With the economy getting worse on the back of a US-led slowdown, and property prices showing no signs of halting their downward spiral, suspending the sale of Home Ownership Scheme flats was one of the few things the Government could do to inject a bit of confidence into the market. Reactions to the suspension will vary. Cynics will look on it as the usual Government knee-jerk reaction to the complaints of the property tycoons, while the middle-class will see it as a gleam of light in the unaccustomed tunnel of negative equity. But some facts are incontrovertible. Since the slump of 1997, the price gap between the public housing sector and the private market has narrowed dramatically. The HOS scheme was originally launched for those who earn too much to qualify for public rental housing, but too little to buy in the private market. The government-built flats are meant as a stepping stone for prospective home owners. Now that prices in the mass market have plunged, a review is only proper. Whether the suspension will help to lift the private residential market remains to be seen. With a massive oversupply still hanging over the market and many people worried about losing their jobs, only those who feel secure about their employment will utilise the very cheap mortgages being provided by banks to buy a new flat. The suspension of the HOS scheme will not, by itself, revive the sluggish economy. But it will have a positive effect on sentiment. If the suspension can stop prices from falling further and change the public mood for the better, it will have been worth trying. The timing of yesterday's announcement was interesting. Pressure from property developers and the state of the economy certainly weighed on the decision to suspend the HOS scheme. Above all, Chief Executive Tung Chee-hwa probably wants to address the housing issue prior to his fifth Policy Address - the last of his current term - next month. Four years ago and new in office, Mr Tung sought to respond to public demand to bring property prices down by announcing his ambitious plan to build 85,000 flats a year and to raise the home ownership rate from about 53 per cent to 70 per cent by 2007. Unfortunately, his well-intentioned plan was ill-timed. No sooner had he announced his plan than the Asian financial crisis hit. Although Mr Tung is almost certain to run for and win a second term, he may want to turn around the housing disaster that he had a hand in precipitating, even though the market, without his intervention, was due for a correction anyway. Hopefully, rebounding property prices over the next few weeks will ensure a better reception of his report card for the first term and blueprint for the second. But what was most significant about yesterday's announcement was the frank admission by Chief Secretary for Administration Donald Tsang Yam-kuen that the HOS scheme was an aberration. It signalled a determination by the administration to overhaul the policy, which has long been seen as an anomaly in a city largely known for its free markets. Through this policy of building flats for subsidised sale through the HOS and similar schemes, the Government has provided housing to about 16 per cent of the population. On top of that, 33 per cent are accommodated in public rental flats owned by the Government, making it Hong Kong's biggest landlord. The Government's high level of involvement in the housing sector is an aberration because it does not allow for the most efficient allocation of resources by the market. While the policy review has only just started, Mr Tsang has stated his preferences. A mortgage loan scheme is more logical, he said, when the cost of building one HOS flat is equal to two loans to eligible families. And when prices in the private market have fallen substantially, a tightening up of the income and asset limits for HOS applicants is in order. Although the Government does not subscribe to the view that all 'good quality' sites should be reserved to the private sector, it makes little sense to allocate land for basic public housing without regard to location and land values, he added. To public housing interest groups, Mr Tsang's remarks are highly politically incorrect, but they do make sense for the well-being of a vital sector of the economy to which so many people pour their hard-earned savings.