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Guarding against real estate oligarchy
2005-12-28
China Daily
I can't agree more with professor Sun Liping on the evil of monopoly he so eloquently exposed in his article in the December 16 edition of China Daily. At the end of his article, the good professor afforded us a chilling glimpse of the rise of the property oligarchies on the mainland.
Coming from Hong Kong, I have seen first-hand the capability and efficiency of these monstrous establishments, seemingly possessed by greed, in destroying people's livelihoods and eroding the foundations of society. They are beginning to flex their muscles on the mainland, sometimes in joint ventures with local developers.
Nearly all the members of the Hong Kong property oligarchy have stepped up their investments in various mainland cities, particularly Shanghai and Beijing, where the potential returns are high and the domestic competition has remained weak.
For instance, in a hotly contested bid for land in a downtown location in Shanghai a month ago, three of the four bidders in that auction were from Hong Kong.
Hong Kong property developers are the blessed children of a long-standing Hong Kong government fiscal policy of relying on land sales proceeds to finance a substantial part of its public sector expenditure. This policy, first articulated in the mid-1970s, has established an inextricable relationship between the government and a select group of property developers.
As the pace of economic growth began to pick up in the 1980s, land sales have become an increasingly important source of government revenue to help finance the pressing needs for infrastructure development. This stream of much-needed income could only be sustained by rising property prices.
In time, the price of land in the city had gone up to levels that only a few property developers could afford to bid at. In developing the suburbs, the government was in favour of large-scale developments, housing estates with blocks and blocks of high-rises, to maximize the use of limited land. Understandably, only the largest developers would have the financial and management resources to undertake such mammoth projects.
It is widely believed in Hong Kong that no more than five property developers have secured a stranglehold on the property market. Together, they are seen to dictate the supply of properties and control the prices.
To its credit, the government has committed a lot of resources to the building of subsidized housing of reasonable quality for the less well-to-do segment of the population. Now, nearly half of the 6.5 million people in Hong Kong live in government-built apartments at rents that are only about 20 per cent of the market average. As to the other half of the population, the high cost of housing has become a part of life. Monthly mortgage repayment can eat up half of the combined income of an average Hong Kong family.
Hong Kong developers have been lionized by the local press as much for their contributions to meeting the large demand for housing in that land-scarce city as their ability to amass great wealth. People in Hong Kong were forced to accept the dominance of the property oligarchy as the rule of free-enterprise economics.
But the oligarchy's sense of social responsibility was brought into question in the 1990s when the plentiful supply of money and absurdly low real interest rates had combined to fuel a speculative frenzy in the local property and stock markets.
Property developers have always maintained that they were not responsible for speculative activities. They said that they sold the apartments they built in blocks to agents who, in turn, sold them to the public.
But they were seen to be feeding the frenzy by controlling the supply while gloating about the size of their respective land banks to boost investors' confidence in their stocks.
More and more salary earners were drawn into the speculative game. Many of them quit their jobs to play the property and stock market full-time. Why work when you could turnover a sale and make tens of thousands of dollars all in one day was the question many people were asking themselves at that time.
The economic boom driven by easy money and speculative fever didn't last long. The Hong Kong bubble burst in 1997 after the outbreak of the Asian financial crisis.
Now, as the economy is just beginning to pick up, speculative activities are heating up again, especially in the high-end sector.
Oligarchy, Professor Sun said, is a new type of monopoly for China. If we really can't avoid it, let's hope that this oligarchy will have a stronger sense of social responsibility.
Email: jamesleung@chinadaily.com.cn
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