Hong Kong will resume a program to sell thousands of affordable apartments a year, the city's leader said Wednesday in an annual policy speech aimed at cooling public anger over the city's widening rich-poor gap.
Donald Tsang also warned of a gloomy economic outlook and "enormous inflationary pressure" facing Hong Kong because of soaring property and food prices.
"We are not optimistic about global economic prospects next year. We may see inflation and recession come one after the other," Tsang, whose official title is Chief Executive, said in his last policy address before stepping down next year.
Wearing his trademark bow tie, Tsang said he expected Hong Kong's average inflation rate to hit 5.4 percent this year, the highest annual rate in the semiautonomous Chinese territory since 1997.
Rocketing property prices have squeezed poor and middle-class Hong Kong families, stoking resentment toward the government and property developers, whom protesters have accused of "hegemony" over the housing market.
As the chief executive was preparing to deliver his speech to a legislature that is only partially directly elected, a pro-democracy lawmaker released a helium balloon inside the chamber with a banner that said, "Donald Tsang ruins Hong Kong; the government collaborates with businessmen." Protesters outside the building held up signs depicting Tsang as a devil and demanded better welfare benefits and help buying apartments.
Tsang acknowledged the public discontent, noting that property prices jumped 18 percent in August over the year before while surging food costs accounted for about 40 percent of the rise in consumer prices.
"In regard to housing, the financial tsunami has led to surging asset values and soaring property prices," said Tsang. "People have become frustrated because it is more difficult for them to own a home."
Hong Kong's property prices have been driven up by a relatively small supply of private apartments, abundant liquidity and persistently ultra-low interest rates, he said. Hong Kong authorities lack a monetary policy lever to raise borrowing costs because the city's currency is pegged to the U.S. dollar so it must follow low U.S. interest rates.
Under the revived subsidized housing purchase program, the government will initially build and sell 17,000 apartments at a steep discount over four years starting in 2016 to families earning Hong Kong dollars 30,000 ($3,850) or less a month.
The 400- to 500-square-foot apartments are aimed at first-time buyers and will be priced from HK$1.5 million to HK$2 million ($193,000 to $257,000). Pre-sales will start in 2014 or 2015, with about 2,500 available in the first year. The government plans to eventually sell about 5,000 units annually.
The Hong Kong government halted the program in 2003 after housing prices plunged more than 60 percent following the Asian financial crisis and bursting of the dot-com bubble.
Hong Kong is often held up as an example of laissez-faire capitalism, but its property market is heavily influenced by the government, which controls the sale of all land to private developers — a system put in place by its former British colonial rulers. Tsang also promised that the government would provide land for 40,000 housing units a year as a buffer against swings in property prices.
The government is also directly involved in the housing market. Nearly half of Hong Kong's 7.1 million residents live in public rental housing or subsidized housing units sold before the program was halted.
Tsang also warned that Hong Kong faces several long-term challenges including a rapidly aging population and a structural shift in its economy that is hollowing out middle-income jobs.
Tsang is Hong Kong's second leader since the former British colony was handed back to China in 1997. He joined the government more than 40 years ago and became chief executive in 2005 with the backing of a committee loyal to Beijing.
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