On July 1st, 1997, after 155 years of British sovereignty, Hong Kong returned to China.
It did so as a special administrative region, under the “1 country, 2 systems” model.
A model whose goal was to ensure that Hong Kong would continue being Hong Kong, the freest
city on the entire Asian continent.
That means that thanks to this particular political model, Hong Kong has its own laws,
its own justice system, its own police force, currency-- even its customs and immigration
policy is different from the rest of China.
So in the day to day, it works almost like an independent country.
And it will remain that way until at least the year 2047.
Maybe that's why, since Hong Kong passed into Chinese hands, things in the city have gone
pretty well.
Over the past 20 years, Hong Kong's economy has grown by an average of 3.3% per year;
more than 1 million people from Mainland China have moved to this territory in search of
fortune; and the city is still an oasis of freedom.
Yes, the influence and interference of the Chinese government in local politics has grown
a lot in recent years.
Here, on VISUALPOLITIK we already talked about this.
For example, in past videos we discussed the umbrella revolution, and Beijing’s growing
interference in local politics.
Well, my friends, in this video we’ll talk about yet another outstanding feature of this
place.
Did you know that Hong Kong is the city with some of the most expensive and smallest houses
in the world?
Listen up.
(A RISING MARKET)
With seven and a half million inhabitants and more than 1,200 skyscrapers, homes in
Hong Kong are terribly expensive.
Well, homes, garages, offices...
everything that has to do with the real estate sector is... very expensive.
So much that we can find news like this:
( “Hong Kong parking spot sold for a record US$600,000” SCPM)
In fact, if you had 1 million US dollars, and you wanted to buy... let's say, an apartment
in one of the city’s nice areas, you’d barely be able to afford 22m2 / 236 ft2 ... for
a million dollars!
You heard that right.
That is a scary figure.
When considering cities with the most expensive premium homes in the world, Hong Kong places
second, just behind Monaco.
(“Alibaba chief buys his own Aladdin’s cave: Jack Ma 'purchases Hong Kong’s most
expensive home for US$193 million”.
Daily Mail)
But of course, if we take into account that all kinds of people live in Hong Kong and
skip Monaco’s very particular case, Hong Kong is by far the city with the most expensive
homes in the world.
To give you an idea, since 2003 the price of housing in Hong Kong has risen by 450%
and today the average price per m2 exceeds US $16,000; that is 1,486 USD/ft2 .
Yes, that means that if you want to buy a normal 90m2 house, nothing fancy, you’d
have to pay, at the very least, one and a half million dollars.
Quite a mortgage!
It’s very common to compare which cities are more or less accessible by counting how
many years of average wage, before taxes, we’d need to work to buy an average home.
So let’s take a look.
According to the latest published data, to buy a house in Hong Kong we’d need more
than 18 years of full wages.
For comparison, in cities like Tokyo or Singapore, one needs less than 5 years of wages.
In other words, Hong Kong’s situation is crazy.
And not only that, since property is so expensive and inaccessible for Hong Kong’s own citizens...
they’ve had to buy smaller and smaller homes.
Do you know what the average surface area for a home in Hong Kong is?
Come on guess.
100 m2?
80?
60?
No way! 42m2, or about 452ft2
Can you imagine living in a 42m2 house?
Well, check out the latest trend:
( “Hong Kong is so expensive that architects are building 100-square-foot ‘tube homes’
made from concrete water pipes”.
World Economic Forum.)
But, okay, some of you may be thinking…
wow Simon, that’s very small but…
I’m sure it’s because a lot of people live alone in tiny apartments, which alters
the statistics, right?
Well... no.
On average, almost 3 people live in a 42m2 or 425ft2 apartment.
That’s insane!
And, it’s not only the homes.
The same thing happens with offices:
(“Hong Kong skyscraper sells for a record US $5.2 billion” CNN)
But of course, having said that, you may be wondering.
Why the hell are homes so expensive in Hong Kong?
Well... listen up.
(THE LACK OF LAND, A MYTH?)
Massive spaces, skyscrapers everywhere, small apartments… and I mean small...
tiny and expensive... apparently, that's how we could all describe Hong Kong, don’t you
think?
After all, we’re talking about one of the most densely populated places in the world.
Alright so, many people and very little space pretty much the perfect combination for super
high prices, right?
Well... hold on just a moment, because dear viewer… isn’t the whole truth.
The truth is that less than 25%, that is a quarter of Hong Kong’s territory, is urbanized
and only 7% of the entire territory is occupied by urban housing.
Outside the crowded areas we can find countryside, jungle, old villages, golf courses and many,
many single-family homes.
So how is this possible?
See, for years Hong Kong was considered the freest economy on the entire planet by the
Index of Economic Freedom.
We’re talking about a place with low taxes, free trade, legal security and a very small
amount of government intervention.
Yes, this is a highly capitalist city.
That’s why it’s the third largest financial center in the world, after London and New
York.
By the way, interesting fact.
The Basic Law, Hong Kong’s constitution, limits the government so it can’t spend
more than it makes.
This means that the government usually closes every year with surpluses.
It has accumulated so many surpluses that it has saved, check this out, over 220 billion
dollars.
Yes, public debt doesn’t have much room here.
But... let's continue.
The fact is that despite so much freedom and so much commitment to capitalism...
there’s a sector in which the government has intervened a lot.
You know which?
Precisely.
The real estate sector.
See, the government owns practically all the land in Hong Kong.
Public authorities control when and how much land is put on the market to be able to build
on.
And of course, the Development Bureau decides what can be built.
Generally, land concessions are given through auctions, in terms of private homes, offices
or commercial uses; or directly through agreements with developers when public housing with lower
rental prices is going to be built, which is where a large part of the population lives.
And it’s normal, even in auctions, for the property to continue being government property,
as they are granted a right of use for an unspecified amount of years.
So, sure, homes being so expensive in Hong Kong has a lot to do with scarcity, but not
due to a geographical shortage-- due to the government’s decision.
There’s plenty of land to develop new residential and office areas.
And, there’s always the option of gaining ground at sea.
Yes, it isn’t a strange thing to do: a quarter of all the built areas of Hong Kong are on
land that was claimed from the sea.
But the government decides absolutely everything.
(“The shortage of land is a myth.
There are over 200 hectares of land available for building in the urban areas.
The shortage of housing is real but that is because of deliberate manipulation of the
market by the government.”
John Wright, a barrister and chairman of Friends of Sai Kung.)
Well, in recent decades, as we mentioned before, Hong Kong’s population has grown a lot because
many people have come in from China; in addition, family size has decreased, and many Chinese
investors want to invest in this city, known for its legal security.
All this has led to a rise in demand… but not supply… because the government didn’t
want it to.
“Home prices will continue to grow due to limited supply”.
Thomas Lam, Senior director at Knight Frank)
But...
Why is the government interested in restricting supply and increasing prices?
Well... there are at least 2 reasons:
The first is that auctions are a great business for the public purse.
In 2017, for example, 1 out of every 5 dollars from public revenues came from land sales.
We’re talking about more than 15 billion dollars.
The second reason... which is much more sinister, is that there are suspicions of not very clean
relations between the authorities and large promoters.
Well, suspicions and even, convictions.
( “Hong Kong Property magnate Thomas Kwok back in jail for bribing city’s No 2 official”.
SCPM)
You see, the real estate sector in Hong Kong is held in very few hands...
hands that belong to multi-millionaires.
In fact, 7 of the 14 biggest estate magnates in Asia are from this city.
And well, these big businessmen prefer to keep prices sky high and avoid competition...
something that happens when the government brings very little land to the market and,
in addition.
increases any new project’s bureaucracy.
That way, small and medium enterprises can’t enter… and foreign companies don’t dare
to, because they’d have a clear disadvantage.
Of course, my friends, all of this has consequences.
Listen up.
(THE CONSEQUENCES.)
The crazy price of housing has meant that despite having a lot of employment and high
wages, many people live in difficult conditions, like families having to live in 40m2 or 431
ft2 homes while paying exorbitant mortgages.
This system has also led many people, especially the youngest ones, to depend on the government’s
public housing rentals... which of course are also very small houses.
And remember, that in Hong Kong, there’s no chance of living on the outskirts or in
more remote areas, because that would mean crossing over to mainland China... and losing
all the freedoms that people have in this city.
And, as if that weren’t enough, the high price of offices and business buildings has
caused many companies and many investments to end up in other cities of the Pearl River
Delta, such as Shenzhen, which poses problems for the future.
But we’ll talk about that some other day.
Anyway, my friends, that's how things are in the city that, until now, has been one
of the most prominent beacons of prosperity and freedom in Asia.
Only the future will tell us whether it will continue to be, and you know what?
We’ll be very attentive here at VISUALPOLITIK.
But now, it’s your turn.
Do you think that the Hong Kong authorities should promote the city’s growth by increasing
the real estate supply?
Leave your answer in the comments as well as in the survey.
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Also, don’t forget to check out our friends at the Reconsider Media Podcast - they provided
the vocals in this episode that were not mine!
And as always, thanks for watching!