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The 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 shelved indefinitely.

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 proposal. ·

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 damaging.

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