Market Thinking

making sense of the narrative

Not the spark but the fuel

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A friend trapped in their hotel during last weekend’s violent protests noted that while the shop window of Harry Winston’s was smashed, nobody touched the diamonds. In the same way that the protesters clear up after themselves, these are protests, not an excuse for looting. As discussed previously, the spark to the protests may have been the (now dead) extradition bill, but the fuel for the riots that subsequently followed is undoubtedly the underlying inequality in Hong Kong that gives the sense of ‘nothing to lose’. Central to this is the issue of property and thus I was not surprised to read in today’s SCMP that the Hong Kong government is advancing proposals for a tax on developers leaving new built flats vacant, unsold or not rented. The proposal is that the tax would be the equivalent of two years rent and for context, consider the fact that the example given by the SCMP is HK$40,000 a month for a 500sq ft apartment (and thus a vacancy tax of HK$960,000.) This is certainly punitive for the developers, but only because it is already so punitive for Hong Kong residents. At current exchange rates, you can rent an 800sq foot 2 bedroom apartment in London’s Berkley square in Mayfair for the same price.

This is just the start in my view. Increasing supply at the margin will undoubtedly spark a fall in property prices, how much that is exaggerated by panicked selling by individual middle class Hong Kong residents – many of whom have have multiple properties remains to be seen. What is clear however is that the Chinese authorities, be they in Beijing or Hong Kong have, decided that the cozy developers’ cartel is no longer fit for purpose.

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