Flats and love: Simon Lee’s Rx on the Budget #2

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Leading political analyst Simon Lee (李兆富) says there is hardly any alternative over the property cooling measures and Housing Reserve. But he believes the money master has more to offer on the political front.

Simon Lee, Founder and CEO of AdvB weighs in on the budget now that some of the dust has settled. It wasn’t just a technical document – Mr Lee sees the politics and the economic thinking of the current FS, and maybe future CE, in the budget.


Justifying the unjustified

“The market at the moment does not support a relaxation of the property cooling measures. One needs to understand that the cooling measures can only reduce the number of transactions, not the prices. If the government now decides to scrap the policy when housing prices are dropping, it will only push the property market to the brink as property owners will rush into the market, putting their flats up for sale. Hence by mistakenly introducing the measures in the first place, the Government had placed itself in a position where alteration is almost impossible.

“For property owners, I don’t see a big difference in the change of rates concession from two seasons, subject to a $2,500 ceiling per season, to four seasons with a quarterly ceiling of $1,000. This is because there are not many properties that are charged $2,500 for rates anyway. So I think the change won’t make much difference to that have already been benefited from the policy.

“The supply of land, a major off-balance sheet asset of the government – also a major source of government revenue [land-generated revenue (land premium, rates, stamp duty) stood at some $177 billion in the 2014-2015 financial year, roughly above one-third of the government’s total revenue in that year], is running low. The government is facing an increasing challenge that it is not having much land left for sales in its pocket. Meanwhile, selling Home Ownership Scheme flats is less profitable for the Housing Authority now given the high construction costs. To avoid the ‘Link incident’ [the Housing Authority in 2004 decided to securitised its retail and carpark assets and founded the Link Real Estate Investment Trust] from repeating itself, it is therefore justifiable for the Government to inject $45 billion into the Housing Reserve.


Let’s Tsang the way out

“Regarding his political rhetoric, I think Tsang is starting a movement, whereby all sides should focus on seeking common ground. After the Umbrella Movement, there is the phenomena of increasing political polarisation and fractionalisation. From the Administration’s point of view, there are two distinctive groups. One side sees this as a great opportunity to ‘divide and rule’ while the other side believes that Hong Kong needs a calming effect to alleviate the social discontent. John Tsang represents the latter side. He wants to show that he has the capability of minimising the impacts of recent disputes and demonstrate that there is another way to resolve them.

“For Tsang his principal line is to avoid making enemies. Using another lyrics from the song that Tsang quoted in his Budget speech: “With love, I believe there is a way out.” That pretty much sums up Tsang’s position that will likely be his line if running for office.”