Reform the subsidised housing market to give young people hope
- To help more young people own homes, better use should be made of overlooked second-hand HOS flats
- Mortgage guarantees should be extended on resale flats, limits abolished on buyer eligibility, and the ballot system refined to favour those with previous failed applications
To measure changes in home-ownership affordability, we looked at a 30-year mortgage at 90 per cent of the property’s value, based on the median monthly income of young people. After obtaining the corresponding maximum loan amount based on the prevailing interest rate, the figure is divided by the average per square foot price of residential units of different sizes, thus arriving at the maximum affordable flat size.
HOS flats were meant to be a stepping stone for aspiring homebuyers who find the private market inaccessible. But, every year, sales of new HOS flats are hugely oversubscribed. In 2017, the success rate for applicants aged under 30 was below 1 per cent – and just 3 per cent for applicants aged 30 or above. There are barely enough HOS flats built and launched for sale each year.
For older HOS flats where the mortgage guarantee has run out, bank loans are capped at 60 per cent of the property’s value. This means a hefty down payment of at least 40 per cent, pricing out those on a limited budget, usually younger buyers.
Moreover, the number of second-hand HOS flats eligible for a 90 per cent mortgage is rapidly decreasing and a supply cliff is expected in five years. According to Housing Authority figures, 65 per cent of second-hand HOS flats are no longer eligible – that’s over 210,000 flats out of 320,000.
Out of the remaining 35 per cent or 110,000 flats still eligible, over 80,000 have a remaining guarantee period of just five to nine years – in other words, the eligible stock could drop sharply to around 30,000 flats in five years.
If nothing changes, newer second-hand HOS flats will become even more sought-after and expensive, while older second-hand HOS flats will be more unwanted and become illiquid assets.
To help more young people own homes, we propose a three-pronged solution to make better use of these overlooked second-hand HOS flats. First, we recommend extending the guarantee period so older second-hand HOS flats become eligible for a 90 per cent mortgage. Buyers would no longer be cornered into getting newer second-hand HOS flats, while speculation and overpriced transactions would be curbed.
Second, we propose gradually abolishing the annual quota and deadline on the Certificate of Eligibility to Purchase, eventually fully opening up the “white form” secondary market. Given the total stock of 410,000 flats, a sea of options could be unlocked for aspiring homeowners.
To mend broken housing ladder, open up HOS resale scheme to young people
Notwithstanding concerns over the potential influx of demand that might drive up the second-hand market, it is important to note that “white form” buyers are still restricted by income and asset limits. The opening up of the secondary market would also ease the oversubscription in demand for new HOS flats.
Through these measures, we hope a reformed HOS system would bring new hope of home ownership to young people.
Ryan Ip is vice-president and co-head of research at Our Hong Kong Foundation (OHKF)
Jason Leung is a researcher at OHKF
Alvin Chiu is an assistant researcher at OHKF