Treating the Symptoms - A Critical Review of ... - Civic Exchange

Left: Graham Streetrequirement. 137 This policy also fulfilled the HKMA’s goalof promoting mortgage securitization (which banks weretraditionally reluctant to engage in) thus enabling themto indirectly regulate the banking industry’s exposure tomortgages. Out of administrative convenience, these policiesapplied to sales of new flats, but not old ones. Eliminatingthe minimum down payment allowed developers to makean end run around the 70% mortgage guideline. Eager todispose of their excess stock, they accepted smaller downpayments and offered customers supplementary loans.With a 70% bank loan, 15% from the HKMC, and anadditional 10% loan from the developer, purchasers of newflats could make as little as a 5% down payment. 138 Sellersof second-hand flats could not compete on those terms,buyers migrated to the primary market, and between 1997and 2001 secondary property market sales fell by 65%compared to 30% for primary market sales. 139 This skewedthe ratio of primary to secondary market sales from roughly20:80 to about 50:50 until 2004. 140In the long term, banks may have to change their mortgagepolicies out of necessity. The construction of new residentialunits has seen an overall downward trend since the late1980s, with an especially steep decline from 31,050 newresidential units in 2002 to a low point of 8,700 new unitsin 2008. The average level of residential completions from2000-2009 was 2/3 of what it was from 1980-1989. 141 Thismeans that Hong Kong’s building stock is ageing fasterthan buildings are being replaced. If this trend continues,banks may no longer be able to neglect the market in olderproperties, as buildings constructed before 1979 now makeup 35% of the total housing stock. 142 This may especiallybe the case since the cohort of 30+-year-old buildingsincreasingly includes not just scattered individual buildingsbut large private residential estates such as Mei Foo SunChuen. In recent years a few banks have modified theirlending terms for older properties to be somewhat moregenerous, although still not as generous as those for newproperties. For example, in 2007 the Bank of East Asiaincreased its standard loan repayment period from 50 yearsminus the building’s age to 70 years minus the building’s age.(Its promotional literature refers specifically to Mei Foo SunChuen and Chi Fu Fa Yuen). 143 If construction continues ata slow pace, other banks will likely follow suit.Planning BlightPlanning blight is a term that describes what happens whenplanning restrictions are imposed on a piece of land so thatthe owner is no longer allowed to redevelop the land orderive a “reasonably beneficial use” from it. The owner thenfinds him or herself unable to sell the land except at a verylow price. 144This usually happens when the government zones a pieceof land for some future public purpose, but takes noimmediate steps to resume it. The buildings on it thenstart to deteriorate because the owners no longer have anyincentive to take good care of them. Blighted buildingsoften become magnets for subdivided cubicle flats sincelandlords who can no longer expect to reap any benefitfrom improving their property instead resort to crammingin as many tenants as possible. Poor tenants are willingto tolerate such quarters in the hopes of being one dayresettled in public housing. This accelerates the buildings’physical decay.Several of the projects taken on by the LDC and URA wereoriginally on land zoned for open space or GIC facilities. Forexample, the site of the LDC’s Grand Millenium Plaza andthe Cosco Tower were formerly zoned for open space andGIC facilities, where the government originally intendedto build a market and some open space. 145 However, inthe absence of any programme to acquire the land, thebuildings were left to decay for years. Finally the site wastargeted by the LDC for comprehensive redevelopment,and a 3,300 m2 public square, a home help centre, and amarriage advisory council office were incorporated into thecommercial development. 14637Similar problems can occur when an area under multiownershipis zoned as a Comprehensive Development Area(CDA). CDAs were a zoning designation introduced in