Concrete Analysis
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Subsidised housing should help families with lesser means to realise their home ownership dream

Subsidised housing units offered with large discounts should be restricted from resell, writes Chiu Kam-kuen

PUBLISHED : Tuesday, 07 August, 2018, 12:01pm
UPDATED : Tuesday, 07 August, 2018, 6:16pm

Chief Executive Carrie Lam Cheng Yuet-ngor announced a package of six new initiatives on housing in June, once of which involved a new measure on the pricing mechanism of the Home Ownership Scheme (HOS) provided by the Housing Authority.

The government proposed that the selling price of HOS flats to be launched in the near future would no longer be linked to the market price. In simple terms, the government has long been using the existing affordability test which was based on the income limit of the White Form family applicants. For the Sale of HOS Flats 2018, the income limit for the White Form family applicants is set at HK$57,000 per month. Under the new mechanism, the affordability test will be revised by using the median of monthly household income of non-owner occupier households (currently around HK$39,500, net of MPF contributions). Thus, it allows HOS flats to offer a lower price in order to guarantee most of flats are affordable. If the proposed pricing mechanism is implemented this year, the new phase of HOS flats will be sold at 52 per cent instead of the original 70 per cent of the assessed market value. That means that the selling price of each flat will be reduced and the price will range between HK$1.1 million and HK$4.68 million.

As for the pricing of the Green Form Subsidised Home Ownership Scheme (GSH), a further discount of 10 per cent will be given to the GSH buyers. For example, if HOS price to be sold are at 52 per cent of the market value, the subsequent GSH will be priced at 42 per cent. The government takes note that the general price in the private housing market has risen to an unreasonable level and believes the Housing Authority should not use such an unreasonable price as the reference for setting prices for HOS flats.

For winners in Hong Kong’s home ownership scheme, an affordable flat brings trade-offs

In the past, the Housing Authority launched a number of subsidised home ownership schemes. For some low and middle-income families, HOS flats and other forms of subsidised sale of flats are always their first starter homes. The price of HOS flats was first linked to the market price so as to facilitate the reimbursement of land premiums to the government according to the discount rate offered when the units were later resold in the private market. Amid the continuous rise of Hong Kong property prices in recent years, the prices of HOS flats have also been scaling new heights. HOS flat owners can sell their flats in the private housing market after they have paid the land premium to the government. This will also reduce the overall number of subsidised housing units that are for families who need government help to make a home purchase.

In light of the insufficiency of the previous subsidised home ownership schemes, I suggest that, in the future, flats sold under the new HOS should be subject to resale restrictions. In other words, HOS flats cannot be resold in the free market by paying a land premium. HOS flat owners can only resell their HOS flats to eligible Hong Kong residents who have never bought homes. This action will also help increase the turnover rate of HOS flats and build a “home ownership ladder” for low- and middle-income families with home ownership needs.

In addition, owners are allowed to sell their HOS flats back to the Housing Authority at a specific price and the authority can resell the flats to other families who have never bought their own homes. Given that HOS should only be used for “residence” and not for “investment”, I suggest that the Housing Authority should refer to the annual changes on consumer price index to determine the price of when repurchasing HOS flats so that the flats can be used again to help other families in need. The Housing Authority has stopped building HOS flats for about 10 years, yet the number of HOS applications has reached record highs in recent years.

Therefore, to help families with low affordability, it is necessary to sever the subsidised housing market from the private housing market and to prevent HOS flats from flowing into the private housing market. It is important to note that the aim of the ownership scheme is to help Hong Kong residents purchase their own homes instead of using social resources to make gain from asset appreciation. Hence, in my opinion, subsidised housing units with larger discounts should not be allowed to resell freely through payments of land premium.

Chiu Kam-kuen is the head of valuation and advisory services for Asia-Pacific at Cushman & Wakefield

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