HOS Housing As Hostels: Flawed

Stephen Chung

Executive Director

Zeppelin Real Estate Analysis Limited

September 2003 

In view of increased tourists from Mainland China, the government authorities have recently suggested turning portions of the still unoccupied (government-assisted) Home Ownership Scheme housing into hostels for travelers. Many tourism-related industries supported the idea while most of the hoteliers opposed it. Both seemed to have their own reasons and viewpoints. It is not the intention here to find out who has the better argument, and at the time of writing this article the idea seems to have been withdrawn, at least for the while. Nonetheless, your humble author had thought of several points listed below:

1)      How much (net income) is really earned by Hong Kong from tourism? = Net income here is defined as (A) the value or price of the services / products / goods / merchandize sold to tourists LESS (B) the services / products / goods / merchandize (and factors of production) that are imported in order to deliver the ones sold to the tourists. If A is > than B, we will have made a profit. If not, we will have a loss. Also, the higher the value-added A – B is, the more money we earn. However, many activities related to tourism do not seem to be of high value-added, being mostly food-restaurant, transport, entertainment, shopping, and the like. Perhaps the contribution of tourism lies more in creating and maintaining many labor-intensive but low-wage employment opportunities rather than bringing in a high net income for Hong Kong. Views from seasoned tourism professionals are welcomed.

2)      Home Ownership Scheme housing is a public asset = Until they are disposed of (the original intent was to sell these units at discounted prices to households who cannot afford a private market unit), they remain a public asset. As such, any other uses for them require among other things consideration of their financial viability. Also, turning them into hostels would likely require some building remodeling, and budgets will have to be allowed for latter day restoration. Whether these hostels are profitable remain to be seen.

3)      Hotel investments will be affected = while hoteliers and hotel owners may oppose the idea out of defending their own interest, hotel investments will be affected if authorities can turn otherwise unused properties into competing premises. Consistency of policies is lost, perceived risks become higher, and in the extreme case investments are cancelled altogether. This leads to another important consideration = our free market capitalistic system rewards the risk takers, especially those with a good business acumen and vision. A smart investor might have estimated that hotels make good investments because of such anticipated influx of tourists, and might have poured millions if not billions into the sector, hoping when the demand actually arises he / she can profit immensely (at least for a few years). Turning HOS into hostels affects his / her scheme, dampens market visionaries’ enthusiasm, and is not entirely a fair thing to do.

4)      The number of tourists-visits may not increase significantly = Given China’s economic growth, the number of people wishing to visit Hong Kong should be huge and increasing day by day. Yet, turning HOS into hostels may only, at any point in time, enable ‘some’ of these potential tourists to come earlier, but not necessarily a few more times. Studies need to be done to ascertain the tourist-visit patterns and behaviors, and should differentiate those real tourists from those seeking business, jobs, or permanent residence in Hong Kong.

5)      It’s about tourism, not social welfare or assistance for the poor = some people seem to want to go heads over heels to let in as many tourists as possible into Hong Kong. Yet, first, whether such is the optimal level is something to be contemplated and normally, given all things being equal, the optimal level is unlikely to be the maximum level (just as driving a car at top maximum speed all the time will lead to ruin and accident). Second, while we should welcome them and be friendly, satisfying and letting in everyone or anyone from the Mainland who wishes to come and visit is impossible. One option is to use the “price mechanism” to determine who can afford to come and who cannot. For instance, your humble author does not see a lot of world-class cities bringing prices down just to let the poorest of tourists to visit them. Third, people from China who cannot afford to visit Hong Kong, or frequently, do not suffer per se or become ill etc. Visiting Hong Kong may even be a reason for them to work hard.

Tourism definitely benefits Hong Kong yet how much, where, when, to whom etc need to be carefully reviewed. Also, as in business, Hong Kong cannot afford to be everything to everyone, including tourists. With an average GDP per capita of around US$23,500, only some from the Mainland can afford to visit, or frequently. As an analogy, we are still closer to a high-end Parisian restaurant than a MacDonald.

Notes: The article and/or content contained herein are for general reference only and are not meant to substitute for proper professional advice and/or due diligence. The author(s) and Zeppelin, including its staff, associates, consultants, executives and the like do not accept any responsibility or liability for losses, damages, claims and the like arising out of the use or reference to the content contained herein.  

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