The government's "Hong Kong Properties for Hong Kong People" scheme aims to help the city's struggling middle class on to the property ladder. But it risks becoming another get-rich vehicle for investors.
The Lands Department received 29 bids from developers for two parcels of land in the Kai Tak development area designated for the scheme.
But the government is becoming increasingly concerned about the affordability of the flats to be built on the land because of the keen price paid for the land five days later. The two sites were sold at a combined value of HK$4.54 billion, or HK$5,157 per square foot, higher than- market estimates of between HK$2,800 and HK$5,000 per square foot.
When the idea of "Hong Kong Properties for Hong Kong People" was introduced by Chief Executive Leung Chun-ying late last year, it was described as a pilot scheme aimed at satisfying local residents' demand for affordable housing. The objective may not be easily obtained on the basis of the price paid for the Kai Tak land. Credit Suisse said the selling prices of the flats were predicted to be an 8 per cent premium to the secondary market if the winning developer, China Overseas Land & Investment, wants to achieve a 25 per cent margin.
The average selling price of those flats will be similar to the nearby The Latitude, a development owned by Sun Hung Kai Properties - HK$10,696 per square foot in terms of gross floor area. If the developer wants to achieve a 19 per cent profit margin, the pricing will be sold on par with the secondary market of HK$9,592 per square foot, according to the Credit Suisse report.
The prediction is based on an assumption construction cost will be HK$2,800 per square foot, which is lower than the cost of HK$3,000 to HK$3,500 claimed by developers. So, selling prices of the flats at the project could be even higher. At that price, the product may only be affordable to buyers who already have the ability to buy in the private market. Those Hong Kong residents, who have stronger purchasing power, are in effect being offered more choice.
But how to improve the system? Increasing land supply is definitely a solution but the impact will not be seen in the next few years until it is large enough to generate the necessary economies of scale.
Some have suggested putting more restrictions in future on sales of this kind, on top of the existing ones, such as a ban of three to five years on flat resales.
There are already some restrictions under the scheme, including that flats built on the designated sites can only be sold to local permanent residents for the first 30 years. An eligible buyer can jointly own one with family members, who do not need to be permanent residents.
Instead of offering the land to private developers, some say the flats should be built by statutory bodies such as the Housing Authority and the Urban Renewal Authority.
If the ambition of "Hong Kong Properties for Hong Kong People" is building affordable housing certain restrictions seem to be inevitable. Now the government plans to introduce legislation to make the scheme a long-term housing policy. Whether this is needed is debatable and some are still puzzled by the motivation of making it a law.
An observation from a property consultant may provide an answer. "If a successful policy is formulated, it could be a major achievement of Leung in Hong Kong housing history one day when we look back [on] his political career."
But the scheme's success relies on keeping the project affordable to those grasping to get on the bottom rung of an ever-rising property ladder.