Article/Xia Lei, columnist of Sina Financial Opinion Leader Column (WeChat official account kopleader)
Real estate is the mother of the cycle, which concerns the national economy and the people's livelihood. The housing system is an important tool of a country. There is a reason, there is a result. What kind of policies and systems, there is what kind of real estate market operation results. The housing system is a genetic code deeply rooted in a country's real estate market.
The Hong Kong model is the enlightenment of the mainland real estate market. In recent years, with the rapid development of the mainland real estate market, some cities are also facing the same dilemma of high housing prices. Tracing back to the origin and deeply studying the housing system in Hong Kong is of positive significance to reflect on the housing system in the mainland and solve the problem of high housing prices.
Since its opening as a port, Hong Kong's economy has developed rapidly, and it has successfully become one of the "Four Little Dragons in Asia". In 2017, the per capita GDP reached 57700 US dollars, making it one of the richest regions in the world. The economy is highly prosperous, but housing is facing difficulties. The living conditions of Hong Kong citizens are poor, and the per capita housing is only 16 square meters; House prices have been rising for many years, and citizens are under great pressure to buy houses. From 1986 to 2017, the average price of private houses on Hong Kong Island, Kowloon and the New Territories increased 20 times, 20 times and 14 times respectively, with an average annual growth of 10%, 10% and 9%. In 2018, the ratio of house price to income was close to 48 times, ranking first in major cities in the world. Due to the high house price, the housing ownership rate declined from 54% in 2004 to 49% in 2017.
Although the Hong Kong government has built a large number of public housing, the housing to housing ratio in Hong Kong reached 1.09 in 2016, and the housing price remains high, high housing prices and housing difficulties coexist.
There is no reason without effect. What kind of policies and systems are there, there will be what kind of real estate market operation results. The plight of high housing prices in Hong Kong is directly related to the four pillars of its housing system.
A land system with a congenital shortage of supply. After the Opium War, Hong Kong Island and Kowloon were successively owned by the British royal family. When Hong Kong returned to the motherland in 1997, the ownership of land in Hong Kong was owned by the state. The right of use continued the land lease system. The right of use was freely transferred through auction, bidding and agreement. The new land was granted for 50 years, except for special land, but the land supply was insufficient for a long time, and the per capita residential land was only 10 square meters. This is because the authorities attach great importance to ecological protection, and 37% of the country parks cannot be developed. After 2005, due to protests from environmentalists, land reclamation was greatly reduced. In order to maintain the stability of the property market, the government also significantly reduced land transfer in 2003-10.
A tax system that emphasizes transaction over retention. Heavy taxes are levied on housing transactions. Hong Kong residents must pay an ad valorem stamp tax of less than 4.5% when purchasing their first house, and 15% when purchasing more than two houses. Non Hong Kong residents shall pay 15% ad valorem stamp tax and 15% buyer stamp tax when purchasing houses. In addition, if the house purchased is resold within less than 3 years, the buyer must also pay 10% - 20% additional stamp tax with the seller, and the tax base is the higher of the property's selling price or appraisal price. However, the tax burden of ownership is low, and the tax base is rent, including 5% rate and 3% land rent. The property tax of 15% will be paid for the leased property. As rates and land rents only account for 0.2% - 0.5% of the property value, they are lower than the property tax in Europe and the United States, which is 1% - 2%.
Highly developed housing finance system. Hong Kong's mortgages are flexible and diversified, supporting various forms of loans. The minimum down payment for local residents to purchase their first home is 40%, but the down payment can be as low as 5% when they purchase subsidized houses for sale or apply for mortgage insurance. The down payment for real estate developers and finance companies is less than 20%, and they support down payment mortgage. In addition, Hong Kong also has mortgage businesses such as additional mortgage (re mortgage after repayment of part of the loan), transfer mortgage (inter-bank mortgage transfer), and building for building mortgage (old building mortgage supports new building mortgage). Hong Kong implements the linked exchange rate system, and the interest rate follows the United States and has been at a low level for a long time. At present, the maximum mortgage rate of the three major note issuing banks is 2.35%. The mortgage business is flexible and the superimposed interest rate is low, stimulating residents to buy houses with leverage. In 2017, Hong Kong's mortgage loan balance accounted for 45% of GDP, and residents' leverage was high.
The unbalanced public housing system. The rent of public housing is low, but the waiting time is long and the conditions are biased. The rent of public housing is 1/3 to 1/7 of that of private housing. When residents meet the asset income limit, they can wait in line. However, the average waiting time is 5.3 years, and the median per capita area is only 13 square meters. From 2007 to 17, the median area per capita increased by only 1 square meter. The subsidized units for sale are mainly HOS units. Although they are sold at a discount, the prices are high and the supply is low. The price is about 60% - 70% of that of private houses. Because it is linked to the market price, the price is also rising and the supply of houses is low. From 2002 to 2017, the Housing Authority completed only 580 units annually.
From the perspective of market structure, Hong Kong's housing supply presents a "dual track system". Government led construction of public housing accounts for nearly half of the population, mainly including public housing and subsidized units for sale. In 2016, 29% of Hong Kong's population lived in public housing, 16% in subsidized units for sale, and 45% in total. In addition, due to the large number of public housing and the high housing price, nearly half of the families choose to rent. In 2016, 49% of Hong Kong households rented houses.
The plight of high housing prices is not unique to Hong Kong, and some hot cities in the mainland also face similar problems. We should reflect on Hong Kong's housing system deeply to learn from others. In terms of economic relevance, the real estate industry accounts for a relatively high proportion in Hong Kong's economy. The proportion of real estate related industries in GDP once exceeded 30%, and has remained 20% - 25% since 2006. In 2016, the land transfer fee accounted for 22% of the financial revenue, the holding tax accounted for about 5%, and the transaction stamp tax accounted for 3%, contributing 32% in total. The lack of land supply foreshadows high housing prices. Due to the emphasis on ecological protection, the stability of the property market and other reasons, the land supply in Hong Kong is insufficient, and only 5 hectares of residential land were sold in 2002-10. Under the background of continuous population growth, the supply of land is too small and the financial environment is loose, resulting in the continuous rise of housing prices in Hong Kong. The lack of support for middle class real estate led to the gradual solidification of the housing class. Ideally, Hong Kong could form a tiered supply system of "public housing - HOS - private housing". However, due to the substantial reduction in the supply of residential housing and the continuous rise in housing prices, it is difficult for the middle and low-income groups to purchase houses and improve their housing conditions. Recently, the new Chief Executive's housing policy proposed to increase the proportion of public housing supply from 60% to 70% while increasing land supply. It is expected to alleviate the current housing dilemma by giving priority to low-income groups to buy houses.
Source: Xia Lei Real Estate Watch, ID: xialeidian
(The author of this article introduces: Vice President and Chief Real Estate Researcher of Evergrande Research Institute.)
