Tim Hamlett: Prices that go up must come down … very slowly

TIM HAMLETT

Prices that go up must come down

BY TIM HAMLETT

… very slowly Former Editor of Sunday Standard and Associate Professor of Journalism

From 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 The former airport site will turn to a commercial unit. petrol stations and so on.

I am an agnostic on the question whether petrol So this was not a case where there was a single “The government is retailers are as diligent in reducing prices as they bid of $5, offered in the faint hope that nobody else a major player in the are in increasing them. I did notice that when the would bid at all. The bids offered were a result of market for new sites and price of oil futures briefly went negative – that is to serious consideration of what a commercial plot if it withdraws items say people would pay you to take the stuff off their was worth these days. from sale then the effect, hands – we did not see petrol stations offering free Reporters found several property people willing whatever the intention, is petrol, let alone bidding for tank space. No doubt to complain that the reserve price was too high and to prop up prices.” there are technical reasons for this. the government was “out of touch” with conditions What cannot be disputed is that the petrol in the market. Between the ongoing political people do not have a mechanism specifically turmoil and the COVID-19 situation this is not a designed to keep prices up when they are trying to promising time for commercial mega-projects. go down. But there is a serious question whether the The Hong Kong government, on the other government ought to have a reserve price at all. The hand, resists reductions in land prices by simply government is a major player in the market for new withdrawing from sale any piece of real estate sites and if it withdraws items from sale then the which does not meet its expectations when they are effect, whatever the intention, is to prop up prices. first put up for bids. When the vendor of something is a private

Last week, for example, the Lands Department individual it is of course up to him whether he announced the non-sale of a large piece of the wishes to sell for whatever he can get, or prefers former airport at Kaitak, giving as an explanation to sell only if the price reaches a certain level. that bids for it “failed to meet the government’s Auctioneers will recognise that if a price is very low reserve price”. the owner of an item may prefer simply to keep it,

Note that in no case has the government ever or to try again later when market conditions have withdrawn a plot from sale on the grounds that improved. Hence the minimum price. the bids were so high that the ensuing building But the government is not a private landowner would be outrageously expensive. Prices are able to and the purpose of land sales is not to fill the increase as high as they like. relevant account, which is already bulging and

They are, on the other hand, not allowed to which the government refuses to spend on come down. This was the fourth incident of its anything useful. The purpose of land sales is to get kind in the last two years. One of the others was a land into use as soon as possible. residential plot. Do you wonder why Hong Kong The Kai Tak airport site actually became vacant housing is so expensive? when the airport moved out in 1998. That is to say

In the latest case there were actually four bids. the plot in question has already been waiting for Bidders included some of the usual suspects: the Lands Department to get its act together for Cheung Kong, Sun Hung Kai and Sino Land. more than 20 years.