Opinion / Liang Hongfu
Guarding against real estate oligarchy
By Liang Hongfu (China Daily)
Updated: 2005-12-27 06:17
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
(China Daily 12/27/2005 page4)
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