Adjust pace when supply surpasses 90 000?
Last week, I shared my views on the economic outlook of Hong Kong, pointing out that the economic growth would slow down this year when compared with the last year, and a couple of industry sectors are facing challenges. The local property market has a close tie with the economic situation and is one of the key concerns of the public. The recently released Hong Kong Private Domestic Price and Rental Indices were 270.2 and 163.1 respectively (reflecting the market situation of February), dropped by 11.7 % and 8.1% when compared with the record highs of last September.
Last Friday, the Government released the latest potential private housing supply in the primary market in the next three to four years. The flat number increased by 5 000 units on a quarterly basis to 92 000 units at the end of March. It was a record high since end 2003, and an increase of about 41% when compared with 65 000 units in mid-2012 at the time the current-term Government assumed office. It is worth noting that this is a rolling cumulative figure excluding the first-hand units sold within this period. During the period of July 2012 to March 2016, more than 50 000 first-hand residential flats were sold. The annual number of primary transactions in each of 2014 and 2015 was around 16 900, much higher than the annual average 11 600 transactions from 2011 to 2013.
These 92 000 potential first-hand private residential flats may be put up for pre-sale in the next three to four years, offering an annual average of about 23 000 to 30 700 flats. About 70% of them will be small-to-medium-sized flats with a saleable area of less than 700 square feet.
The private housing completion for this year and the next is estimated to be 18 200 and 17 930 flats respectively, the highest and the second highest since 2005 and 60% more than the 10-year average (11 100 units).
I notice that some media were concerned that the “upsurge” of potential first-hand flat supply on a quarterly basis might cause the property market to plunge. I would like to point out two major reasons for the increase of about 5 000 potential first-hand flats in the last quarter: (1) transaction volume of first-hand flats in the first quarter of 2016 dropped to 1 325, much lower than the quarterly average of 4 200 flats in the past two years; and (2) the original pace of land supply was disrupted as the sale of a residential site in Tai Po, capable of providing more than 1 700 flats, was postponed from end November last year to early February this year due to judicial review; otherwise, the potential first-hand supply of residential flats by the end of last year could have been close to 89 000 units. This illustrates that judicial reviews could bring adverse impact on the orderly supply of land, and hence cause misunderstanding in the market.
Some people also think that the actual number of flats built by developers after successfully bidding for private residential sites may deviate from the estimate made by the Government at the time of land sale. We have been closely monitoring the situation in this regard. According to the available information, between 2010 and 2012 when the government-initiated sale mechanism was resumed, the actual number of flats built by developers upon successful bidding was lower than the Government’s estimate. In other words, developers at that time tended to build flats of larger size, hence fewer flats. However, this situation has changed in recent years. The number of flats built by developers upon successful bidding is more than the Government’s estimate. This was partly due to the Government’s introduction of minimum flat number requirements in land sale conditions for some residential sites, and partly due to developers’ preference for building more small-to-medium-sized flats in recent years in response to market demand. Combining the latest figures from various sources of private housing land supply in 2010-11 to 2014-15 (i.e. government land sale, railway property development projects, the Urban Renewal Authority’s projects and private redevelopment/development projects) and counting the projects with actual design plans (i.e. excluding the projects the design plans of which are yet to be approved in the relevant period), the number of flats to be provided is about 2 000 more than the Government’s original estimate. This reflects that the actual flat supply in the market will meet the Government’s expectation.
The data of the Rating and Valuation Department show that home purchase affordability ratio in the fourth quarter of last year remained at a high level of about 62%, much higher than the average of the past two decades (46%). A recent study of the Census and Statistics Department also reveals that the expenditure on housing accounted for about 34.3% of the total household expenditure, an increase by 2.6% when compared with five years ago. A considerable number of people are still looking forward to buying flats.
Under such circumstances, we should not slow down the work on land supply, particularly because the process of land production (from land identification, carrying out various planning and engineering studies, public consultation to providing all the necessary infrastructural facilities) often takes a decade or even longer to complete. Therefore, we must continue with our work on land supply in the short, medium and long-term, unwavering in the implementation of land supply initiatives. We should not flinch amid the short-term fluctuations in the property market. Our annual target of providing land in accordance with the Long Term Housing Strategy to address the community’s need can only be met with endeavour and perseverance. Only by doing so would we be able to restore the balance between supply and demand, as well as building up a land reserve for Hong Kong. In this way, no matter how the market conditions change and no matter who takes up the work on land supply, the Government will be able to respond to the demand of the society and the market in a quicker and more flexible manner, and resolve the perennial imbalance of supply and demand in both housing and land that has troubled Hong Kong for years.
1 May, 2016
1 May, 2016
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