years (Chen, 2012). Thus, the hot money from mainland and oversea, that has contributed the rapid growth of China’s economy and third quantitative easing in America, will not boost up the prices of these two land parcels by non-local speculators. Notwithstanding the non-local speculators cannot enter the market, CY underestimates the impact of local speculators. According to Financial Secretary, John Tsang, the proportion of real estate transactions by non-local investors was only 6.5 percent in 3

Housing Speculation

Tsang Ka Lam

SID: 52613613

2011 (Hong Kong’s Information Services Department, 2012). Thus, this project finally increases the intention of local investors to speculate in the property market.

Compared with the above two solutions, enlarging the supply of units is the most possible way to curb the speculation....
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