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Hong Kong housing

How Hong Kong’s Starter Homes scheme for young couples compares with Singapore, Shanghai, London and Guangzhou

Securing a foot on the housing ladder may be a struggle for many in Hong Kong, but they are not alone in their plight

PUBLISHED : Sunday, 15 October, 2017, 2:49pm
UPDATED : Monday, 16 October, 2017, 11:19am

On tat son dou was one of the most searched Cantonese phrases online in Hong Kong last week, according to Google. It means Anderson Road and is the repository of hope for many young couples.

The government plans to build “starter homes” there for young, middle-income families. For too long, these households who earn too much to enter public housing but too little to afford private housing have been unable to own a piece of Hong Kong.

Carrie Lam Cheng Yuet-ngor’s government signalled a shift towards home ownership in her maiden policy address when she announced the scheme last week. But the qualifying requirement that households have a monthly income of between HK$52,000 and HK$68,000 has sparked discussion on whether the bar has been set too high, never mind the intricacies of the policy. It has also reignited debate on how badly off couples are in Hong Kong compared with their counterparts in other world cities.

In Hong Kong, the Yus are the poster couple for the hard road to home ownership. Justin Yu Wing-chung, 30, and his wife Julie Yu, a 26-year-old teacher, make around HK$65,000 a month and are among the city’s top 16 per cent of households with earnings of no less than HK$60,000 a month.

They manage to salt away about half of their earnings, after paying for rent, transport, daily necessities and the occasional lai see, or money packet, for their parents during festivals.

Home is a 460 sq ft rental flat in Tuen Mun, one hour away by bus from their workplaces, for HK$10,000 a month.

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“But it occurred to me that for every HK$20,000 or so that we save, the property prices have gone up five to six times that,” Yu said.

The wait may be a long and bitter one. The Anderson Road site the couple is eyeing will only be a pilot project with 1,000 flats being planned. Match that against an estimated 55,000 families in the qualifying income bracket and the problem looks like a ticking time bomb. The flats are estimated to cost as much as HK$8 million. That means the Yus will be spending as much as half of their monthly salary to pay their mortgage. But how does their housing plight compare with other couples in similar financial situations in other major world cities?

Watch: Why is Hong Kong housing so expensive?

Singapore

When Clarence Chua and Candice Lee bought a brand new flat of about 1,100 sq ft in 2011 for S$763,000 (HK$4.4 million), they forked out only 5 per cent in cash.

For the remaining 15 per cent of the down payment, they drew from their Central Provident Fund (CPF) – a mandatory savings scheme for all Singapore residents which can be used to pay for home purchases.

As first-time buyers of public-sector flats, they also received a government subsidy of about HK$173,500.

The remaining cost was settled with a bank loan, paid off monthly through their CPF accounts.

“There is no cash out of pocket. It’s superb because we don’t feel the pinch – the CPF takes care of the house,” said Chua, 34, whose family earned a combined monthly salary of about HK$58,000 when they bought the flat.

Now Chua, who runs a landscaping business, and Lee, an arts administration manager, earn between HK$69,000 and HK$87,000 a month, and have a five-month-old son.

The median monthly household income in Singapore last year was around HK$51,000.

“We didn’t have to set aside money for the house from our monthly income,” Chua said. “So when we decided to have a child, the mortgage was not a concern.”

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The couple are among many young white-collar Singaporeans who have found their first homes relatively affordable compared with their peers in Hong Kong.

This is true even for those, such as Chua and Lee, who have opted for the most expensive of publicly funded housing – a hybrid called “executive condominiums”.

Watch: How public and private sectors can tackle Hong Kong’s housing crunch

These are affordable homes built by private developers that come with government restrictions such as a minimum occupancy period of five years before buyers can sell the flats.

Unlike typical flats built by the government, these flats come with shared facilities such as barbecue pits, tennis courts and swimming pools.

“We wanted an executive condominium because we liked the environment without the private condo price tag,” Chua said.

Their family income when they bought the flat just reached the upper limit for this type of home at that time. Now the limit is about HK$81,000.

But the locations may not be ideal.

Their three-bedroom flat in the western part of Singapore is about 20km away from where Lee works, which takes her up to 45 minutes by car.

“But it is near my parents and my in-laws,” said Chua, who works from home. “Of course, I’d have liked to live in a more central location but you’ve got to give and take.”

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Guangzhou

Lu Hao, 31, and his wife Sun Nan, 30, were just in time to buy their home before mainland China’s property boom.

Their 860 sq ft flat in Guangzhou cost about 1.28 million yuan (HK$1.5 million) when they bought it in 2012. Now it could cost up to HK$3.8 million.

“But the increase is meaningless to us,” Lu said. “We bought it as our home and we are not planning to buy a second flat any time soon, so we are not very concerned about the price.”

Although now making a combined monthly income of between HK$53,000 and HK$60,000, when the couple bought their flat, they were fresh into their careers and making about HK$24,000, which meant the 30 per cent down payment was an issue.

“It was very difficult for us at that time,” Lu said. “Although our salaries at that time were already quite good compared with people our age, the price was still unaffordable. Our parents and relatives had to help us with about half the down payment.”

The average monthly disposable income per person among Guangzhou’s urban population was about HK$5,000 last year. There are no publicly available statistics on the city’s household incomes.

Now the couple needs to pay a monthly mortgage of about HK$3,300, which is only about 6 per cent of their monthly income, allowing them to live a comfortable life.

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For Lu, owning a home and paying a low mortgage means a relatively stable life, enabling him to start up his own creative planning and advertising studio, he said.

In his spare time, he can also tend to his other interests such as reading and discovering new things and activities.

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His wife Sun is a trainer for civil servants.

“Many of our friends have quite good jobs as well, but they want to buy a second flat as an investment, so they don’t have much money left,” Lu said. “We don’t have such a plan. We want to focus on our own development for now.”

Like Chua and Lee in Singapore, the couple, who work in downtown Guangzhou, also sacrificed location for a better home, as they spend up to 40 minutes getting to work by subway daily.

“In our early 30s in a big city, we have been quite satisfied with our life,” Lu said. “Now we want to focus on our careers. When we have accumulated more wealth, we may buy another house closer to the city centre, and make our lives better.”

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Shanghai

In China’s largest city and financial centre, prices in the property market have been going up rapidly.

Adam Wang (not his real name), a 33-year-old who works in the IT industry, and his wife, of the same age and working in publishing, bought their first flat in 2011 for 1.7 million yuan when they got married.

Now the 860 sq ft flat could sell for HK$6 million.

“The earlier you bought, the better,” Wang said. “Those who bought five years earlier than we did are living a much more comfortable life now. The property prices in the so-called first-tier cities have increased to an incredible level. The younger you are, the higher the pressure you are facing in your life.”

The flat is about a 50-minute drive away from Wang’s office in the centre of Shanghai, and 20 minutes by bicycle from his wife’s workplace.

With a combined monthly salary of about HK$52,000, the couple bought another 323 sq ft flat this year in a school district for about HK$2.4 million, to prepare for the future schooling of their one-year-old child.

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The average monthly disposable income per person among Shanghai’s urban population was about HK$5,700 last year. There are no publicly available statistics on the city’s household incomes.

The 30 per cent down payment needed for both flats was paid by their parents, Wang said. The 70 per cent mortgage for the first flat is paid through the couple’s housing fund, a mandatory saving scheme similar to that of Singapore.

They still need to pay HK$7,100 a month for the mortgage on the second flat, although the tenant of the flat contributes about half.

Watch: Should I stay or go? China’s young people talk about big city housing prices

“We were only making 15,000 yuan when we bought our first flat,” Wang said. “We could never have paid the down payment on our own. But we had to buy then because we knew the prices would keep going up. If we didn’t buy and had been saving money, we still wouldn’t have been able to save enough to afford the prices now.

“We were lucky enough to have our parents pay for us so now we only need to repay our parents. But not every family has parents who can afford this.”

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London

Owning a home in London, one of the most expensive cities in the world to buy, is a problem for the young professionals who have been labelled “generation rent”.

Britain is suffering from a housing crisis, much worse in the capital, as property prices outstrip wage growth and a toxic mix of foreign investors, fewer houses available for sale and too few new homes being built contributes to runaway valuations.

First-time buyers in London face a daunting prospect, which is why young adults are opting to rent, and official figures show more people than ever are doing so.

Lisa Lee Lai-san, 30, and, Tim Burrough, 32, do plan to get onto the property ladder – eventually.

They share an old converted solicitors office, now a four-storey flat, with another couple and three individuals. The pair’s share of the property is 670 sq ft of space on the high street in Camberwell, a gritty inner London district, which does make renting slightly cheaper: they pay £780 (HK$8,000) a month.

“It is a privilege to live in London,” Lee said.

Right now, renting is the only realistic option for the pair as they build up enough savings to afford a deposit for a mortgage. Even then “it took a while” for the couple to find their first shared apartment because “everywhere just seemed unaffordable”, Lee said.

Burrough added that “the gap between what you can afford and what things cost is incredibly different, you just forget about owning a property”.

Highlighting the extreme disparity in one of London’s poorest districts, just one street away are Georgian houses going for almost £1 million or more.

Lee and Burrough share a combined monthly salary of between £4,200 and £5,200 from their jobs in the non-profit sector and creative industries, and both only got a pay increase this summer. The average salary in London according to government statisticians is HK$30,000 a month.

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After £780 is paid in rent, £1,650 in national and local taxes are paid out, and £400 is spent on commuting to and from work per month, they do not have much left over for food and entertainment.

Ideally within five to 10 years, they would love to step onto the property ladder.

“It’s an idea but we don’t think it’s realistic right now. We definitely talk about buying but it just seems so far away,” Lee said.

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Essentially, the couple are currently priced out of the market.

“It’s too expensive. Our wages don’t pay enough. We can afford to rent but not a lot more. Most of our salary goes on rent, and you can’t save and get a property.”

The government introduced the Help to Buy scheme in 2013, an affordable home ownership scheme, to help first-time buyers get onto the property ladder through state loans. Official figures show little more than 100,000 properties since 2013 have been snapped up by first-timers using the scheme.

The scheme works by offering a 20 per cent government loan, rising to 40 per cent in London, to aspiring homeowners, who only stump up a 5 per cent deposit. The infusion of a government loan allows people to access better mortgage rates from commercial banks who provide the rest of the money.

Lee and Burrough visited a first-time buyers fair in the capital earlier this year to weigh up their prospects and options.

“It just seemed Help to Buy wasn’t an option because it all boils down to not having enough money,” Lee said. “Even for first-time buyers and with the Help to Buy scheme, getting on that first step is going to cost us a lot of money, essentially because property prices are so high.”

For a typical first-time buyer, the average house price in London is £400,000 with a deposit of £100,000, according to the Halifax bank. However, official statistics show Britain is more a nation of spenders than savers.

But Burrough has “not much confidence in buying” after the “economic uncertainty” following Britain’s vote to leave the European Union. Other factors that will weigh on prospective homeowners include more expensive mortgages as interest rates start to rise.

“Saving is a challenge in itself because money goes towards living, it goes towards rent, towards bills, it goes towards debts, even, just to feed yourself, and not be a hermit, because you still need to socialise and that costs money,” Lee said. “After all the time and research, we decided we had to save because we can’t do anything else right now.”