Hong Kong’s land reform unlikely to cool housing market

Hong Kong’s latest ambitious policies to increase land supply are unlikely to make a dent in the city’s home prices for now.

That is the conclusion of analysts after CEO Carrie Lam proposed a slew of measures to boost the number of homes in the world’s most expensive residential market. They include an aggressive target to turn the remote northern part of the city into a “metropolis” for 2.5-million people — a project that is likely to take decades to come to fruition.

“It isn’t something that can happen instantly,” said Patrick Wong, a property analyst with Bloomberg Intelligence. He estimates Hong Kong’s home values will rise 5% to 10% this year.

In the last annual policy address of her current term, Lam announced plans to transform the northern part of the New Territories — relatively underdeveloped compared with Hong Kong Island and Kowloon — into the next residential and commercial hub spanning 300km². That is 27% of Hong Kong’s total area and about two-fifths the size of New York City. 

Lam has faced growing pressure from China to address Hong Kong’s housing shortage, which Beijing blames for the discontent that led to widespread antigovernment protests in 2019. Her planned project in the northern area bordering Guangdong province is also intended to deepen ties with the mainland. 

The government will identify more land plots in the north to provide 186,000 additional homes, taking the total to 926,000 including existing properties and those already planned, Lam said. While she did not give a definite time frame, she said the metropolis “is the most vibrant area where urban development and major population growth of Hong Kong in the next 20 years will take place”. 

In a bid to tackle excessive red tape, Lam proposed initiatives to streamline the development process, obtain land from indigenous villagers and make redevelopment of old buildings easier for developers. 

Long term

“The policy address focuses on the medium- to long-term planning,” said Ricacorp Properties CEO Willy Liu. “There isn’t any measure that targets the property market in the short term, therefore it won’t have much impact on the property market and prices in the next few years.” 

The focus on increasing land supply instead of implementing property cooling measures such as raising taxes is positive news for Hong Kong’s property giants. The city’s biggest developers — Henderson Land Development, New World Development, Sun Hung Kai Properties and CK Asset — all have large land resources in the northern area.

“Developers still have a lot of farmlands which can be converted” and sold, Raymond Cheng, head of China and Hong Kong research at CGS-CIMB Securities, wrote in a note on the policy address. Henderson Land and Sun Hung Kai in particular have large holdings and are good at converting them, he said.

Shares of Sun Hung Kai and New World climbed more than 1% at the close in Hong Kong trading, while Henderson Land and CK Asset slipped less than 0.2%.

China’s crackdown on the property industry as part of President Xi Jinping’s goal to ensure homes are for living and not speculation has raised questions over whether Hong Kong developers might also be targeted. In July, China’s top official to Hong Kong, Xia Baolong, set a goal for the city to eliminate its notoriously small homes by 2049.

Home prices in the private market reached a record high in August, shattering hopes among younger Hong Kong citizens that an economic downturn could make ownership easier. Even for those who cannot afford to buy a home, it takes almost six years for an applicant to be assigned a government-subsidised rental apartment.

Bloomberg News. More stories like this are available on bloomberg.com