OPINION
TIM HAMLETT
Prices that go up must come down … very slowly
F
rom time to time there are bitter complaints from legislators and motoring organisations about the way the price of petrol moves when the price of oil changes. They say that the price of petrol moves up quickly when the international oil market is on the up, but comes down rather slowly when the movement is in the other direction. This charge is vigorously contested by the oil companies, who say that any change in prices at the oilwell takes its time to reach them down a long supply chain, and in any case the cost of raw crude is only part of the price of petrol, which has to include processing, transport, running costs of petrol stations and so on. I am an agnostic on the question whether petrol retailers are as diligent in reducing prices as they are in increasing them. I did notice that when the price of oil futures briefly went negative – that is to say people would pay you to take the stuff off their hands – we did not see petrol stations offering free petrol, let alone bidding for tank space. No doubt there are technical reasons for this. What cannot be disputed is that the petrol people do not have a mechanism specifically designed to keep prices up when they are trying to go down. The Hong Kong government, on the other hand, resists reductions in land prices by simply withdrawing from sale any piece of real estate which does not meet its expectations when they are first put up for bids. Last week, for example, the Lands Department announced the non-sale of a large piece of the former airport at Kaitak, giving as an explanation that bids for it “failed to meet the government’s reserve price”. Note that in no case has the government ever withdrawn a plot from sale on the grounds that the bids were so high that the ensuing building would be outrageously expensive. Prices are able to increase as high as they like. They are, on the other hand, not allowed to come down. This was the fourth incident of its kind in the last two years. One of the others was a residential plot. Do you wonder why Hong Kong housing is so expensive? In the latest case there were actually four bids. Bidders included some of the usual suspects: Cheung Kong, Sun Hung Kai and Sino Land.
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HONG KONG BUSINESS | Q3 2020
BY TIM HAMLETT Former Editor of Sunday Standard and Associate Professor of Journalism
The former airport site will turn to a commercial unit.
So this was not a case where there was a single bid of $5, offered in the faint hope that nobody else would bid at all. The bids offered were a result of serious consideration of what a commercial plot was worth these days. Reporters found several property people willing to complain that the reserve price was too high and the government was “out of touch” with conditions in the market. Between the ongoing political turmoil and the COVID-19 situation this is not a promising time for commercial mega-projects. But there is a serious question whether the government ought to have a reserve price at all. The government is a major player in the market for new sites and if it withdraws items from sale then the effect, whatever the intention, is to prop up prices. When the vendor of something is a private individual it is of course up to him whether he wishes to sell for whatever he can get, or prefers to sell only if the price reaches a certain level. Auctioneers will recognise that if a price is very low the owner of an item may prefer simply to keep it, or to try again later when market conditions have improved. Hence the minimum price. But the government is not a private landowner and the purpose of land sales is not to fill the relevant account, which is already bulging and which the government refuses to spend on anything useful. The purpose of land sales is to get land into use as soon as possible. The Kai Tak airport site actually became vacant when the airport moved out in 1998. That is to say the plot in question has already been waiting for the Lands Department to get its act together for more than 20 years.
“The government is a major player in the market for new sites and if it withdraws items from sale then the effect, whatever the intention, is to prop up prices.”
