Governments in Singapore and Hong Kong - island cities with limited land - are trying to increase the supply of housing and keep it affordable. But as their economies improve, prices keep going up.
This week, the Hong Kong government, which owns most of the Chinese territory's land, sold a large plot hoping to ease housing prices. But real estate agents say the high price paid for the land actually pushed up prices in the area by as much as 20 percent.
The government has tried several measures to meet high demand for housing, and keep prices from rising too much. John Tsang, Hong Kong's finance secretary, has raised taxes on property transactions and increased the amount of cash down payment needed for luxury properties. But he acknowledged last month these measures were not enough as an improving economy fuels demand.
He says average apartment prices are now 15 percent higher than the previous peak in 2008.
Prices keep going up
In Singapore, the government says prices rose 11 percent in the first half of the year after a strong economic recovery. Mah Bow Tan, the minister of National Development, this week announced new measures to curb speculation, such as making it more expensive for buyers to sell properties within three years of buying them, and raising the minimum down payment.
"If the current momentum in the market continues, what would likely happen is that a property bubble will form. And when the bubble burst, not if, there will be severe implications on individuals and the economy as a whole," said Mah Bow Tan.
However robust the property markets are in these two cities, there are concerns that homes are becoming out of reach for middle-class buyers. In Hong Kong, a 75-square-meter apartment in distant suburbs can cost more than $500,000, and a 100-square-meter home closer to the city center will easily top $2 million. Singapore prices are lower, but a 100-square-meter apartment within a short commute to the city center still costs more than $700,000.
Bubble looming?
Both cities also have suffered property booms and busts before.
Hong Kong, in particular, is prone to property bubbles. From 1997 to the middle of 2003, home prices there fell by more than 40 percent, leaving many people owing more on their mortgages than their apartments were worth on the market. The damage to the property market added to an overall economic slump that left many middle class families financially struggling for years.
These days, many buyers from China are taking advantage of a Hong Kong investment program that allows them to get residency rights here by buying new apartments in cash. That drives up prices and leaves fewer apartments for those already living here. One legislator proposed banning mainland buyers to keep a lid on prices.
However, Buggle Lau, chief analyst at Midland Realty, says mainland buyers are not to blame for expensive real estate in Hong Kong.
"I think Hong Kong property prices are still supported by local end users, as well as long-term investors and short-term speculators," said Buggle Lau.
He says supply remains a problem in Hong Kong, even though the government has sold additional land this year.
"The government already targeted the problem by increasing the supply of land. But even after the government has put up the land for sale, the actual completion will not materialize until 3 to 4 years later. The limited supply situation in Hong Kong is likely to continue this year, next year and the [year] after," said Buggle Lau.
Middle class left out
Some community groups in Hong Kong say many developers plan to build luxury housing on land they bought this year rather than affordable units for the middle class, which makes the problem worse.
In Singapore, the government put more than 3,000 new public housing units on the market this week. The government plans to sell a total of 16,000 units this year to middle-class buyers.
In Hong Kong, however, no new public housing is available this year. Instead, the government will finish public consultations later this month on a plan to offer subsidized housing for the so-called sandwich class - people who do not qualify for public rental housing but can’t afford privately owned housing.
