Cronyism behind Hongkong's housing mess
SCMP March 25
The subservience of the Hongkong bureaucracy to the interests
of property developers has long been a matter of concern. However, the
cosy relationship between officials and the firms which so often provide
them with comfortable jobs once they leave the civil service has become
truly shocking. Below are just a few recent examples of the public interest
being trashed so that developers can make more money and bureaucrats
enjoy a comfortable life free from scrutiny.
But first please note that the government and developers
between them have succeeded in making Hongkong by far the worst housed
society in the world relative to its per capita GDP. Yet both parties
endlessly repeat the lie that property development is a foundation of
Hongkong's prosperity rather than an expensive drag on its ability either
to consume or to invest in productive businesses. ·
The government has just retreated from a commitment made
in a White Paper back in 1996 to increase public participation in land
use decisions, expose the Town Planning Board to a modicum of public
scrutiny which would, hopefully, prevent developers from securing the
complicity of officials in projects with negative environmental and
social consequences. However, the developers and their partners in non-transparency,
the planning bureaucrats have succeeded having the proposed legislation
This extension of existing arbitrary behaviour is claimed
to be in the interests of "efficiency" but in fact is simply an extension
of the ability of both parties to engage in backdoor deals, make arbitrary
decisions and make changes in regulations to suit developer profit interests.
Interestingly, the very same developers who claim they want "efficiency"
in the planning process have been fighting (very successfully) to delay
public sector housing projects, sales of land which would spur new development,
and changes of land use which would enable redundant factories to be
re-developed as flats. Likewise officials who claim to want "efficiency"
are notorious for changing plans, or simply doing nothing. What's happening
to Kaitak, for example, four years after it ceased operation?
· In this column last December 3, I noted the Buildings
Department obsession with secrecy, noting its refusal to show or provides
copies of publicly approved building plans even to part owners of the
building concerned. The department subsequently wrote a letter, published
in the SCMP on December 14, claiming that it would be contrary to the
Copyright Ordinance to show the plans or allow them to be photocopied.
I immediately, in writing, queried the Department as to which Section
of this ordinance they were referring to. Three months and several letters
later I still have not received a proper answer to this key question.
In its latest non-reply, a letter dated March 8 an official of the department
wrote: "I have sought legal advice for giving you more details in this
regard. I shall supply you with more details when the advice is available".
In other words, the department made a formal claim in
this newspaper to be enforcing a specific law but three months later
and despite access to the vast Legal Department apparatus cannot explain
itself. I am not a lawyer, but I have been through the Copyright Ordinance
and can find nothing specific dealing with architectural drawings which
are subject to official approvals. However Section 249 of the Ordinance
specifically provides for the copying of public records.
The department is apparently not merely obsessed with
secrecy but seems determined to mislead the public in order to suppress
reasonable interest in its activities. What, one must ask, is the motive?
Who or what are they protecting? Given the history of buildings being
put up by major developers in contravention of Town Planning objectives,
a full public investigation into the management of bureaus, departments
and advisory boards dealing with land and buildings is long overdue.
So too are higher standards of official conduct than those revealed
in a recent court case by the exchanges involving Exco convenor C.Y.Leung,
then Planning Environment and Lands secretary Bowen Leung Po-wing and
Chinachem's Nina Wang Kung Yu-sumover her Tsuen Wan tower development
Secrecy apart, the bureaucracy has bizarre notions of
what constitutes a marketplace. The current Secretary for Planning and
Lands apparently believes that a situation in which, in effect, a small
group of developers can determine how much public land is to be sold
is a market based system! The present application procedure is worthy
of President Suharto's Indonesia. The government now claims that it
is making the procedure more transparent by revealing the floor price
for a particular lot applied for. But by placing supply as well as demand
in the hands of developers, the governing has shown it has no regard
for the public purse or the public interest. The arrangement is obscene.
It would be easy to have a stable and un-manipulated
land market. Release land according to a rolling five-year, publicly
announced schedule, limit annual supply variation - including for public
housing -- to 20% and, except in exceptional cases, auction it, preferably
in lots small enough to raise the level of competition in development.
(Alternatively as Jake van der Kamp and others have suggested, move
to a land development tax as the basis for realising the value of public
land). Although developer profits have fallen, they still represent
a huge slice of Hongkong's GDP, and one which is economically and socially
The banking/developer nexus is also redolent of cronyism.
A letter in this paper last week reminded me of a long running scandal:
the huge gap between the 80% advances (often with top up to 100% provided
by banks through finance to developers) over 25 years given to buyers
of new flats, and the 60% over 10-12 years limits generally imposed
for older flats. The banks present this as reflecting the higher maintenance
costs of older properties. That is a dishonest nonsense. How come banks
in other jurisdictions do not follow the same rule? The (possibly) higher
maintenance costs of older buildings are reflected in the market price.
Loans are supposed to be made on a basis of percentage
of valuation and borrower's ability to service a mortgage. Neither should
have much to do with the age of a building. Age will only matter if
the building has an exceptionally short life, which would normally only
be if the ground lease was also short. One must conclude from what is
happening here: either the major banks are distorting their lending
principles to benefit developers, in which case the prudential supervisors
at the HK Monetary Authority should have something to say (preferably
in public) about their competence. Or the developers' construction standards
are so shoddy that a 20-year old building will not survive another 20
years. Which is it, HSBC, Henderson et al? Ends