Help more Hongkongers become homeowners
Ker Sin Tze says the government must do more to enable Hong Kong people to own their own home, thereby going beyond merely providing shelter to knitting a stable, harmonious society
Public housing is an important subject in cities like Hong Kong and Singapore. Over 80 per cent of Singaporeans live in flats built by the Housing and Development Board (HDB), and nearly 50 per cent of the Hong Kong population reside in flats developed by government agencies. The governments of the two cities have provided housing to a significant proportion of their people.
The job is not just to provide them with shelter but also to manage residents' needs and aspirations. Any changes in rent, maintenance costs and utility rates can lead to unhappiness and protests. It is a complex matter which, more often than not, becomes a political issue.
Singapore's public housing policy is to encourage residents to purchase their flats. Last year, 83 per cent of residents lived in HDB flats. Of the 920,000 HDB flats, 870,000 have been sold and 50,000 leased out. Rental flats accounted for about 5.5 per cent of the total number.
The reverse is true in Hong Kong, where there are many more tenants than owners in public housing. In 2011, 29 per cent of families rented their flats and only 17 per cent purchased them. Out of those, quite a number under ownership have been left vacant. One reason is that the purchase price does not include the land cost. When owners wish to sell their flats later, they have to buy the apportioned land at the prevailing market price. As land prices have rocketed in recent years, the amount is so substantial they find it isn't worth selling.
The second problem is the high percentage of rental flats. The ultimate objective of public housing is to enable more residents to purchase their own property and share the capital gains. Although the now-suspended Tenant Purchase Scheme was designed to encourage people to rent first and buy later, it was not effective as the rents were so low that there was no incentive for the tenants to purchase the flats.
It is costly for the government to hold on to too many rental flats as the rents received can never cover the maintenance costs. And it is almost impossible to raise rents; tenants would strongly resist any proposal to do so.
Singapore has adopted a consistent policy of promoting flat ownership. The sale price, which includes land, building and development costs, is heavily subsidised. The Land Acquisition Act, introduced in the 1960s, enabled the government to acquire land at a low price at an early period of the country's development.
The government views public housing as an asset. All qualified applicants should be enabled to own an HDB flat, which ranges in size from a small unit with one bedroom to the larger so-called "executive flat" to meet the needs of buyers.
The board has taken pains to ensure affordability. For those who really cannot afford to buy a flat, it provides them with a small rental unit.
The HDB system meets a number of objectives. It provides residents with a shelter, and serves as an investment asset. Through the ethnic mixing policy, it integrates multiracial groups in a communal living area. It grants discounts to newly weds to buy their first flat, and encourages children to live near their parents.
HDB owners are allowed to sell their flats after five years in the secondary market and move to larger homes. When, later on, they find that their flats are too big, they may also lease out one or two rooms. The government also provides grants to renovate housing blocks that are seven years old or over, keeping estates safe and clean.
Affordability is the key element of success in Singapore. Depending on age and repayment ability, the HDB arranges loans with instalments over 20 or 30 years. These monthly instalments can be paid by withdrawing buyers' deposits in the Central Provident Fund accounts, a compulsory savings account to which every working adult has to contribute monthly.
It is similar to Hong Kong's Mandatory Provident Fund, except that the contribution rates are much higher. The ideal rates are 20 per cent each from employers and employees, but they are adjusted according to prevailing economic conditions.
Currently, employers contribute 16 per cent of an employees' monthly wage, and employees contribute 20 per cent. Added together, an employee earning S$1,500 (HK$9,400) will see S$540 contributed to the scheme each month. If his wife earns the same, they will have a combined contribution of S$1,080. Monthly payments on a two-bedroom flat sold for S$250,000 at 2.6 per cent interest rate over 30 years would be S$1,000.85. Thus, such a couple would not have to dip into their disposable income; their CPF savings would cover the instalments. The MPF, however, is not viewed as a dependable asset by most contributors. The current contribution rates of 5 per cent from both employers and employees are relatively low. The scheme is managed by private financial companies, which charge fairly high management fees. As a result, net returns are low.
At current levels, MPF contributions are not sufficient to pay the monthly instalments on a mortgage. If the rates were raised significantly, allowing MPF payments to cover mortgage payments, this would help raise the percentage of public housing ownership in Hong Kong.
Attempting to restructure the MPF system and change contribution rates would meet great resistance and is an almost insurmountable task in the current political situation. Nevertheless, it may be a strategic option for the long term. In the foreseeable future, the government can build more public flats for sale, inclusive of land cost, for families in need.
At the same time, the government should encourage tenants to purchase their flats through attractive subsidies. These will help the government avoid the pitfall of becoming a weak landlord confronting tenants who demand incessant maintenance subsidies from taxpayers.
When the majority of the population own their flat, they will probably refrain from violent protests in the street in order to protect the value of their properties. As a result, society will move towards greater harmony and stability.
