Property market frenzy and a deep recession reveal the reality of two unequal Hong Kongs

Stock market and real estate excitement contrasts with Hong Kong’s prolonged recession amid the Covid-19 pandemic and rising unemployment
The government’s decision to abandon a planned vacancy tax on unoccupied flats risks further polarising a city that is already rife with inequality

Lee Shu Kam

Published: 6:45am, 7 Nov 2020

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October told a tale of two Hong Kongs, judging by a swirl of seemingly conflicting economic headlines. In a month when the city’s coronavirus-battered economy sent the unemployment rate to a 16-year-high of 6.4 per cent, the high drama was Cathay Pacific’s decision to slash 8,500 positions and fold its regional Cathay Dragon brand.

In a parallel universe, stock market excitement bubbled over before Chinese fintech company Ant Group’s planned US$35 billion dual listing in Hong Kong and Shanghai was shelved at the last minute. Meanwhile, in a property market frenzy, a new housing estate in the New Territories had the best response from potential buyers since 1997 – applications for the first two batches of flats released were oversubscribed by almost 60 times.

Built atop an MTR interchange, with the draw of a large shopping centre, units in the new project are priced at an average of more than HK$20,000 (US$2,600) per sq ft, which is competitive even against second-hand mass residential properties in Sha Tin.

While the low interest rates and easing of pandemic fears would have helped the sales, the fact remains that a glut of flats released elsewhere before the Covid-19 outbreak in January is still largely unsold.

The latest home-buying frenzy reflects the successful sales tactics behind a particular project, rather than a property market revival. It is an anomaly that lays bare a widening wealth gap in an increasingly warped society.

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Although Hong Kong is mired in recession, the impact of the pandemic on the city’s rich appears limited. The overwhelming take-up at the New Territories project is evidence of this, with some investors buying multiple units.

Few stores are vacant at high-end shopping malls in Central such as Landmark and IFC, which is surprising given that the double whammy of last year’s social unrest and the pandemic has deprived luxury brands of their cash-rich mainland clientele.

These observations are as real a reflection of Hong Kong society as any, yet they tell just one part of the story. At the other end of the spectrum, the number of unemployed increased by about 11,500, to 259,800 in the three months to September. Applications for the Comprehensive Social Security Assistance Scheme jumped by nearly 90 per cent year on year in September.

The working class is bearing the brunt of the recession. Unemployment in the tourism-related sectors of retail, accommodation and food services has increased by 0.8 percentage points to 11.7 per cent, which is the worst since the severe acute respiratory syndrome epidemic in 2003. In the food services sector alone, unemployment stands at 15.2 per cent.

According to a 2018 Oxfam report, Hong Kong’s Gini coefficient – a measure of income inequality – of 0.539 was the highest in 45 years while its wealth gap was one of the most extreme among developed economies. Poverty had worsened since the mid-2000s, with the richest earning 44 times more than the poorest.

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Yet, against this backdrop, Hong Kong’s property prices have dropped by only about 5 per cent from historic highs in May 2019. This is why it is highly problematic for the government to consider withdrawing plans for a vacancy tax for unoccupied, first-hand private flats.

The tax was meant to be a cooling measure for the property market to prevent hoarding and price manipulation by developers. However, with land supply for new housing persistently tight and global interest rates staying low for the foreseeable future, property speculation will continue to be rife.

The result is that Hong Kong will only become a more polarised society, stoking the embers of social unrest. If the government is serious about healing the city’s divisions, it should begin by reversing the aggravation of the wealth gap. A meaningful first step would be going ahead with legislation for a property vacancy tax.

Lee Shu Kam is associate head of the Department of Economics and Finance at Hong Kong Shue Yan University

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