Hong Kong's housing bubble

Percy Lo-Kit Chan bemoans that living space is at an absolute premium in Hong Kong and vastly expensive ... Now there is a clamp down on "illegal structures" that will create even more of a squeeze ... Percy has some housing and tax advice for young Australian lawyers coming to HK for a stint

An outsider usually thinks that Hong Kong is a virtual tax haven since its basic rate of income tax is fixed at 16 percent - indeed almost half the population pays no tax.

There is always a catch. The government derives a large proportion of its income from the auction-sale of leases of real property sites that it controls.

Usually the sites are sold to one of the cartel of "developers" who then on-sell.

So it is, because of the restriction on the amount of land the government permits to be developed, that Hong Kong residents either cannot afford a flat at all, or find themselves paying much of their salary to live in conditions which would be considered unacceptable, even in Sydney.

As I sat on my mini-bus yesterday trundling endlessly down Caine Road, a thoroughfare that is constantly being dug up and relaid, I spied an absolute bargain – 450 square feet in a new building for the equivalent of A$1 million.

Half the population lives in public housing estates, and some 100,000 indigent citizens (invariably the aged, halt and lame) live in "cages".

Yes, that isn't a typo - Hong Kong despite its wealth still permits a sizeable number of its older citizens (something around 100,000) to be "housed" in "cages" consisting of a bunk that can be locked-up in an unventilated dormitory and per square foot is more expensive than a luxury unit.

No wonder our Gini co-efficient for income inequality is almost the highest in the world.

It is no surprise that the locals are restless.

The price of flats rises inexorably as cashed-up mainlanders arrive to visit the Louis Vuitton shops, and snap-up an apartment for cash.

This is not without its risks - was it not Balzac who said that behind every great fortune is a great crime?

There is a large risk of attracting unfriendly notice on the mainland if one's fortune grows too large. The authorities can then put you under "administrative arrest" and you can disappear - like Joseph K - into limbo.

Hong Kong living: beyond the reach of the "sandwich" class

With living space at an absolute premium, there has been a huge outcry about "illegal structures" that have been discovered on the apartments of many leading citizens, including our Chief Executive.

An "illegal structure" might involve something as simple and benign as putting a window on your balcony to increase the net area of your flat, or constructing something on the roof to provide an extra room.

These sorts of structures are particularly prevalent and pernicious in the New Territories, which the Brits leased from the weakened Chinese emperor to give them more living space.

There, male "indigenous" villagers, who nowadays mainly live in Metro-Toronto or Vaucluse, have always been entitled to erect a "village" house - three storeys (2,100 square feet) that can be conveniently "on-sold"

Such an entitlement was akin to a gift from the government of a large amount of money to a small group of people who, via the Heung Yee Kuk, heavily support the PRC and its placemen in the present governmental structure. Quelle surprise.

Now, action is being taken - senior members of the executive are hard at work at their flats, removing windows, taking down walls, destroying the roof terrace.

Each day the papers are full of further embarrassing "breaches" of the illegal structure regime photographed by the reptiles of the local press. In the New Territories, the Kuk seems to have backed down from its "ambit" claim, which initially required "compensation" for removing structures that should never have been erected in the first place.

Where will it all end? The property market is bubbling. In Hong Kong, the "sandwich" class cannot buy a flat and over the border security police are busy dispersing large and angry mobs of peasantry whose land is "seized" without compensation to allow further development that can be used as collateral by the banking system.

Recently, a disaffected victim of a land theft set off a bomb in a municipal government building and killed himself and two other unfortunates.

If you are a young lawyer coming to Hong Kong for a shortish stint make sure the use of a small serviced apartment is included in your terms - otherwise you will be living with the roaches above a bar in Elgin Street. 

That might have collateral advantages for a male tenant - something your columnist will discuss on another occasion.

Also watch out for section 23G of the ITAA. It would seem that the old offset you received from the commissar for paying tax at a lower rate in HK has gone for a burton and you are liable at the Australian rate for your salary in HK.