Cutting Red Tape to Catch Up with Shortfalls in Land and Housing Supply April 20, 2020 Part One: Private Housing Supply Housing supply faced a head-on crash and will have bumpy rides ahead Actual and projected completion of private residential units [1] 22,000 2018 estimate: Annual average completion during 2018 - 2022 20,800 units 20,000 2019 estimate: Annual average completion during 2019 - 2023 18,500 units 18,000 2020 estimate: Annual average completion during 2020 - 2024 16,000 16,000 units Number of units of Number 14,000 12,000 10,000 2016 2017 2018 2019 2020 2021 2022 2023 2024 Actual completion Projected completion Note: [1] Starter Homes units included. Sources: Rating and Valuation Department, and Our Hong Kong Foundation. 3 A high level of accuracy is evident in OHKF’s past forecasts Rating and Valuation Number of units Department’s OHKF’s estimate completed estimate 2016 14,595 18,200 17,700 2017 17,791 17,122 20,200 2018 20,968 18,130 20,800 2019 14,093 [1] 20,415 18,500 2020 - 20,850 17,000 Note: [1] 450 Starter Homes units included. Sources: Rating and Valuation Department, and Our Hong Kong Foundation. 4 A broad-based miss in 2019 completions Behind the miss in 2019 housing completion: Negative Domino effect on supply during 2020 - 2024 Industry-wide slowdown Delayed completions have been observed in both large and small projects, suggesting a general construction slowdown in the industry Examples of delay Mount Regency: 1,017 units 63 Pokfulam: 350 units Project delays may become more common if construction activities show no signs of L’Aquatique: 198 units picking up Sources: Company data from various developers, and Our Hong Kong Foundation. 5 Future completion unable to catch up with past shortfall Completion of private residential units [1] 1990 - 2006 2007 - 2012 2013 - 2019 40,000 Average: 26,000 units Average: 9,900 units Average: 14,700 units 35,000 2020 – 2024 30,000 Estimated Average: 25,000 16,000 units 20,000 18,00000 units Number of unitsof Number 15,000 10,000 5,000 - Note: [1] Starter Homes units included. Sources: Rating and Valuation Department, Buildings Department, Lands Department, Town Planning Board, company data from various developers, and Our Hong Kong Foundation. 6 A cumulative shortfall of 23,300 units in the past seven years Shortfall in the completion of private residential units, 2013 - 2019 [1] 20,000 Supply target as specified in 2017 LTHS: 18,000 units Cumulative shortfall: 23,300 units 2013-2019 Average: 14,700 units 15,000 (≈1.8x Taikoo Shing Estate) 10,000 Number of units 5,000 - 2013 2014 2015 2016 2017 2018 2019 Note: [1] Starter Homes units included. Sources: Rating and Valuation Department, Buildings Department, Lands Department, Town Planning Board, company data from various developers, and Our Hong Kong Foundation. 7 Manifestation of supply shortfall: Rising property prices and shrinking living space Private housing price index vs. per capita living space for private housing resident [1] 29 June 2018 210 Centa-City Leading Index (LHS) Per Capita Living Space for Private Housing (RHS) Chief Executive 220 Carrie Lam introduced six 22 February 2013 housing policies 190 Introduction of Double 19 May 2017 Stamp Duty; Mortgage tightening mortgage tightening 27 February 2015 27 October 2012 Mortgage tightening 170 Introduction of Buyer's 16 October 2019 215 Stamp Duty; further tightening on Special Mortgage relaxation for x Stamp Duty first-timers S 150 feet quare 10 June 2011 Mortgage tightening 130 19 November 2010 210 Introduction of Special 14 September, 2012 Stamp Duty; Mortgage tightening mortgage tightening Index (1997=100) Index 110 13 August 2010 x Mortgage tightening 90 23 October 2009 205 Mortgage tightening x 70 50 200 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Note: [1] Average living space is calculated as average unit size divided by average number of persons per unit. Sources: Centaline, Hong Kong Monetary Authority, Transport and Housing Bureau, Census and Statistics Department, and Our Hong Kong Foundation. 8 Spade-ready sites for private housing development did not recover from previous nosedive Spade-ready land supply for private housing 25,000 -53% from 20,000 the peak 15,000 10,000 Number Number of units 5,000 0 [1] 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 Government land sale Railway projects URA projects Private development & redevelopment Note: [1] Figure for 2020/21 is based on Government’s forecast adjusted with the average shortfalls between supply forecast and actual land supply for 2013/14-2019/20, which is approximately 30%. Sources: Lands Department, Development Bureau, and Our Hong Kong Foundation. 9 Superstructure commencements went into a freefall Number of superstructure commencements vs. number of units completed two years later Year of completions 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 25,000 -44% 20,000 from the peak 15,000 Number Number of units 10,000 5,000 Completions (top axis) Notification of Commencement of General Building and Superstructure Works (bottom axis) - 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Year of superstructure commencements Source: Buildings Department. 10 Reduction in presale consents issued signalled fewer private homes available in the near future Total number of residential units with presale consent issued 25,000 20,000 -35% YoY 15,000 of units 10,000 Number 5,000 0 2013 2014 2015 2016 2017 2018 2019 Source: Lands Department. 11 Slowdown in supply is witnessed in every step of the development cycle Land acquisition Construction Property sale Estimated number of units on spade-ready sites in 2019/20: Completion 12,190 No. of superstructure commencements in 2019: -16% since 2018/19 12,690 -53% since 2017/18 No. of presale consents -44% since 2017 issued in 2019: 14,140 No. of units completed in Average development cycle [2] 2019: (from land acquisition to construction completion) -35% YoY A record low in 4 years 14,093 [1] 4.5 years ➔ 8 years -33% YoY (present) (by 2024) A record low in the past 4 years Notes: [1] 450 Starter Homes units included. [2] The average development cycle is calculated based on 268 housing projects that are to be completed in 2020 to 2024. Sources: Development Bureau, Rating and Valuation Department, Buildings Department, Lands Department, Centaline, and Our Hong Kong Foundation. 12 Sai Kung, Yuen Long and Kowloon City will be the top three districts in upcoming supply Private housing completion in 2020 - 2024 by district Sources: Rating and Valuation Department, Buildings Department, Lands Department, Town Planning Board, company data from various developers, and Our Hong Kong Foundation. 13 Rezoning and railway had been the two biggest land sources, but what is next? Land sources ranked by the highest completion contribution Before Now In another 5 years (2015 - 2019) (2020 - 2024) (2025 - 2029) 1 Rezoning (30%) 1 Railway (25%) 1 Rezoning The last resort …by the Government (21%) …by private developers (9%) Slow as usual 2 Redevelopment (28%) 2 Redevelopment (25%) 2 Redevelopment If there is no delay 3 Reclamation (18%) 3 New Town & NDA (20%) New Town & NDA Depleting quickly 4 Railway (16%) 4 Rezoning (20%) Railway …by the Government (19%) The only reclamation …by private developers (1%) ongoing is Tung Chung 5 New Town & NDA (8%) 5 Reclamation (10%) Reclamation New Town extension Sources: Lands Department, Development Bureau, and Our Hong Kong Foundation. 14 Railway land bank is depleting quickly Railway property development tenders that have been awarded or Property development packages will be awarded: awarded in the past 5 years Estimated number of Expected tender private housing units award date Kam Sheung Road 1,040 2024-2025 Package 2 Pat Heung Maintenance 6,060 Under review Centre Siu Ho Wan Depot 4,200 [1] Under review LOHAS Park Station ~2,500 2020-2021 Package 13 Wong Chuk Hang ~1,500 2020-2021 Packages 5 & 6 The remaining landbank of 15,300 units from the railway tenders cannot last for many years Notes: [1] There will be a total of 14,000 units for Siu Ho Wan Depot according to the latest planning proposal disclosed. Assuming a development approach of 30/70 split in units for private and public housing, Siu Ho Wan Depot might supply 4,200 units for private housing at a conservative estimate. Sources: Various newspapers, MTR Corporation, and Our Hong Kong Foundation. 15 Sites that involved rezoning by private developers take considerably longer to be developed Development cycle of Double Cove (23+ years) Housing yield: 152 units per year (3,500 units/23 years) Pre-construction stage (20 years) Construction stage (3-6 years) 1990s 1997 2009 2010 2013 2014 2015 2016 Outline Zoning Henderson Land Plan was approved Construction of acquired farmland in Land premium Phase 1 Phase 2 Phase 3 Phase 4 and by Town Planning Double Cove Wu Kai Sha was settled completed completed completed 5 completed Board commenced Development cycle of Wings IIIA and IIIB (5 years) Housing yield: 205 units per year (1,028 units/5 years) Pre-construction stage (1-2 years) Construction stage (3 years) 2011 2012 2013 2016 SHK Properties purchased SHK Properties purchased Construction of Wings IIIA and IIIB Wings IIIA and IIIB the site for Wings IIIA in the site for Wings IIIB in commenced completed public tender public tender Sources: Buildings Department, company data from Henderson Land Development and Sun Hung Kai Properties, and various newspapers. 16 Regulatory red tape is holding back housing development Why Have Housing Prices Gone Up? Edward L.