Japanese Real Estate Market
The Japanese real estate story is important as well as different. Most property market stories that one would hear include periods of booms and busts. The property market goes under for a few years only to recover a few years later. However, the case of Japan has been very different. The Japanese market witnessed a […]
Transaction Costs in the Real Estate Market
Flipping properties may sound like a good idea to the novice real estate investor. However, anyone who has even engaged in real estate transactions even once or twice knows that there are significant costs associated with real estate transactions. These costs are called “transaction costs” because they are triggered when a real estate transaction takes […]
Calculation of Unemployment: Example
We are now aware of the basic steps involved in the calculation of unemployment rate. We now know that there is a vast difference in what we call an intuitive guess of what the unemployment rate means and what the statistics published by the government mean. Let’s crystallize this understanding with the help of an […]
Pros and Cons of Using Social Media for Recruitment and Monitoring Purposes
Social Media and Access to Personal Information With the advent of Social Media sites such as Facebook, Twitter, Instagram, and others, many people post so much personal information about themselves that anybody who can access their public profiles can get to know a lot about them. Indeed, with an estimated one Billion people on Facebook, […]
Information Asymmetry in the Real Estate Market
Successful investors know that it is not the asset class that makes one rich. Rather it is information about the asset class that makes one rich. Therefore, if any investor were to consistently have access to information which is not available in the market, they could trade off of it and gain a handsome return […]
Hong Kong has been ranked as the most expensive city to live in. Survey after survey has found that the housing prices in Hong Kong are simply unaffordable. On an average, the median income to housing price ratio is more than 18. This means that a person would have to save for 18 years straight to buy a house, that too if they did not spend anything on food, clothing, healthcare or any other necessities. The end result is that it has become impossible for a first generation homeowner to actually afford a house in Hong Kong City. In this article, we will have a closer look at some of the important factors that have resulted in the creation of this housing problem.
More than 40% of the city’s land has been locked up for parks and green spaces. A lot of land is also locked up because it houses historical sites. As a result, only about 7% of the city’s land is actually being used for residential purpose.
The citizens of Hong Kong have been pressurizing the government to open up more land for residential developments. However, developers have also been pressurizing the government. If the government increases the supply of land too much, prices will crash and the developers might end up losing money in the process.
In a way, the government is a major beneficiary of these sky high prices. Also, the bids are often won by wealthy developers from mainland China.
In 2013, these developers accounted for less than 10% of the land sales happening in Hong Kong. However, now they win more than 40% of all the bids. Since these developers have deep pockets and they try to outbid each other, they end up raising the price of land to record highs.
The local politicians have been under pressure from the common people to lower the prices. As a result, the government has reserved more than 50% of the developable land. The government gives out these apartments to lower income group people. Some of these apartments are leased out whereas others are sold by the government. However, the problem of housing in Hong Kong is larger than what can be solved by subsidized housing being provided by the government.
The rates of personal and corporate taxation are very low. This attracts corporations and their high earning executives to Hong Kong city. However, Hong Kong is able to afford these low rates because of the high prices of land.
The government earns most of its revenue through land sales. This is the reason why they do not require revenue from tax. However, if the housing prices were decreased, Hong Kong would have to raise taxes. This would not be acceptable to many corporations who may want to move out of the city. This is the reason why the government is not taking serious measures to reduce the price of land. Given a choice between higher taxes and higher price of land, the government has chosen to protect taxation and corporate interests.
Since the property market has showing a rising trend in the past, many foreign investors want to park their money in this asset class. This is the reason why the apartments get sold despite having these mind-numbing valuations. Owning a house in Hong Kong is not the prerogative of the average citizen. It is only the super-rich that can afford these houses.
The bottom line is that the houses in Hong Kong are so expensive that a castle can be bought for the same price in many parts of the world. The average people of Hong Kong are facing a severe shortage of comfortable houses, and this crisis does not seem to have an end in sight.
Your email address will not be published. Required fields are marked *
