Hong Kong’s Leung Warns on Housing Prices, Independence Demands

(Bloomberg) -- Hong Kong Chief Executive Leung Chun-ying hit out at independence advocates and called for developing city parks to cool housing prices in his fifth and final policy address.

The speech represented Leung’s last chance to define his legacy and set the agenda for potential successors after his surprise decision last month not to seek a second term. The city’s most pressing concerns include reining in property prices and easing political divisions, which have both worsened since Leung took office in July 2012. Hong Kong remains the world’s most costly property market and mass democracy protests more than two years ago have spawned a more confrontational independence movement.

Here’s a look how Leung has fared in key policy areas:

Unaffordable Housing

Housing in the former British colony is so expensive that a household on the median income would need almost two decades of wages to buy a home, according to Demographia. An influx of mainland Chinese buyers looking for safe, high-return investments has pushed prices ever higher despite Leung’s efforts to increase supply, raise taxes and curb speculation.

Secondary home prices surged almost 40 percent between July 2012 and the end of last year, according to Centaline Property’s Centa-City Leading Index. New curbs -- such as increasing base stamp duty to 15 percent for all residential purchases except for first-time, local homebuyers -- have yet to bear fruit. The index is hovering just 1.8 percent below its September 2015 record.

On Wednesday, Leung blamed a shortage of suitable building sites for keeping costs high and advocated carving off pieces of the city’s rural parks for development. “If the government and the community do not expedite the identification of land for housing production, the housing problem will remain a tough nut to crack,” he said.

Volatile Markets

The MSCI Hong Kong Index has climbed 30 percent under Leung, but it’s been a turbulent time for investors. A new channel linking the city’s equities exchange with Shanghai and a stock market bubble across the border helped fuel a boom that suddenly went bust in 2015. A second connect program with Shenzhen began last month.

Top performers on the MSCI gauge under Leung include AIA Group Ltd., Hong Kong Exchanges & Clearing Ltd. and CK Hutchison Holdings Ltd., with gains of more than 65 percent. Developers have been among the biggest losers, with Hang Lung Properties Ltd., Cheung Kong Property Holding Ltd. and Kerry Properties Ltd. slumping more than 20 percent.

Retail Woes

The clothing boutiques, watch shops and luxury malls that proliferated on Hong Kong’s streets amid a surge in mainland Chinese visitors have suffered as that trend reversed. Beijing’s crackdowns on corruption and capital flight have squeezed the flow of cash, while Chinese tourists are eschewing Hong Kong for more exotic destinations. Tensions over the mainland influx, which helped fuel the Occupy protests in 2014 and led to new visitor restrictions in 2015, have put pressure on sales.

Sluggish Growth

Since Leung took over in 2012, the local economy has been crimped by the euro debt crisis and a slowdown on the mainland. While growth has since picked up, gross domestic product unexpectedly contracted in the first quarter of last year amid the decline in visitors and weak local spending. The prospect of higher U.S. interest rates and a stronger Hong Kong dollar, which is pegged to the greenback, remains a threat to the city’s outlook.

Political Unrest

Much of Hong Kong’s success has been attributed to the “one country, two systems” framework that guarantees it freedom of speech, capitalist financial structures and independent courts. Confidence in the idea has wavered as Leung struggled to execute China’s policy goals for the city, including failed efforts to institute patriotic education and overhaul the process of electing the chief executive.

Leung doubled down against the government’s critics last year, getting the courts to purge two independence activists from the elected legislature and launching a bid to oust four more moderate lawmakers. In his address Wednesday, Leung reaffirmed his belief that Hong Kong was an “inalienable” part of China, with “no room for independence or any form of separation.”

--With assistance from Sree Vidya Bhaktavatsalam and Richard Frost To contact the reporters on this story: Frederik Balfour in Hong Kong at fbalfour@bloomberg.net, Daniela Wei in Hong Kong at jwei74@bloomberg.net, David Tweed in Hong Kong at dtweed@bloomberg.net. To contact the editors responsible for this story: Fion Li at fli59@bloomberg.net, Brendan Scott, Rosalind Mathieson