Soaring home prices and local residents' complaints have eventually led the government to pursue its 'Hong Kong land for Hong Kong people'" proposal that was not on the new administration's original agenda when it came into power two months ago. The new housing policy unveiled last week will restrict some residential projects for permanent residents only. However, the policy's effectiveness in helping to cool down home prices remains to be seen.

Two Kai Tak area sites have been earmarked for such projects. The policy initiated after many non-local residents, especially mainland buyers, invested in the city's property market, helping to heat up the market. However, will such a housing policy really work? Does it have any drawback?

Actually, the government has already implemented similar policies to cool down the real estate market such as the limitation on sizes and quantities of apartments at some projects. The effects may only be seen in years to come, but one thing that we can be sure about is that there will be more restrictions and the land to be sold by the government may fetch lower prices.

The first property policy that came into effect is the flat size limitation, requiring developers to provide 400 to 500 square feet size flats at certain sites. This was aimed to help those newly set up families to own their first property. While the size is suitable for new households and younger families, one aspect that may have been ignored is the selling price. At the end of the day, the targetted new families may not be able to afford the prices of these newly built flats. Additionally, when Hong Kong citizens reach the average age of 41.1, many may consider changing their apartments to a bigger one, thus the 400 to 500 square feet flats, may not be attractive to them, leading to a lower demand for such properties.

Another policy requires the developer to build a certain number of flats at a specific site. For instance, on one specific site, the developer may be required to build 1,000 apartments of 500 square feet each in average. However, the developer can divide the 1,000 flats quota into 800 flats of 300 square feet each and 200 units of 1,300 square feet each. Even though the flats are of very small sizes, they can still be built as "studio flats" selling at a higher unit price, making the flat not so large but still affordable to some lower income households. As for the bigger size flats, they may be sold to middle class families with stronger financial capabilities. This obviously gives developers more freedom and may result in a high bidding price for land sites released by the government..

The most significant distinction for "'Hong Kong land for Hong Kong people'" policy from earlier policies is that the new one focuses on the demand side, instead of the supply side. One reason that housing prices stay high is the strong demand of mainland buyers. According to the latest statistics, mainland buyers snap up about 10 to 30 percent of new flats offered in the market. The new policy will curb demand for such projects, and eventually lower the land price for such projects.

However, as the "'Hong Kong land for Hong Kong people'" policy has just been unveiled, only time will tell if it is effective.

The author is associate professor at Department of Finance & Decision Sciences of Hong Kong Baptist University. The views expressed here are entirely his own.

(HK Edition 09/13/2012 page2)