Hong Kong think tank believes subsidised homeownership scheme would help fix ‘unjust’ public housing policy
Foundation suggests that offering eligible families the option to buy, rent, or ‘rent to buy’ a new unit would offer fresh hope to those struggling to get on the property ladder
Home ownership in Hong Kong is an impossible dream for most people in the city. Every attempt by the government to rein in prices seems to have failed.
And adding weight to the city’s predicament is the Our Hong Kong Foundation (OHKF), a think tank founded by former chief executive Tung Chee-hwa. It warns in a recent Land and Housing report that the government needs to do more to fix problems at the bottom rung of the housing ladder: public housing.
OHKF suggests that one fix would be to introduce a subsidised homeownership scheme (SHS), which grants eligible families the option to buy, rent, or “rent to buy” a new public housing unit.
OHKF believes the bottom rung of the property ladder could be reinstated, which would speed up public housing turnover.
In its report, the foundation points out that although the public rental housing scheme serves the worthy purpose of providing shelter to many of the needy, the allocation generates “enormous economic inefficiency and stifles the social spectrum”.
The report adds: “The current public housing policy is unjust because society loses the value inherent in the public sector housing unit, the physical premises itself, and the land that it occupies. The evaporation of resources benefits no one.”
William Tsang, a senior researcher with OHKF, says that a fast and relatively cost-effective fix to the situation would be the implementation of an SHS for new public housing units to be built.
Meanwhile, a study by the Hong Kong Federation of Youth Groups (HKFYG) showed that soaring property prices have shattered the home ownership dream of Hong Kong’s young generation.
The HKFYG conducted a survey of 800 respondents aged 18 to 34, with only 213 – or less than 27 per cent – of those interviewed saying they expect to get on the property ladder. This was a sharp drop from 55 per cent in 2006. More than 54 per cent had no plans to purchase a property.
Respondents who said that they did not expect to buy a property cited two key reasons for this: the steep rise in property prices, and the size of the down payment required. The survey also found that those who are still interested in buying a property would have to work, on average, for up to 25 years before they could buy their first home.
According to Midland Realty, a 268 sq ft flat in Wan Chai costs HK$5.5 million, which means a buyer would have to shell out almost HK$2.2 million from his or her own pocket, as banks – in accordance with Hong Kong Monetary Authority guidelines – in many instances, only offer mortgages of up to 60 per cent of a property’s value.
OHKF also suggests that the unpaid land premium for SHS flats should be fixed and locked in on the date of occupation, rather than left as floating “equity”, as it is under the existing system, which fluctuates along with the market.
Under the existing home ownership scheme (HOS), the government sells subsidised homes to eligible public housing tenants and low-income residents at discounted prices, usually 30 to 40 per cent below their assessed market values.
Resales of HOS units are confined to homebuyers who meet similar eligibility requirements. Before selling their home on the open market, existing HOS homeowners are required to pay a land premium equivalent to the difference between the price they originally paid for the property, and the present market value of the property.
Between 1998 and the early 2000s, a similar rent-to-buy programme – the tenants purchase scheme (TPS) – was also introduced for tenants of some public housing estates, giving them the option to buy the unit they were living in at a discounted price. But the programme was terminated by the government in 2006.
“The secondary market for ‘privately owned’ public housing units sold through the TPS is inactive. Because of the big difference in the historic purchase price and the prevailing market value translating into a hefty premium, many owners just don’t bother to sell. As a result, these homes cannot be sold to buyers who need them most,” Tsang says.
Introduced in 2015, the Green Form Subsidised Home Ownership Pilot Scheme is the latest affordable scheme, which turns HOS homes under construction into heavily discounted flats limited to existing public housing tenants and other applicants meeting certain income and asset criteria.
And being allotted the right to purchase one subsidised flat feels like winning a lottery. King Tai Court in San Po Kong, the latest development recently launched for sale under the pilot scheme, received about 16,000 applications, according to the Housing Authority. With only 857 units available for sale, the release was oversubscribed by 17.7 times.
Selling at about HK$940,000 to HK$2.98 million apiece, or about HK$5,658 per square foot, the selling prices of the King Tai Court units are estimated to be 40 per cent below comparable properties in the area.
Chief Executive Leung Chun-ying said during the policy address last year that the scheme was intended to encourage existing public housing tenants to vacate the units in exchange for housing ownership. Lawrence Wong, president of Many Wells Property Agent, which specialises in the secondary sales of HOS flats, calls on the government to consider reinstating TPS for tenants of existing public housing estates. Doing so would promote home ownership among public housing tenants who can afford to buy and reduce government costs in terms of managing public housing estates.
“Having said that, how to fairly balance the rights and responsibilities of both homeowners and tenants coexisting in a public housing building, especially [with regards to] repair and maintenance aspects, is a subject for discussion,” Wong adds.