Frederik Pretorius

State-led gentrification in Hong Kong:

The specificity of Hong Kong’s gentrification trajectory reflects its urban morphology, political institutions, and social and economic structure. While continuously renewing itself economically, much of the city’s inner urban area building stock is old and functionally obsolete, whilst nevertheless providing affordable, well-located housing for lower-income and disadvantaged groups and small-scale commercial clusters. Constrained redevelopment is not the result of economic decline but rather of formidable frictions that make land assembly and vacant possession of buildings difficult. Hong Kong’s executive-led, quasi democratic government articulates with the public ownership of land and its management through the leasehold system, and leads inner-city redevelopment through the Urban Renewal Authority (URA) supported by various institutional and statutory arrangements. (Re)development is favoured because it generates significant state revenue from physical and economic intensification of sites. Although gentrification is not an agenda of the URA, it is a significant outcome of its redevelopment activities.

Private Rental Housing in Hong Kong

This paper examines selected aspects of housing policy and its influence on private rental housing in Hong Kong. Its ambitions are modest, in part because so little research has been conducted on the sector, as a consequence of the small size of the sector as well as the concentration of socio-political, economic and policy analyses on the other major housing sectors, namely public renting and home ownership. It is argued that a fundamental function of private renting, to provide a functional substitute and counter-balance to distortions in the market for private home ownership, has been systematically undermined in Hong Kong. In spite of its historical importance in meeting Hong Kong peoples housing needs, the sectors decline has been steep and it can now be fairly described as a marginalised tenure, despite incomplete structural adjustment post- Asian Financial Crisis. It is suggested that a fundamental reason for the decline of the private rental sector has been the impact of government policy, which undermined the private rental sector and thus an important element of the market mechanism in housing provision. The governments ideology of home ownership has also functioned to transfer lower middle-income families into the owner occupied sector. Although the Hong Kong government has not been as overtly hostile to this sector as governments have been elsewhere, it nevertheless also seems to envisage no real role for the private rental sector in a housing delivery system molded by policy preference for home ownership, rather than fostering viable economic competition by also facilitating an efficient private rental sector.

Shifts along the decommodification - Commodification continuum: Housing delivery and state accumulation in Hong Kong

This paper engages with the discourse about commodification of housing in an Asian context and presents a methodology to explore shifts in the delivery of housing along the decommodification-commodification continuum. It reviews the extent to which the Hong Kong state has articulated an understanding of a continuum through its actions in the public and private housing sectors, and how it has acted developmentally in manipulating shifts along the continuum. It is found that, although Hong Kong had a large squatter population, the state controlled the commodification of squatter housing and also implemented an enormously successful and publically lucrative assisted home-ownership scheme, whose success in large part is explained by state management of the commodified nature of this tenure. The paper also reviews how the states control of decommodified land through state ownership and leasehold alienation, and commodified housing in the private sector, led to the generation of large revenues to fund developmentalist activities. In all, unlike many other examples, the benefits of commodified housing in Hong Kong seem to have flowed in large measure from the private sector to the public sector; from this perspective, the paper offers another insight into the oft-neglected public management aspects of Hong Kong as a development case study.

Binomial option pricing models for real estate development

Purpose - The purpose of this paper is to construct option pricing models for real estate development by considering and incorporating institutional arrangements, direct interactions and financial constraints in the model. It extends the application of real option theory from the framework borrowed from financial option pricing, and considers the case where a development company has restrictions from outside environment and financial constraint. It explores the effects of these additional practical factors on real asset project value and development timing. This paper makes contributions to bridge the theoretical models and practical applications. Design/methodology/approach - Real estate development is modelled in the binomial option pricing framework with the considerations of time-to-build, foregone rent if delaying, institutional environment and capital budgeting. The investment timings are derived from the models and sensitivity analysis is conducted to explore the effects of these factors. Findings - Apart from the factors in traditional option pricing theory, this paper confirms that the contractual covenants, positive synergies between properties and financial status of the firm, which enhance or restrict real flexibility embedded in the development land, influence project value and investment timing. Numerical examples illustrate the effects of these factors. It is argued that the valuation of real options should place emphasis on industry-specific characteristics and start from the perspective of the firm rather than individual options. Practical implications - The models constructed in this paper and the results can be directly used in the practical real estate development. Originality/value - This paper incorporates many practical factors in real estate development which are not investigated in previous studies. It values the option project from the firm perspective rather than project perspective as previous studies. It also shows the effects of institutional arrangement and firm factors on project value and development timing.

Land Auctions with Budget Constraints

This paper tests for the effects of financial constraints on open-bid English land auction prices and bids. It is argued that bidders’ ability to pay, taken as capital resources and/or capital budget constraints, influence bids and final auction prices. While high capital resource developers may elect to bid more than optimal to win auctions, or bidders may elect to pool resources in joint bidding, budget constraints imposed by firm-specific financial variables on the other hand are expected to restrict bids. Land auction data in Hong Kong are used to test systematically these predictions. It is found that a firm’s age, the number of winners in a joint bid, and firm status in the market are positively related to prices, all factors which may be attributed to a firm’s ability to finance the auction price. Firm size, internal funds, financing cost, debt capacity and existing capital expenditure are also shown to affect bids submitted in land auctions: firm size and internal funds are positively related to bid prices; while constrained debt capacity, financing cost and existing capital expenditure lower bids. The results are consistent with predictions that a firm’s financial constraints, and thus its effect on capital budgets, are relevant factors in predicting land auction outcomes. More generally, these findings confirm that similar financial factors that constrain corporate capital investment also influence directly acquisition of assets at auctions.

Redeveloping the Global City: Institutional and Built Form Influences — Three Hong Kong Case Studies

ABSTRACT This study investigates the impact of institution and built form on trends to gentrification in Hong Kong, investigating both public and private and larger and smaller development projects. It identifies three models of gentrification, the “black hole” model, suggesting that very large, public sector projects may have little trickle-down effect; the “happy days” model, which provides needed residential and commercial space for the post-industrial economy, but appropriately sized sites are now very limited; and the “cooked frog” model, where in situ, piecemeal redevelopment may act to slow the pace of gentrification and thus help to retain socially mixed neighbourhoods for a time. However, while to some extent physically bounded, by following the predicted outcome of normal bid rent activities, it is also the most pernicious of the three models because it is self-sustaining and thus is likely to drive out original residents and traditional businesses over time. Each of these models points to an East Asian model of gentrification as well as raising important theoretical issues to contribute to the international gentrification debate.