The luck of the draw

In the fairly short time I have been here, one of the traditions of Chinese New Year seems to have been eroded quite significantly. There was a time when almost everything shut down for several days, but in recent years more and more restaurants have stayed open - even though they aren't as busy as normal (with so many people out of town). Now most supermarkets and some chain-stores are now open on the first day of the new year, and most shops are open on the second day.

Meanwhile, most motorists apparently expect traffic wardens to be on holiday, so they think they can park anywhere they like. Mostly they do get away with it, but the TV news showed some tickets being issued yesterday - that must be the definition of a slow news day: when they find time to show traffic wardens issuing parking tickets! I reckon there are only three on duty in the whole of Hong Kong and they arranged with TVB to film them issuing a few tickets in the hope of persuading everyone else to park legally.

Another good standby for the TV news is the crush of people visiting the temples in the hope of having good luck for the coming year. You have to be quite strong and very determined to fight your way through the crowds just after midnight at Wong Tai Sin temple, and old ladies practice for months beforehand by shoving their way on to MTR trains and rushing for the single empty seat in the carriage. After the initial rush, Wong Tai Sin remains very busy for the next few days, but the queue is more orderly.

It is one of the more endearing aspects of Hong Kong that although this is now a rich and modern city, the traditions of Chinese New Year still survive and the idea of good and bad luck is taken (relatively) seriously. Roly poly buffoon Ho Chi-ping, the politically-ambitious eye surgeon (and Secretary for Home Affairs) suffered a setback last year when he drew the unluckiest possible stick at Che Kung Temple in Tai Wai, and refused to try his luck again this year. Instead, Lau Wong-fat, chairman of Heung Yee Kuk (and a Liberal Party District Councillor) drew a somewhat more auspicious stick on behalf of Hong Kong.

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More on property prices

My post about the effects of the government's land policy has prompted a lively debate over at the Gweilo Diaries

Predictably, it has caused outrage from at least one property owner, who assumed that (i) I don't own property and (ii) that I was advocating that prices should fall. Conrad weighed in to support the contention that prices are too high, and arguing that the government should get out of the market.

I wasn't specifically arguing in favour of lower property prices, though I can see why it was interpreted that way. My point was that the current arrangements obstruct the transformation of industrial areas to residential and commercial use, and one suggestion I made was that the lease premium should be replaced, possibly by a profits tax (so the government should benefit as these areas become more attractive and prices rise).

I can't see the point of anyone advocating higher or lower property prices. It is meaningless when an individual says it, and worrying when governments say it because it implies they don't have anything meaningful to say. We should be thinking about the real objectives, and only then do we need to concern ourselves with the impact on property prices. I can't see how high property prices can ever be a legitimate policy objective, though price stability may be a desirable aim if it doesn't conflict with other policies.

On the other hand, arguing that Hong Kong needs more (or better/larger) apartments seems like common sense. I wasn't arguing for the release more land for apartments, just that we could make better use of the land we already have available (primarily on what are often called brownfield sites, but perhaps also the land that property developers are holding back).

If that resulted in a modest fall in property prices, so be it. I think Hong Kong could cope.

Conrad goes further and argues that the government should sell the freehold of all property in Hong Kong and get out of the market altogether. This would be a massive undertaking, and the logistics of selling freehold to the owners corporations (which is how I assume it would be done) is not to be under-estimated, and it would keep the legal profession busy for several years! Having been involved in acquiring the freehold to an apartment block in the UK on behalf of myself and other leaseholders, I can predict that it will be hard work for all concerned!

Is it possible? Yes, I think so, because most apartments in Hong Kong were sold on short leases. One of Conrad's readers apparently has 879 years left on his lease (from an original term of 999 years) but he was one of the lucky ones, and that is not available any more! Most home owners will have a lease of less than 100 years, and since the handover, new leases are for 50 years, and (if I understand it correctly), can be extended for a further 50 years without payment of a premium. More information here. What effect would these changes have on property prices? I don't claim to know the answer, but it seems fairly certain that as it would increase supply it would also reduce prices, which is what Conrad says he wants. The big question is how far prices would fall. Maybe not as much as people expect, because I am not convinced that Hong Kong prices are really excessive by international standards, though it is very difficult to compare them because apartments here are small, but (arguably) make better use of the available space. Also, Hong Kong still only has a limited supply of land, and there is still significant demand, both from putative first-time buyers and from existing owners who would wish to upgrade. I don't believe these people are staying out of the market because they don't have money, but rather they are worried about falling prices.

Is it a good idea? Broadly yes, because it just doesn't seem logical that the interests of property owners should be more important than providing decent homes at affordable prices, and also because the government should stop interfering in the market.

The problem with Conrad's proposal is that it would most likely be very good for some people (owners of land and industrial buildings), but bad for others (existing home owners, or at least the ones with substantial mortgages and/or multiple properties). There would need to be some mechanism in place to deal with that, and it would not be easy to get it right. The government would also need to give a lot of thought to the question of how to introduce these changes so as to prevent it causing undue problems (if we accept that a big fall in property prices would be disruptive to the economy). The other big issue is how the government would balance the books if it could no longer raise revenue through selling land and collecting Lease Premiums.

However, being realistic, there's very little chance of anything so radical happening anytime soon. Which is why I think that it's better to focus on smaller-scale problems that perhaps can be addressed. Like the regeneration of some of the industrial areas.

The only serious concern raised over at the Gweilo Diaries (apart from the impact on property prices) was that residents might complain to the government about blasts of diesel exhaust in their converted lofts. I find this puzzling for two reasons - firstly because there are already plenty of people living in (or adjacent to) industrial areas, but usually in low-end accomodation, and secondly because I would expect that the transformation of these areas to happen fairly quickly. It would be in the interests of the property owners to convert from industrial to residential use, and if the government was not preventing it then logically the whole neighbourhood would be transformed within a few years. Anyone who bought property in Docklands, or the centres of cities such as Birmingham or Manchester, while the regeneration was in progress would have suffered some inconvenience but got a real bargain. Those who came later paid more but didn't have the problems.

Finally, in answer to the point about my own self-interest, I am indeed a property owner (with a mortgage).

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Cold as Ice

One of the great unsolved mysteries about Hong Kong restaurants is why some of them think their customers want icy blasts of cold air with their food - even in the middle of winter. Today I had lunch in a dim sum restaurant that really excelled itself in this regard - one of my colleagues was wearing a fleece jacket with the hood up and still complained that she was cold. I wasn't wearing a coat or jacket - because oustide it was mild and quite pleasant, but inside the restaurant was another matter. The only small consolation was that by sitting back in my chair I was out of the direct line of the aircon (though I couldn't eat my lunch either, which rather defeated the object of going there).

Apart from the discomfort, you also end up with cold food. I used to go to a small restaurant which didn't have the normal heated trolleys for dim sum, and you could almost guarantee that most of it would be stone cold by the time you were served. Even in restaurants that do have the trolleys (or ask you to order dim sum from a menu and then bring it to you), the pressure is on to finish the food quickly before it gets cold!

Why do they do it? I can only assume that the staff, who are rushing around serving people, like it to be cooler and don't realize that the customers, who are sitting still, find it uncomfortable. Or do they want to dissuade you from staying too long?

Whatever the reason, it really is a ridiculous waste of money and energy.

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Going Down

When I lived in London, I spent a large part of my life never having to use an elevator. In fact when I was a child, one of our small amusements on a Saturday was going on the bus to a large new shopping centre and travelling up and down in the car park lifts. Sad, I know, but true.

My apartment in London was on the first floor and, although it did have a lift, it had been broken for many years (and who really needs one in a four-storey building?). Most of the offices where I worked there either didn't have a lift, or there was no need to use it unless you were really lazy.

However, here in Hong Kong, almost everyone uses lifts several times a day, at home and at the office. Unfortunately, this brings with it many frustrations and much aggravation. Plus it gives me something to write about in my blog.

I've got used to people jabbing the lift button repeatedly in the strange belief that this will make the lift come more quickly; pushing in to the lift before people have a chance to leave. and pushing the 'door close' button rather than waiting for the doors to close. It can be quite amusing getting in to an occupied lift and not pressing the 'door close' button - someone will usually make clear their exasperation and press the button whilst looking at you as if you were an idiot.

Fumier has recently written about this, and is complaining about another thing people do.

People will press both the up and the down button and get in whichever lift comes first. They may therefore travel up 4 floors and then down 5 floors in order to go down one floor. The lift therefore makes twice as many stops, goes twice as slowly, and is full of people going in the wrong direction, thereby preventing people going in the right direction from getting in, and hence building up the backlog of passengers, and thus encouraging them to press both buttons and get in whichever lift comes first, and so on and so on.

Yes, that happens in my nearest large shopping centre. The reasoning is that the lift is often full, so it is quicker to get in whenever you have the opportunity and go down before you go up (this happens most often when there is only a single lift in a particular location).

Something else that annoys me is that everyone wants to select their floor the precise momeny they enteri the lift, rather than waiting to get inside or asking someone else to press for them. Then, of course, the doors start closing as people are still waiting to enter the lift (presumably they respond so quickly because otherwise the buttons need to be replaced very frequently).

Beyond this, we get to people who behave in a very selfish way. It seems quite rare for people to actually keep the doors open so that someone can get in to the lift, and some people actually push the 'door close' button when they see people coming to try to ensure that they are not kept waiting!

Fumier says that Game Theory explains the way individuals behave, by which I think he means that each person will do what is best for them rather than worrying about anyone else. Fair enough, but what baffles me is when security guards in buildings are instructed to do things that actually makes things worse overall.

One building where I worked had a security guard on duty from around 8.30 to 9.30 just to press the lift buttons and to hold the doors open so more people could get in. I was never convinced that this helped very much, and if they'd really wanted to do this efficiently they could have directly controlled the lift.

An even more puzzling example of this is in the industrial building where I now work. It has three passenger lifts, one for the odd-numbered floors, one for the even-numbered floors, and one for both. Like the Hopewell Centre, it has entrances at different levels. I normally enter through the main entrance on the upper ground floor, and the security guard stands there during the morning pressing both the 'up' and 'down' buttons on all three lifts. Yet I have never seen anyone get in the lift when it was going down, and if they did, it would be inefficient, as Fumier correctly points out. In spite of this, someone has specifically asked the security guards to stand there pressing the buttons. It's madness, I tell you!

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Loft conversion anyone?

There's an interesting article by Cathy Holcombe in this week's Spike, discussing the reasons why Hong Kong doesn't have the loft-type apartments in disused industrial and commercial buildings that are commonly found in New York, London and many other large cities. It's not lack of supply, nor lack of demand, but a perverse consequence of the way the leasehold system works in Hong Kong. Yes, it's the government's fault.

If you "own" a building in Hong Kong what you actually own is a lease for a fixed period, and for a specific type of usage. So the owners of an industrial building cannot convert it to retail or residential use without paying a large premium to the government. The problem here is that in many cases the premium makes it uneconomic to change the usage, so the building lies empty (or at least under-utilised).

As manufacturing has moved across the border, there are many areas of Hong Kong where old factories or warehouses could be converted to commercial or residential use (Kwun Tong, Kwai Chung, Fo Tan, Cheung Sha Wan, etc.). This has already happened to a limited extent, but mainly by redevelopment rather than conversion (apart from manufacturing companies using their own factory or warehouse space for office use). What we haven't seen, and are unlikely to see, is the conversion of existing building to residential usage.

The problem with this is that it means that some of these areas are stagnating. The exceptions tend to be where the large developers already have a foothold. Quarry Bay is the prime example of this, with Swire able to re-develop the land where its Taikoo sugar processing plants were located and acquire adjoining plots to create Taikoo Place and Cityplaza ('Island East'). The point is that Swire had a great deal of land, a great deal of money and a strategic plan. This would be much more difficult for a smaller developer, and impossible for the owner of a single building.

It has to be said that there is some logic in the way this policy works. As Cathy Holcombe points out, Hong Kong generally has a mix of high density, high-rise, developments, green space, parks and mountains, rather than the featureless urban sprawl of cities such as Bangkok or Manila. Converting these previously industrial areas into low-rise yuppie developments would run counter to what passes for the government's land-use policy - in other words, Hong Kong would not be making optimum use of the land. Or rather it wouldn't be doing so if the price of the apartments was low, though it is arguable that if this were successful then the price would increase and so the government could increase the land premium for future conversions. This, however, would require rather more imagination and enterpreneurial thinking that we are likely to get from the government department concerned.

[Which leads me off into another more complex subject that I will leave for another day. Suffice to say that I think everyone would agree that Hong Kong needs more apartments, but the property developers restrict supply in order to keep prices high and maximise the profits they can derive from their huge land banks, and the government seems happy to play along with scheme.]

What is clear is that the present system isn't really working. The most radical solution would be to replace the current system of lease premiums with a profits tax, possibly on a selective basis for areas where re-development is socially desirable. Or I suppose the Urban Renewal Authority could be given more funding, but this is an expensive approach because of the generous compensation they pay to property owners, and, as this is a problem created by excessive government involvement, the answer cannot be more meddling.

One thing I can say for certain - problems such are this are one of the reasons why there was so much hollow laughter when Hong Kong was proclaimed as " the world's freest economy" by the Heritage Foundation. Even funnier was that 2nd place went to the socialist republic of Singapore, where 86% of the population live in public housing!

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Shopping for DVDs

First an admission. When I first came to Hong Kong I lived in Tsim Sha Tsui, and the local shops (especially in Nathan Road) seemed highly dubious. I felt much more comfortable sticking to the chain stores - the prices were higher but at least I felt I wouldn't be ripped off - I'm sure we've all heard first-hand accounts of unwary visitors being cheated when they thought they were getting a bargain (particularly on cameras).

It took me a while to figure out that this practice is actually not that common, and in fact is virtually unknown outside the main tourist areas. As I have always lived (and mainly worked) in, er, less well-known parts of Hong Kong, I am most unlikely to be cheated in this way. Having said that, several years I did encounter a hawker in the Wong Tai Sin area selling something or other on the street, shouting out "saam sahp man" (HK$30) - until I walked past when he started saying "forty dollars" in English. Easy mistake to make, I'm sure.

Now I am somewhat suspicious of most of the large chain stores in Hong Kong, and would expect to get a better deal in local shops. I'll return to the subject of supermarkets in the future because I have plenty to say about them, but perhaps DVDs (and VCDs) are a good example for today. Small shops often have very good bargains, presumably because their overheads are so much lower than the big stores in the fancy arcades. I was in one such store at the weekend, and they had a vast numbers of DVDs at HK$18. Plenty of rubbish, but also some decent movies from the last few years.

At the other end of the scale we have HMV and Blockbuster. HMV remains a more pleasant place to shop than Blockbuster, which has the narrowest aisles I have ever seen, and both will normally have a larger selection and more space than local stores (which often seem crowded with just half a dozen people inside). The prices you pay reflect these differences, even though you might expect larger stores to have more bargaining power with the distributors.

Meanwhile, HMV currently has what it calls a "clearout" sale. What they seem to be doing is putting big stickers on items whilst cutting prices marginally if at all. One "bargain" I saw was Sopranos Series One DVD for HK$800, reduced from HK$850 but available from Amazon for HK$360* (plus postage). Perhaps people don't want to go the trouble of ordering from overseas (and run the risk of the items being stolen) but that's a big price difference.

Yes, I am being unfair comparing prices on imported items. Most DVDs produced for sale in Hong Kong are cheaper than the equivalent items in the UK and US. Just as a random example, the HBO series "Sex and City" Season 5 DVD is HK$158 in Blockbuster and more than HK$200* from Amazon.co.uk (with a recommended price of HK$360*).

One problem I now have is figuring out what is a fair price for a DVD. It's not that long ago that the major distributors starting offering films at $78 or thereabouts, which was a bargain compared to original prices of $200 or more, and it seemed reasonable to assume that this really was a special offer, but now prices are even lower. Locally produced versions of more minor films seemed a bargain at around $35 each, but now many of them are around $20. Can prices fall any further? As a consumer, I hope they do continue to fall, though when I was looking through the HK$18 DVDs I realized that I had already bought (but not yet watched) most of the ones I wanted, often at higher prices! Should I have been patient and waited? Maybe not.

I also hope that we continue get more DVDs of overseas TV series for the local market (such as "The Office" series two and "Sex and the City") rather than having to rely on imports. Although there was a local VCD version of the first series of the Sopranos, it can't have been very successful because there haven't been any more, and they didn't do a DVD either. Hence HMV is selling the US version at that eye-popping price.

If you don't want to get DVDs shipped from the UK or US, one good alternative I can recommend is CD Wow. The Hong Kong site has lower prices because they don't charge VAT, so don't order from their main site! The good thing about this company is that they ship (worldwide, I think) from Hong Kong, so it only takes a couple of days and they don't charge for postage. Plus the stuff should fit in your letter box, which makes life easier, though for this reason they don't ship box sets.

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* Note: I have calculated UK prices at £1 = HK$14 and deducted VAT (because that's what Amazon UK do if they are shipping outside the EU). As Hong Kong has no sales tax this seems a fair comparison.

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