The world's costliest building it has become. Yesterday, "The Center" in Hong Kong - a 73 storey landmark was sold for $ 5bn. Yes, FIVE BILLION US DOLLARS. For a single building. No you are not hallucinating. It really did happen.
The Centre was a jewel in the portfolio of Li Ka-Shing. If you don't know who he is, well, he was, and probably is, Mr Hong Kong. One of the richest men in the world. For long he has symbolised money, power and all the glamour of Hong Kong.
This post is not about the old man. It's about insanity in property valuations. Yes land is scarce (anybody who has been to Hong Kong knows how scarce). And yes, it is demand and supply that sets prices. And yes, it is a free market - nobody is compelled to buy or sell at any price. But even then, it is only right to pause and reflect on what such insane property valuations mean.
It means, most of the world's population cannot afford a house. Full stop. This is one of the biggest problems in the developed world (ask any Brit how bad it is), and increasingly in the developing world. It simply drives up the cost of doing anything . In India for example, the tuition fees in a school are not for teachers - it is really to pay for the property. Ditto hospital costs. It is also the reason why you will never see a typical supermarket in the city of Mumbai .
Such ridiculous property valuations are one of the greatest causes of wealth inequality. The very few, who for historical reasons happened to inherit land, or buy property make wild fortunes at the expense of the large majority. After all any pricing is simply the value that society collectively places on any dimension of life . Is anybody in the world seriously going to argue that property must be placed on a far higher pedestal than virtually anything else in life ?
Back to the $5 bn building. In case you have some difficulty comprehending what $5 bn is, it will pay for 12 years of Honk Kong's spend on Child and Family Services or 6 years of the spending on the elderly, or 7 years of spending the on the disabled or 20 years of spending on youth or 2 years of the entire police budget or 4 years of the health budget ...... Shall I go on ?
Readers must know that this blogger is taking a grave risk by putting up this post. A reader, who is a dear friend has castigated me for becoming a raving loony leftist and has threatened to personally come and clobber me if I write one more example of becoming a "commie" in old age ! I will have to take precautions for my safety tomorrow !!
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5 comments:
I found communism in my early teens, but now I am ready to puke if anybody praises communism. I am also ready to puke if anybody praises the Chinese model of now. I do continue to operate mostly from left-of-center though.
All that full-disclosure because, ahem, it is gratifying when the business-oriented executive comes down from his top-floor corner office in order to worry about inequality. This is awesome. A cause for celebration!!! ;)
Everywhere, we are rapidly pricing people out of places. Here in the Silicon Valley, local governments are thinking about providing government-housing not for the poor--as used to be the case--but for middle-class people who work as teachers and police officers and ... all because these people can't afford housing!
We also ought to recognize that we are no longer ok with how people used to live in cramped spaces. That is, the economic growth and development has made us want more space. I mean, think about this: I pretty much had no room of my own during my years in India. Now, even in India, urban kids demand their own room. This lack of space and the affordability crisis is, to some extent, a result of our affluence!
Welcome to my left-of-center world, my friend. Stay here; do not go back to that dark side ;)
I've a better idea. $5B would buy 57.5 millions sets of the complete works of Jane Austen. Stacked atop each other, they'd stand 8800 miles high. Sounds like a much better use of $5B - culturally, for literacy, and for imagination.
Sriram's point about shared abodes is interesting. Homes used to be multi-generational, which is far less common now, at least in the US. So much is lost with that change. It seems the high cost of housing is contributing in part to the reversal of this trend, with young adults moving in with their parents after college in order to save for future housing expenses.
Can you imagine how housing prices will increase when HQ2 lands? Prices will increase before the building is even built, in anticipation of thousands of renters and buyers arriving. That is not a positive impact.
Highly appropriate coming from you. Though I dabble in filthy commerce, like Sriram, I am a secret leftist. Much as though I share your views on this, I am unable to be prescriptive other than to suggest the traditional policy measures to stop asset-price inflation in real estate - curbs on lending, LTV, limits on portfolios, etc. And I am sure governments will encourage housing starts to keep the economy flowing and inadvertently reduce inflation through supply. Other than that, I offer up the story of Crassus to my fellow lefties. An enormously wealthy Roman who was also one of the ruling Triumvirate along with Caesar and Pompey. In 53BC he lead the Roman Army into battle at Carrhae in what is now Turkey, against a much smaller Parthian army (the Parthians being the precursors of the Persians). He was soundly outfought and defeated, and the Parthian General Surena cut off his head and poured molten gold into his mouth to mock him for his greed. Now that should warm our leftist hearts!!
@Sriram - Whoa Whoa. Not so fast my friend. I am not left of centre. I am squarely in the middle. And even extreme right people have hearts !!
Interesting point on how affluence influences housing tastes. So true ! Would we now live in the E type house of old in Neyveli ?
@Anne - Interesting idea on Jane Austen's works. Tickled that you undertook all those calculations to come with precisely 57.5 million sets !!
Well HQ2 is certainly not coming to your part of the country. YYou can rest easy !
@Ravi - As always a wonderful perspective and historical anecdotes from you. Glad that you have taken to blogging. I am pinging the two other commenters to consider following your blog.
Property pricing is one area I am thinking seriously in recent years. Here comes the crucial role of an urban planning and coordination between various authorities. goverment policies should be giuded by a master urban plan for 50 years. one important rule shall be to provide gap between each companies and colleges of minimum 10 kilometers. This will spread the oppurtunities across free land and the gap between urban and rural will come down through spreaded living & oppurtunities.
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