Subsidised flats system 'unfair'

PUBLISHED : Tuesday, 03 January, 2012, 12:00am
UPDATED : Tuesday, 03 January, 2012, 12:00am


An academic says the government should take back subsidised housing when the land leases expire - usually after 50 years - but waive land premiums when the flats are resold.

The proposal would help ease housing problems by creating a fresh supply and ensure a fairer subsidy system, said Chau Kwong-wing, chair professor of the Department of Real Estate and Construction at the University of Hong Kong.

He said it would help retired people who could cash in by selling their private flats and then use some of that money to buy a cheaper subsidised flat.

The idea puts the spotlight on an outdated housing policy where expired land leases are automatically renewed with cheap rates, and better-off descendants are allowed to inherit subsidised flats.

'Unlike public rental housing, subsidised flats can be passed on to the owner's descendants. [The flats] will not be returned to the government even if the [descendants] become better off in the future,' Chau said. 'Why should the public subsidise the next generation?'

Chau, a former president of the Institute of Surveyors, came up with the plan in response to the government's pledge in October to revive construction of subsidised flats under the Home Ownership Scheme.

He suggested overhauling the lease renewal system with a model under which owners could no longer own their subsidised flats forever. The land rent should be increased from 3 per cent to 13 per cent to provide a more stable source of land revenue than the current system of relying on upfront land premiums.

In return, the owners could sell their flats three years after purchase, instead of the current five years, without having to pay a costly land premium. The measure would also rejuvenate the secondary market for subsidised flats.

If the government resumed a site at the end of its lease, more land could be released in the long term to meet increasing demand for affordable housing, he said.

Leases granted after June 1997 are mostly given a term of 50 years, to 2047 at the earliest.

The Lands Department seldom exercises its right to resume the land. It often renews the lease - especially for residential sites - at an annual rate equal to 3 per cent of the annual rental value, an increase that can be as little as a few hundred dollars.

For many owners, keeping their subsidised flats forever is preferable to paying a land premium - equivalent to the market value of the government subsidy at the time of purchase - in order to resell their flats.

That makes for an inactive secondary market - only 2,000 transactions on average have been recorded despite an existing stock of more than 300,000 flats.

According to Chau's analysis, the market price of subsidised flats is already 30 per cent lower than private flats. The subsidy paid by the government could be reduced.

At the same time, the land could be reused to subsidise housing for other people. 'It means a site that used to benefit only one group of people would now benefit more.'

Chief Executive Donald Tsang Yam-kuen promised in his policy address that more than 17,000 subsidised flats would be built over four years from 2016.

Tsang also asked the Housing Authority to consider relaxing resale restrictions for new subsidised flats, including paying land premiums by instalments and not adjusting the premium to market value. Critics said the measures were unfair to owners of existing subsidised flats.

'The new proposal can avoid the unfair treatment while enhancing the attractiveness of reselling subsidised flats,' Chau said.

'When the new scheme developed over time, there would be subsidised flats with varying remaining years of lease available in the market.'

Lawmaker Dr Patrick Lau Sau-shing, who represents the urban planning sector, said passing on subsidies to the next generation should be banned in sales of subsidised flats.

'Shortened ownership is a big change and requires detailed study,' he said.

'But it could be acceptable if owners are informed of it at the beginning.'