Following is the speech by the Secretary for Housing, Planning and Lands, Mr Michael Suen, at the Luncheon Meeting of Lions Clubs International District 303-Hong Kong and Macau on the analysis of property market data today (July 31):
Mr Tony Chan, International Directors, Mr Frankie Yeung, past District Governors, fellow Lion Members,
It is my pleasure to be invited to this luncheon meeting of the Lions Clubs International District 303-Hong Kong and Macau and to meet with prominent members of the business community and professional fields. On this special occasion, I would like to share with you some data relating to the private housing market. The figures will give us a better overall perspective on the market situation. I must, first of all, emphasize that my objective today is to analyse statistics. I have no intention to do a market forecast. Nor is it possible for me to predict how long it will take for the private housing market to achieve equilibrium in demand and supply.
All along, market information on flat supply has been based on different sets of data (Table 1 contains the major categories of data concerning the property market and related fields provided by the Government and other market sources). This is because individual property agents or real estate analysts produce different data sets to cater for different target groups and for different purposes. The government departments concerned have also released different kinds of data, including the "Hong Kong Property Review" published by the Rating and Valuation Department, statistics on land exchange and lease modification released by the Lands Department, figures on commencement of construction of new residential developments contained in the "Monthly Digest" published by the Buildings Department, and monthly figures on Agreements for Sale and Purchase announced by the Land Registry. Such a diversity of data are based on different methods of computation and serve different purposes. Any direct comparison of these data sets would inevitably reflect distorted pictures of the real situation and convey confusing messages to the market.
Let me use the vacancy situation in the private housing market as an example. In order to capture the vacancy situation as far as possible, the Rating and Valuation Department would, at the end of each year, carry out surveys on residential developments in respect of which occupation permits have been issued by the Buildings Department or Certificates of Compliance have been issued by the Lands Department. For instance, property management companies of individual residential developments, management office of individual buildings and neighbours of vacant units would be asked to verify the number of vacant flats. Even so, according to the current definition and method of calculating vacancy, flats which are awaiting to be sold by their current owners, flats which have been sold but not yet occupied, and flats which are awaiting to be let, would bound to be caught in the vacancy figures. Therefore, the vacancy figures released by the Rating and Valuation Department must not be interpreted as figures representing the number of new flats which have not been sold.
Take the annual private housing take-up rate as another example. The computation method adopted by the Rating and Valuation Department starts with the vacancy figure for the beginning of a year derived from the above-mentioned methodology, then add on the number of new flats completed during the year, minus the year-end vacancy figure and the number of flats demolished during the year, thus attempting to estimate the number of flats taken up during the year. The reliability of this take-up figure is definitely constrained by the basic survey figures. On the other hand, the number of Agreements for Sale and Purchase regularly published by the Land Registry includes the number of transactions involving the same property. Citing this figure would entail double counting. For example, according to Inland Revenue Department's data, there were 13,000 confirmor cases in 1997. This shows that relying on property transaction figures alone cannot reflect accurately the annual take-up rate for private housing.
In view of the above, it is indeed very difficult to devise an absolutely precise methodology to calculate the number of vacant flats which have never been sold. The figures I am now going to talk about should be interpreted against this background.
American novelist Mark Twain once said, "There are lies, damned lies, and statistics." He was reminding us not to believe in figures without taking a close look. There is no doubt that data analysis is essential to our understanding of the situation of the property market. However, we also need to be clear about the definitions, calculation methods and intended purposes of the data we use so that we can accurately grasp the real situation. As such, I tend to agree more to what Henry Clay, an American politician in the 19th century, had said about statistics. He said, "Statistics are no substitute for judgment."
Private Housing Stock and Vacancy Situation
Now that I have explained the possible deviations that may arise in the data compilation process, I would like to talk about the current private housing stock and vacancy situation. According to the "Hong Kong Property Review 2003" published by the Rating and Valuation Department, the total private housing stock as at the end of 2002 was around 1.1 million, and about 1.02 million units were occupied. The overall vacancy was around 74,000 units, representing 6.8 per cent of the total stock.
As I have just mentioned, a certain number of vacant flats are bound to exist in the property market. Previous studies by academics have pointed out that even when the property market is in equilibrium, there are always vendors looking for suitable buyers and buyers looking for suitable flats. Therefore, there would still be a certain quantity of vacant flats in the property market, and this vacancy rate is the so-called "natural vacancy rate". According to the calculations of those academics, the average natural vacancy rate during the 20 years after 1981 was around 4.8 per cent to 4.9 per cent. According to the figures provided by the Rating and Valuation Department (The trend of vacancy rates in the private property market from 1981 to 2002 is shown in Table 2), the private housing vacancy rate was 6.8 per cent as at the end of 2002. This was definitely on the high side as compared with the figures for the previous years. The vacancy rate estimated by the Rating and Valuation Department does not equate with this "natural vacancy rate", as both figures reflect different situations. However, if we use as reference the natural vacancy rate in the past 20 years as derived by the academics, 54,000 vacant flats out of the total 74,000 vacant flats as at the end of 2002 may be regarded as vacant flats that are bound to exist. The number of vacant flats over and above the normal vacancy level was about 20,000.
Number of Private Residential Units under Construction
Let me now turn to the subject of private residential units under construction. After careful examination and consolidation by the departments concerned in the past few months of the commencement dates of foundation and superstructure works, construction progress and expected completion dates for each private residential project, we have devised a comprehensive monitoring system and database in relation to private housing.
Please take a look at the data on private flats completed from 1997 to 2002, as well as flats completed so far in 2003 and those expected to be completed by the end of 2003 (The construction volume of private housing as at 30 June 2003 is shown at Table 3). Please then look at the number of Notification of Commencement of Foundation Works filed with the Buildings Department (as shown by the red line in Table 3) as at the end of June this year (As regards residential property developments along railway lines, the commencement date of works is taken as the commencement date of the construction of superstructure if the foundation works have already been carried out at the time of railway construction). The number of new construction works has progressively come down since 1998. In 1998, foundation works commenced on 35,300 new units while in the first half of 2003, foundation works were under way in respect of only about 8,100 new flats (According to the Buildings Department, more than 17,000 private flats were issued with Consent on Commencement of Building Works in the first five months of 2003. Compared with the 9,000-plus flats in the same period last year, it seems to be an upturn trend. But, I like to point out that the Buildings Ordinance requires developers to re-apply for the issue of Consent on Commencement of Building Works from the Buildings Department in respect of every major revision of their development projects such as the change in design. After checking the records concerned, the Buildings Department has found that the number of flats double-counted amounts to 9,000-odd. Therefore, the number of Consent on Commencement of Building Works issued by the Buildings Department alone cannot fully reflect the real situation. The number of 8,100 flats adopted by us represents the number of units with Notifications of Commencement of Foundation Works filed with the Buildings Department, excluding the double-counted ones. The number of projects included by using the foundation work starts would also be larger than that by using the number of superstructure work starts). You would notice that while the current supply of private housing is still abundant, the production "peak" in recent years has largely passed. Based on a normal lead time of 3 to 4 years from the commencement of foundation works to project completion, the downward trend in the number of works commencement reflects a downward trend of private housing production in the coming three years.
Supply Situation in the Private Residential Market
Railway Property Development
As to the supply of residential flats from other sources, we have all along been more concerned about the property development projects along the two railways. Concerning the Kowloon-Canton Railway Corporation (KCRC), its Chairman indicated earlier his willingness to explore with Government on how to return its residential property development rights to Government. Government will seriously consider this matter. Since this issue involves land and transportation policies, it will ultimately be subject to the discussion and decision of the Executive Council, so we should not expect any announcement to be made by Government in the immediate future.
On the other hand, I would want to share with you the actual situation. There is indeed a considerable quantity of land available for property development above many stations along the East Rail, Ma On Shan Rail and West Rail of KCRC, which can altogether provide about 46,000 flats. However, the concern is not whether these flats will be built. The answer is definitely yes. Rather, the real concern is when those flats will be constructed and completed. The commenced superstructure works for property developments along KCRC are already included in the construction data on residential developments which I have just mentioned. As regards the projects in respect of which works have not yet commenced, the matter must be reviewed in the context of our discussions with KCRC on the issue of property development rights. Therefore, the flats from these projects definitely will not be put on the market within the coming three to four years.
Similarly, development projects along the Airport Express Line and Tseung Kwan O Extension of the Mass Transit Railway Corporation (MTRC) for which superstructure construction works have commenced have also been included in the relevant works figures. Among the projects for which works have not yet commenced, the most notable one is the residential project at Tseung Kwan O Depot. That is a long-term project spanning over 10 years and providing about 20,000 flats. According to MTRC's current development schedule, no flats will be completed under this project in the next few years. As announced earlier by the former Chairman of MTRC, the Corporation as a listed company will determine its property development schedule having regard to market conditions.
Flat Supply from Other Sources
On Government-subsidized housing, I would like to reiterate clearly that the Housing Authority will not build any more Home Ownership Scheme (HOS) flats for sale. We are actively exploring the feasible options for disposing of the surplus HOS flats. We have no intention to offer the residual HOS flats for sale in the foreseeable future.
As for the Hong Kong Housing Society, Government has long ceased granting land to it for building subsidized housing for sale.
On the other hand, the redevelopment projects of the Urban Renewal Authority only involve land exchange, and the number of new flats arising from which in the next three years or so will not be large.
Current Figures on the Overall Supply of Private Housing (The estimated supply of private flats in the next few years is at Table 4).
As at 30 June 2003, a total of 68,000 private flats (The Rating and Valuation Department's data on the stock and vacancy situation of private flats include village houses. However, as village houses cannot be freely transferred in the open market before land premium has been paid, they are not included in the number of private flats in respect of which foundation works have commenced) have the foundation works commenced and are under construction. After deducting the 9,000 uncompleted flats which have been pre-sold, the number of residential flats which are under construction and will be available for sale in the next few years is 59,000. With around 20,000 unsold flats completed in or before the first half of 2003, it is estimated that the future supply of private residential flats in the market in the coming few years will be around 79,000 flats.
Supply in the market naturally depends on the number of flats built by developers. At present, land held by developers which is ready for development is limited. Developers will definitely take into account the supply and demand situation of flats in the market as well as other related factors when determining whether or not to proceed with individual development projects. The steps involved in the entire development process for a typical development project include: application for planning approval or amendment of statutory plan from the Town Planning Board, lease modification, submission of building plan under the Buildings Ordinance, carrying out construction works, etc. If the foundation works of a development project have not yet commenced at this moment, it is unlikely that the project can be completed in the next three years. Judging from the current situation, housing supply in the next three years will be on the decline. In fact, judging from the number of transactions of private flats in the past five years (Table 5 shows the private flat transaction figures), the overall transaction figures have not fluctuated considerably, staying in the range of about 75,000 per year.
Implementation of Housing Policy
The performance of the property market is closely linked to the economy. While SARS has adversely affected the local economy and the property market over the past few months, the export figures registered a double-digit growth both in May and June, and the number of tourists to Hong Kong has also bounced back significantly compared to the pre-SARS figures. At the end of June, Hong Kong and Mainland authorities signed the Closer Economic Partnership Arrangement (CEPA), which would further boost economic activities. The Hong Kong Monetary Authority announced yesterday the results of its latest monthly Residential Mortgage Survey. The results show that activities in residential mortgage loans increased in June, with the value of new loans drawn down increased slightly by 2.7 per cent to HK$5.3 billion. The value of new approvals increased significantly by 25.8 per cent to HK$68 billion. The number of application for new loans also showed an increase of over 20 per cent. I firmly believe that so long as Government follows through and reinforces its housing policy and strives towards the objective of "big market, small government", the property market will definitely prosper in a steady and healthy way once the overall economy has further improved. I am prudently optimistic about the long-term prospects of the property market.
End/Thursday, July 31, 2003