Leung warns against 'overcorrection' of housing market

Themis Qi

Former chief executive Leung Chun-ying yesterday warned the excessive supply of housing may "overcorrect" the current market situation, where the property prices and land sales remain weak.

In a social media post, Leung, also a vice-chairman of the National Committee of the Chinese People's Political Consultative Conference, said it is not always preferable to maintain a bigger supply in the future although the city is short of land and homes currently.

The remarks contrasted with Leung's housing policy when he was the chief executive. In 2017, he set a goal to provide 460,000 units over 10 years.

Leung was concerned that excessive supply would further drag down home prices, saying demand would not grow forever.

Leung doubted whether there will be a huge housing demand in the future, which the government plans to meet with new development zones in north.

Given the high development costs and falling land prices, he even predicted a zone in northeastern New Territories would be the last piece of land from which the government could make a profit, adding that the others will fail without subsidies.

Leung wrote: "Though the sharp increase in supply and the significant drop in home prices could help solve the housing problem, how are the questions of rising negative equity cases, financial issues and government fiscal pressure to be handled?"

Local home prices have dropped 27 percent since 2021. At the same time, the number of negative equity cases hit a 20-year high in the first quarter.

Though the government removed the additional "spicy stamp duties" in February at the cost of giving up an average of HK$9.4 billion in revenues per year, the rebound only lasted two months.

Meanwhile, local developers have also exhibited greater caution in bidding for government sites, causing revenues from land sales to drop 76 percent to only HK$4.6 billion in the first three quarters of the fiscal year.

To bolster the property sector, Chief Executive John Lee Ka-chiu last week eased the mortgage rules to levels last seen in 2009.

In his post, Leung attributed the market correction to increased land supply over the past 10 years - including the five years when he was the chief executive - during which undeveloped rural areas were tapped and "spicy stamp duties" were introduced to cool the market.

Leung urged the current administration to restore balance to the supply and demand and have better vision in planning.

He said the initial plan to turn the old airport in Kai Tak into an industrial zone went against market trends, and this was then changed so it can house 11 residential projects.