Is a government scheme to boost Hong Kong's public housing accidentally pushing up home prices?

By Pearl Liu pearl.liu@scmp.com / South China Morning Post | May 21, 2019 10:23 AM SGT
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It may have been well meant, but the Hong Kong government's latest move to take the heat out of the property market may have had an unintended consequence.
In an attempt to raise the supply of affordable housing, the government recently shifted the targeted split between public and private housing to a 70:30 ratio from the previous 60:40. The change was announced on December 21 last year, which was followed by a rebound in Hong Kong property prices in January this year.
With desperate home seekers now scrapping over a diminished private market, the plan may have contributed to a rally which has taken prices in the world's most expensive property market to even greater heights, say analysts. Hong Kong home prices have hit an all-time high after staging a record-breaking comeback, new figures show.
"The intention is good, however, it translates to an even smaller pool of private homes," said Alvin Cheung Chi-wai, associate director at Prudential Brokerage.
"Buyers are having to rush to snap up a unit as they are afraid that private home prices will be pushed up as the supply will be further decreased. And the [Hong Kong] government sets the income cap for public housings too low, and not many home seekers can actually benefit."
John Lam, head of the Hong Kong and China property team at UBS Research, however, said the government's move to raise public housing supply would only be a minor contributor to the upward trajectory of prices.
"Sentiment has changed mainly because of expectations of macro policies, particularly the slowing of interest rate increases recently. The ratio change is more indirect to buyers' sentiment," he said.

Hong Kong raised its key interest rate by 25 basis points in June last year, matching a move by the US Federal Reserve.

But since the beginning of the year, Fed interest rate policy has turned dovish and now the market consensus is for no further raises this year.
The income threshold for a couple to qualify for a public rental home is currently HK$18,690 (US$2,380) per month, disqualifying many from applying. As of the...