Housing officials are sticking to their guns against criticisms that the plan to sell public rental units to sitting tenants and rigid land sales programmes have dragged down the Hong Kong property market, which is already in a slump due to the financial turmoil. Nor are they repentant about the policy of providing sufficient land to ensure the combined production of 85,000 units a year by both the public and private sectors. 'I do not subscribe to the view that the Tenants Purchase Scheme (TPS) has fundamentally impacted on the market,' said Director of Housing Tony Miller. Under the scheme, about 27,000 tenants can buy their rental flats for between $150,000 and $350,000 each. The long-term goal is to sell 250,000 units in 10 years. Although the scheme was conceived in the wake of a unanimous call in 1996 by members of the Legislative Council, there has been an outcry since its details were released late last year. One economist branded it the 'policy blunder of the century'. The flats were so cheap, he said, that they would depress the prices of Home Ownership Scheme (HOS) flats and erode the ability of these home owners to trade up. As a result, even home owners on the upper rungs would be affected. Rejecting the criticism, Mr Miller said selling the rental units to the tenants would allow them to monetise their property, giving them an opportunity to enter the market at the lower rung. As he sees it, Hong Kong now has a truncated property market. At the lower end, most public housing tenants cannot afford even to buy HOS flats, even though they are sold at a discount on market prices. At a higher level, there is another gap between the prices of HOS flats and private ones. 'So most public housing tenants now are not even players in the market,' said Mr Miller. 'What we do is give 27,000 tenants the opportunity to buy their own flats with mortgage payments pitched at about 20 per cent of their monthly income. In five years, they will be able to trade up in the private market.' HA chairman Rosanna Wong said: 'What we are doing is no more than creating a new market segment, an extra tier of product, that did not previously exist . . . Quite the contrary of being the biggest policy blunder, one should see our tenant purchase initiative as an enlightening policy breakthrough of the century in Hong Kong.' While admitting the TPS might have impacted on individual public housing tenants who were contemplating buying HOS flats, Mr Miller said he did not agree the scheme would affect property values at the higher end. The targeted buyers are middle-class families wanting to live in more spacious flats with better facilities. 'But the HA does not build this kind of housing. It doesn't build housing which has marble in the lobby, swimming pools or club houses. The size of HA flats is also 10 per cent smaller than private flats,' he said. Mr Miller said many people failed to appreciate that 'by selling public housing, government intervention in the housing market will be reduced'. As for the '85,000 units a year' goal, housing officials say although it is a fixed target, it does not mean there is no flexibility. Under the goal, the public sector aims to produce 50,000 units a year, while the private sector is expected to build 35,000. Mr Miller said the goal was founded on the recognition that the Government must move away from an erratic land supply. 'The aim is to ensure a steady supply so that the investment climate will be more predictable over the long term. Over the short term, the private sector may not choose to build 35,000 units a year because of market signals. This is the private market operating,' he said. Deputy Secretary for Housing Andrew Wells said: 'Although the '85,000 units' goal is a fixed target, its individual components and their rationale could be adjusted if the pattern of demand significantly changes over time. The policy is there to provide certainty.' Mr Wells said the Government's housing demand model was not econometric, but population-driven. 'The extent of demand at any time will be affected by the state of the economy, but so will supply. We're not trying to micro-manage the market. We're managing the land sales programme in a flexible way. There are no pre-set prices in our mind. We're selling land at market prices . . . It is not fair to accuse the Government of not selling enough land when prices are high and driving down prices when prices are going down.' Much criticism has also been levelled at the Government for seeking to increase the home ownership rate from just over 50 per cent to 70 per cent in 10 years. Mr Wells said: 'We're not forcing people to buy homes, and have no intention of doing so. There's an obvious role for the rental market in the private sector. There is also a need for public rental housing. 'But to encourage home ownership as a long-term objective is in itself in the interest of social stability. When people become home owners, they become stakeholders in the community, not dependents of it. 'It is not true to say that to encourage home ownership is overly interventionist. To fix property prices at a particular level may be regarded as interventionist. But we're talking about having a social objective, not fixing market prices. 'Housing policy is concerned with economics. Housing is a key sector of Hong Kong's economy. There is no incompatibility between telling people that we see a need and will provide for a healthy rental sector, but as a government policy we encourage home ownership and assist people to achieve that goal to the appropriate degree. 'There is a misconception that different home ownership schemes will have a negative impact on each other. That would only be the case if we did not target the buyers carefully. I'm not saying there is no effect at all. There may be some psychological impact, for example, where a sandwich-class housing estate is situated next to a public rental housing estate. 'But, basically, if you're selling at a discount which is repayable on resale, then the impact will be limited and of a short duration as people become accustomed to it. It is total nonsense to say that the most out-of-reach prices will be brought down because of the TPS.' Both Mr Miller and Mr Wells are confident that once Hong Kong has weathered the current economic slowdown and banks loosen up on property lending, housing prices will continue to go up as the economy expands and the population grows.