This file photo shows residential buildings at Tai Koo Shing, Hong Kong. (PARKER ZHENG / CHINA DAILY)
ChinaChem Executive Director and CEO Donald Choi Wang-hing is on the show this week to offer his perspective on how private developers can work with the government to solve Hong Kong's housing supply issue.
Choi says the government must no longer strictly maintain a high land premium policy and diversify its income in order for homes to become affordable in future. And he believes private developers’ participation in public housing should improve supply.
Check out the full transcript of TVB’s Straight Talk host Dr. Eugene Chan’s interview with Mr Donald Choi
Chan: This is Eugene Chan and welcome to Straight Talk. Our guest tonight is Mr Donald Choi Wang-hing. He is the Executive Director and Chief Executive Officer of the ChinaChem group, one of the leading property developers in Hong Kong. Mr Choi is also the president of the Hong Kong Institute of Architects. And he has over 30 years of management experience across property development. Tonight, we have invited Mr Choi to tell us how he thinks the property market will fare under the new administration, led by Mr John Lee. Welcome, Donald.
Choi: Thank you for inviting me.
Chan: Donald, we have had a mini-series on this show for the past two weeks on the housing situation, because this is quite a concern for Hong Kong people as well as the SAR administration. We had former Secretary for Development, Eric Ma, he talked about the red tape issue. And we also had the former director of planning, Professor Ling Kar-kan here to talk about the execution side. So we have invited you here to complete a picture. Because I mean, you are an experienced person, as I introduced earlier, and you will be able to share with our viewers from a professional and from the private sector's perspective. So Hong Kong has topped one of the most expensive housing markets globally for 11 consecutive years. So as a property developer, they must be very happy. Is that right?
Choi: Well, I think, you know, for developers, actually we would like to see a stable and steady market. So it is not necessary that we look for the most expensive market to work in. What is good for society will be good for developers as well as other businesses as well.
Chan: So if the market keeps on going up, the profit for the developer will increase as well, is that true?
Choi: Well, not necessarily because if you look at the land prices, you know, the government charges high end premiums. So if they foresee, a continual rise in housing prices, the land costs will actually be more expensive. So it may not increase the profit margin, it may even actually provide the developer with more risk.
Chan: Right. As you know, in the community, I mean, people have different opinions, we often hear… And one of the very common things that we hear is that they said the property developers like to hoard land and units, so that there'll be less supply, so the prices will go up. So housing will be less and less accessible to the ordinary citizens. Is that true?
Choi: I don't think that is a fair assessment. You know, a lot of developers really would like to increase their supply to the market and put the housing as soon as possible to the buyers. That is how we actually recycle our capital. A lot of delay has been… as you have mentioned earlier with your previous guests, you know, the planning process may take a very long time, the premium negotiation is very often at being kind of a back and forth negotiations that not only take months, but years to achieve. So all of this actually has become the bottleneck of development.
Chan: Just now you said if the prices keep on going up, it may not be the best thing for the profit anyway. So if we have all the controls, what will be the perfect market for the business?
Choi: Well, I don't think it is ever a perfect market. And it is not just a perfect market for the developer, but actually it should be a perfect market for the community and society. So I think as I mentioned earlier, I think we are very much like other Hong Kong citizens, we are looking for a steady kind of market rather than, you know, volatility that goes up and down. And we do not actually prefer that type of market because that puts a lot of risk on how we do development.
Chan: Right, Donald. You know? As I said, even in the last few shows, all the past chief executives, or even with Mr John Lee, housing is really on the agenda like from all the election committee members. If you look at the last 25 years, they have put in different policies. Remember, when we first started to come to work, there was 90 percent mortgages. But the most recent policies, I mean, you can borrow up to only 40 percent, depending on the price of the properties you buy, the stress test is quite difficult to pass because the increase of a few percent, say interest rate goes up. And even if you rent a property, they might half the income of the property. And also there's things called special stamp duty, buyer’s stamp duty and even double stamp duty. So all that is trying to curb the demand as we always listen to the government, have all these measures been effective? In your opinion?
Choi: Well, obviously not. We know when we see prices keep on going up. And I think the problem with a lot of these administrative kinds of arbitrary control of the market, actually enable, you know, artificial markets. And it is bad in the free market where we could not achieve a market equilibrium.
Chan: But could you say that if the government didn't do any of the policies, the market could shoot up even higher?
Choi: Well may not be. If you just look at the deposit and mortgage. I think if the government has less intervention, probably the first-time buyer could get on board, easier rather than more difficult because they need to actually suddenly double or triple their deposit, you know, to buy a flat. Now, how can you save that amount of money within a very short time? You can't.
Chan: Just one side question. If you look at the last few years when Hong Kong was having the riot, the society isn't stable, the COVID situation for the last two years, but very fortunately, the property market has stayed relatively strong. Would you give credit to the government that we have such low interest, like low borrowing ratio, and also like 60 percent of properties in Hong Kong, I actually have no mortgages.
Choi: Well, I think that is part of the beauty of a free market, where, you know, the customer will consider their capability and ability, they are not actually going to rush into the market recklessly. And Hong Kong does have a very robust demand. I think the government has recognized that it is the community's aspiration to live better, to have a better quality of life, and that starts with a quality home.
Chan: You know, last month, there was a tender by five developers for a residential site in Tuen Mun. But the government has rejected the tender because it hasn't reached the reserved price. So in a way, someone said that the government is maintaining high prices. And is this part of their high premium land policy Hong Kong is adopting?
Choi: Well, the Hong Kong government is the largest land owner. So if they really want to lower the price of housing, they can start with lowering the land costs, the land premium. So obviously, I think this is something that the new government can explore and ensure that you know, they are not actually following a very old colonial policy of high land prices.
Chan: That being the case. I mean, as you know, Hong Kong has a lot of expenditures. The last few years, we had spent a lot… we were in a budget deficit on education, on the pandemic, helping this community in businesses. And a lot of the revenue comes from land sales. So do we have a solution when you say that if you're going to reduce the price of land, and where is the revenue coming in?
Choi: Well, I think we need to you know diversify our revenue, the government revenue. I think, you know, don't be fooled that, you know, land premium could make up a large part of the government's budget. Therefore, we are not paying. Actually it is penalizing all the homeowners because they have to actually pay a much higher price. And actually it is a kind of attack already.
Chan: Donald, you have been in the market for like over 30 years in property development. Any suggestions, from policies to the government that you think Mr John Lee can consider? I'm sure he's watching.
Choi: Well, I think you know, first of all, in the future disposal of land, we should not just look at the kind of economic or financial bit. We should also look at what the developer will be providing in terms of building a better quality of housing and a better community so it's very much like the Singaporean… URA tender, so we have two envelope systems looking at the financial bid as well as the design, the quality of the development as well.
Chan: Let's look at the real estate development cycle. We had former secretary, Eric Ma here, and we said that it used to be like three years but now it can be like five to eight years. And he said that maybe the red tapes are sort of delaying processes, where Professor Ling Kar-kan, on the other side said, we need to red tapes to make sure to check and balance enough for all the stakeholders. So you mentioned a bottleneck. So where is the bottleneck, do you think?
Choi: Well, I think by better governance, by actually working together as a team, rather than as opposite kind of, of the game, I think, you know, it's a collaborative effort, rather than, you know, the government considering the developer to be unscrupulous, you know, doing business for, you know, to take advantage and we do no longer have that situations. For example, when we submit a building plan, the government is very much concerned about illegal use, converting the common area to private use, but under today's law in the DMC governing the development that is almost impossible nowadays, unlike, you know, a few decades ago,
Chan: Would you attribute that to that blame culture that we talked about, by Eric Ma and Professor Ling as well?
Choi: Yes, I think, definitely.
The public servants are very worried, they get the blame.
I think, the community, need to trust the government more, need to trust, you know, different partners in the community doing their business, in an honest way more, that will actually go a long way in how we can work together, the public, the business sector, the government working all together to build a better Hong Kong.
Chan: Right. So it seems that Eric Ma, Professor Ling, and you have the same opinion that more trust must be happening between all the parties and let's move on.
Choi: Yes.
Chan: All right, we will go for a break and see you soon.
Chan: Welcome back. Thank you for staying with us. We have been talking with Mr Donald Choi about the effect of government policies on the property market. So Donald, we had a good chat in the first part, and we both feel that less blame culture should be adopted, and we can move on things with more trust, things can move on much better. So Mr John Lee, on his manifesto, had several measures, and he said he's going to develop the brownfield sites, as well as the greenbelts. He is setting up two committees, one on the public housing, another one looking at land supply, and using innovative construction technologies. All very positive measures, I am sure the community has accepted them with open arms. So will that shorten the actual real estate cycle? And do you think that will… how long would it take to solve our Hong Kong housing crisis?
Choi: I think those are very good initiatives. Obviously making use of technology, for example, MIC and PIM to speed up the construction period. I think that is really already kind of proceeding already. Again in the pending, approval process, the centralized kind of coordination task force being set up can help in a great way of coordinating between all the different departments, and speed up the approval. So all of those are very good measures. Again I really look forward to the new government to help to shorten the housing delivery program. And you know, within hopefully five to eight years, I would say, that we can see drastic improvement, in the way that we deliver housing to the community.
Chan: So you still think that the housing shortage issue cannot be solved within this coming term? I mean you will see some light at the end of the tunnel.
Choi: We will start seeing result probably towards the end of term. Again, a development takes years to plan and deliver. So we are unlikely that the change of policy will immediately see results in the first one or two years. But I think we will see better delivery program, better quality of housing and development, better kind of catering for the needs of the community in our housing delivery, in the next five years or so.
Chan: Right, so looks like the result-orientated approach is working, but it still will take a few years before we actually see drastic results.
Choi: Yes.
Chan: And Mr John Lee also suggested that he will reintroduce private sector participation in the construction of public housing. Is that a good thing? And what effect has it got on the market?
Choi: Well, I think that definitely it’s a good initiative to use private sector resources, to help with government public housing delivery. We have this program previously where constructors actually participated in the construction of public housing, and the government guaranteed to buy them at a certain price. So I think it's a really good way of collaborating between the private sector and the government.
Chan: Yes, another initiative is to engage the private land owners for the land development as well. All that seems to be very positive, but why weren’t they used in the last few governments?
Choi: Well, you have to ask the government.
Chan: Right.
Choi: And again, I think you know, we shouldn’t look back, we should look into the future as to how we can do better. And I have a lot of expectation and hope for this present administration can actually create a better Hong Kong, more competitive Hong Kong, and actually create a solid foundation for Hong Kong to move forward.
Chan: So would you agree with the initiatives, like the North Metropolis and also Lantau Tomorrow vision, do you think it's also the right direction in your opinion?
Choi: I think the increase of developable land definitely is a good way, and Northern Metropolis, the Lantau (Tomorrow), I think also we have a chance to actually create a 21st century kind of neighbourhood. So from net zero, sustainability, better quality of life, smart mobility, and so on, all of that can be planned and incorporated, so that we have a future improved neighbourhood.
Chan: So I'm sure you coming from the professional sector’s point of view you just mentioned. So I'm sure the viewers by the television now are going to ask in their mind, with all the land coming, with all the supplies coming, will it translate to an inevitable drop in property prices? Because for most Hong Kong people, properties or even in the major cities in the world, property investment is a major part of their asset.
Choi: Yes.
Chan: So that will happen?
Choi: Well, we must kind of believe in Hong Kong future. I think as we actually… yes supply will have more kind of delivery, but also our living standard, in terms of jobs, in term of economic growth, will also increase as well. So we should not actually look at future income, stay at today’s level, we will have better income, we will have better opportunities, business opportunities, we will attract a lot of talents wanting to come to Hong Kong to make their life, to try their ideas, create their own business, we have a lot of start-ups. And all of this creates a lot of demand.
Chan: So you think the market will still be able to sustain over a longer term?
Choi: Yes.
Chan: We will see a healthy growth?
Choi: It should still be a healthy growth. I think a lot of people think we can at one end have a depressed housing market, while we continue to grow our economy. That is not really rational. As the economy grow, the property market prices will increase, and go along in line with the GDP growth.
Chan: I am sure the viewers will be very pleased to hear your assessment. But we also read from the national news that mainland now is adopting the policy that housing is for living, and it’s not for speculation. So do you think that… will our property market in Hong Kong… I mean we used to be, we are still the most expensive property market in the world, and a lot of people’s assets come from the property market, with years and years of savings. So will property still be a good investment? Sorry I have to keep asking the same question.
Choi: Well, first of all, I think property is different from home. For a lot of Hong Kong citizens, they are investing in their home.
Chan: Right.
Choi: So it’s not a commodity for sales and buying frequently. But obviously, if we have a steady economic growth, the value of the properties will increase, and you know, when you buy a flat in your 30s or 40s, and you retire in 60s or 70s, then obviously property has increased in value, and then you can cash in, as part of retirement plan.
Chan: Donald, we must also look into the short-term effect of… I mean we talked about this in the last few shows – that there are people leaving Hong Kong, at a rate much faster than before, we didn’t see that few years back. And also the expatriates are moving their bases to Singapore, we keep on hearing that. I’m sure luckily it’s not the majority, but there's quite a sizeable proportion. Will those people come back?
Choi: Well, I think when they see Hong Kong continue to be free economy, with rule of law, with better quality of life, and education for their children, I think they will consider the opportunities in Hong Kong and if they decide to do so, they can come back.
Chan: Alright. I am going to ask from all the perspectives of homeowners by the television right now, and they're going to ask you, we always have this golden rule of location, location, location – so where is that location now? Especially with all the development.
Choi: Well, that is why infrastructure is so important. When we talk about location, it is about convenience, about the job opportunities around your home. And with the infrastructure that Hong Kong now is investing, we have actually created a lot of multiple CBDs, that actually have the job opportunities, a better kind of a public green space, as well as the convenience of all the transportation. So I think when you look at location, it depends on the nature of your job. If you are going back and forth between the Chinese mainland, then probably you want to live in the Northern Metropolis, if you are in financial, you will stay in Central.
Chan: I have to ask you a question that you might find difficult to answer because you are with the property developer. We all know that the new flats are very nice, the kitchens are beautiful, they have got great common areas, but they are much smaller compared to the second-hand flats, and the usable space, especially when you have a growing family, you need to have a second-hand flat, and not everybody can keep on switching one flat to another, at least after five to eight years. So should they be buying new flats or buying second-hand flats?
Choi: Well, really depends on your lifestyle. I think for a lot of younger generation, they will use their flats for sleeping mostly. Their entertainment is outside, so they are looking maybe for a neighbourhood or community that support that facility. If I am a retiree, probably I want to stay in my home more and I want…
Chan: One last question – with the US interest rate hike going up, is it going to affect our property market?
Choi: It will in the sense that if it goes up very fast. But Hong Kong need not to follow US all the time, and I think the interest rate, I think it’s still at a very low level, compared to historical inflation.
Chan: Right. Donald, huge topic but that's all the time we have. Thank you for sharing with the viewers some perspective from the private sector and the professional angle as well. So I hope this past three shows of talks on housing has given our viewers a more complete picture of the situation, so that they can judge for ourselves how the property market will fare under the new administration. Have a good week and good night.