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June 30, 2000 VOL. 29 NO. 25 | SEARCH ASIAWEEK

Feeling the Squeeze in Hong Kong
Property owners call for government help

Last November, Bonnie Cheung realized a big part of the Hong Kong dream. After almost two years of house-hunting and years of saving, the 29-year-old civil servant and her boyfriend bought their own home in a nice middle-class development on Hong Kong island. The 740-sq foot apartment cost them a hefty $435,000, cleaning out their savings to make the 30% down payment. For the next few months Cheung happily decorated the place and repainted the walls a gay light yellow color.

In recent weeks, however, some of the joy has gone out of home-owning. If Cheung had waited six months, the apartnent's price would have been about 10% lower. Ruefully, she reflects, she could have used those savings to pay for the furnishings. "Our parents taught us that we had to own property," she says. Now she is beginning to harbor thoughts that in Hong Kong terms almost amount to heresy: "It's probably better to put money in the bank than buy property."

Real estate is the closest thing that the masses of Hong Kong have to religious faith. The gospel holds that property prices always go up. Any downward trend is a temporary glitch. Everyone from street hawkers to tycoons watches the property market. This includes even those like Cheung who have already bought their dream home and have no immediate intentions of selling it. When things get out of sync they pressure the government to intervene. Despite its reputation for letting the market work without interference, the government usually does something.

Property prices in Hong Kong peaked around the time of the handover in July 1997, and since then they have tumbled about 40%. But as the Asian Crisis began to recede, it was logical to assume that property prices would begin to perk up too. Instead, they have continued to decline steadily, down 10% to 15% in the last few months alone. At the same time, interest rates, tied to those in the U.S. because of the currency link, have been rising. The so-called sandwich class is feeling the squeeze again.

Last weekend about 200 protestors, led by the pro-business Liberal Party, held a march in the Central business district demanding that the government act because the economy was on the "brink of collapse" (despite expanding by 14% in the first quarter). "People are hurting," said one party member. Specifically, the party demanded that the government halt sales of apartments under the Home Ownership Scheme, which provides subsidized housing to the poor. The program, they argued, was depressing prices.

Anyone following the story in the headlines of the local South China Morning Post might have wondered if the left hand knew what the right hand was doing. On Friday they thundered: "Let the Market Decide Flat Prices" quoting one "senior government official" as not wanting to do anything precipitous. Then on Saturday morning Hong Kongers awoke to fresh headlines: "Subsidized Home Sales Suspended." About 16,000 government-financed apartments intended for sale would be rented out instead of sold.

All kinds of people welcomed the action, more for the psychological boost than for the direct impact on prices. The number of units involved, less then 10% of total supply, was probably not enough by itself to reverse the downward market trend. But just the rumors of a change of heart gave a filip to the stock market (still heavily weighted with property counters), and the property price index, which tracks shares of leading developers, made its biggest one-day gain in nearly one year.

"It has nothing to do with politics," proclaimed Housing Authority chairwoman Rosanna Wong. Maybe not, but it also seemed less than a coincidence that Wong and Director of Housing Tony Miller faced no-confidence motions this week in the Legislative Council over scandals relating to deficient construction in some public housing estates in recent months. The proposals were tabled by the Democratic Party, but they have widespread support from many political groups scrambling for votes in the upcoming legislative council election in September.

The property lobby's next goal will be to persuade the government to lift the ceiling on bank loans so that potential buyers will have to raise only 15% of the total price in cash instead of 30%. The mortgage ceiling was the result of government intervention imposed several years ago at the time of intensive property speculation, when the issue was rapidly escalating rather than falling prices. Developers will also push for a temporary suspension of government land sales to try to keep property prices high.

In the short term, the government's suspension of home sales may have helped to arrest the decline in the value of Cheung's apartment and thousands like it. Many people are nevertheless reassessing their conviction that property prices in Hong Kong always rise. Even property agent Fred Tsoi joined the skeptics. "It doesn't pay to buy property now," he says. But there are still ways to make money from the sector. With many now opting to lease, not buy, he has shifted his focus from sales to rentals.

With reporting by Alexandra A. Seno Hong Kong

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