By raising the tax on property transactions, the government has drawn the ire of developers who're offering homes buyers cash rebates to dilute the impact of the drastic market cooling measure, while the debate on its appropriateness and effectiveness rages.

Opponents of the hike, including New World Development Chairman Henry Cheng Kar-shun, argued that the government has unnecessarily distorted the free market's price setting mechanism. The measure, they say, is not doing anything to address housing demand which, according to Cheng and others, is inelastic.

They have made a valid point. Properties in land scarce Hong Kong are seen as the surest investment by many Hong Kong people. Without adequate pensions, Hong Kong people regard owning properties for rental income or capital appreciation as their best investment to prepare for old age.

The government has reiterated that the property tax is needed to minimize price distortions caused by the acute imbalance in supply and demand, emphasizing that first-time homes buyers won't be subject to the increased tax. Indeed, the surge in demand by both homes buyers and investors since earlier this year has been largely fueled by exceptionally low borrowing costs.

The buying spree has been furthered fanned by major banks offering increasingly attractive terms to compete in the mortgage lending business. Although the government has made tremendous efforts to lift land supply, it'll take years before the market can see a large enough increase in the supply of new apartments to depress property prices.

Developers have the option to choke off supply now by withholding sales of newly built apartments or delaying completing projects if they see a significant fall in demand. They have sufficient resources to play the waiting game when necessary. This tactic would have the effect of further driving up prices of properties available in the market.

Some major developers are trying to entice buyers by offering to shoulder part of the tax hike. But, the money, you can bet, won't come entirely out of their pockets. They can be expected to find some ways to raise homes prices to cover the extra costs.

The surest way the government can exert its will in the market dominated by the property oligarchy is, as recommended by some economists, to introduce full-scale price and rent control.

That's not entirely without precedent even in this free market economy. It had worked.

(HK Edition 11/28/2016 page10)