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To Be or Not to Be – The Resumption of Home Ownership Scheme. Mr Marco Wu, SBS Vice-Chairman, Hong Kong Housing Society. Long History of Government Intervention in HK Housing Market. Domestic Rent Control (various years) Public Rental Housing (PRH) (since 1953)
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To Be or Not to Be –The Resumption of Home Ownership Scheme Mr Marco Wu, SBSVice-Chairman, Hong Kong Housing Society
Long History of Government Intervention in HK Housing Market • Domestic Rent Control (various years) • Public Rental Housing (PRH) (since 1953) • Home Ownership Scheme (HOS) (1978 to 2002)
Objective of HOS • Enhance Social Stability • Enhance Sense of Belonging • Improve Quality of Living • Enable Asset Formation
Target Groups of HOS • To encourage better-off PRH tenants to improve their living conditions and vacate their heavily subsidized rental units for re-allocation • To enable lower-middle income households in private rental housing to own their homes
Special Features of HOS • Discounted Sale Price (55% - 70% of FMV) • Small Down-payment (5% - 10%) • Favourable Mortgage Terms • Payment of Premium on Resale in Open Market
Contribution of HOS • 350,000 families became Home Owners • 200,000 PRH units recovered for re-allocation • Surplus from HOS sale used to finance PRH development • Income stream to Housing Authority through receipt of premiums paid by HOS owners on resale
Swing of the Pendulum • 1997 • The Chief Executive announced a 10-year housing plan, aiming (i) to build at least 85,000 housing units a year; (ii) to increase the home-ownership rate to 70% by 2007; and (iii) to reduce the average waiting time for public rental units to 3 years by 2005 • Setting up of the Steering Committee on Land Supply for Housing chaired by the Financial Secretary to ensure steady and adequate land supply for housing development
Swing of the Pendulum • 2002 • The Secretary for Housing, Planning and Lands released a Statement on Housing Policy to stabilize the housing market. 9 measures were introduced, including (i) indefinite suspension of the production and sale of HOS/PSPS flats, and (ii) sale of government land only through the application list • The Steering Committee on Land Supply for Housing stopped functioning after August 2002 • Annual assessment of housing demand and supply not conducted
A Case Forthe Resumption of HOS • Affordability Gap: Hong Kong’s price-to-income ratio (PIR) is on the top of the world • Growing Disparity between home owners and “not yet” home owners • Supply Gap in land and housing • Strong Demand for private housing from Mainland purchasers
Annual Production: Private + Subsidized Sale Housing + Public Rental Housing Note: Subsidized Housing includes Home Ownership Scheme and Private Sector Participation Scheme units, but excludes Sandwiched Class Housing units Red bars denote years where total production exceeded 85,000 units Source: CEIC, BofA Merrill Lynch Equity Research
Private Housing Take-up vs Completions Note: * government forecasted completions for 2011 Source: HK Government, BofA Merrill Lynch Equity Research
Housing Price Index vsNew Completions Source: CEIC, BofA Merrill Lynch Equity Research
Annual Production: Private vs Subsidized Sale Housing Note: Subsidized Housing includes Home Ownership Scheme and Private Sector Participation Scheme units, but excludes Sandwiched Class Housing units Source: CEIC, BofA Merrill Lynch Equity Research
Average Housing Price vs Median Households Income vs Average Flat Size Source: CEIC, BofA Merrill Lynch Equity Research
A Case Against the Resumption of HOS • HOS would cause the private housing market to collapse • Public resources should not be used to assist people to accumulate wealth/asset • HOS will take up sites earmarked for PRH and private housing • A long lead time (5 to 7 years) is required to plan and build HOS flats
Effect of HOS on Private Housing Market – Private Housing Prices Source: CEIC, BofA Merrill Lynch Research Note: Subsidized Housing includes Home Ownership Scheme and Private Sector Participation Scheme units, but excludes Sandwich Class Housing units
Effect of HOS on Private Housing Market – Private Housing Rental Class A (<40sqm) residential rental vs Subsidized sale housing production Source: CEIC, BofA Merrill Lynch Research Note: Subsidized Housing includes Home Ownership Scheme and Private Sector Participation Scheme units, but excludes Sandwich Class Housing units
Home Ownership Rate Source: HK Government, BofA Merrill Lynch Equity Research
My Home Purchase Plan • 5,000 flats will be built under the Plan • Eligible applicants will be granted a 5-year tenancy at market rent • After 2 years’ occupation, tenants may purchase the flat they rent, or another flat under the Plan, or a flat in the private market at prevailing market price • The tenants will receive a subsidy equivalent to half of the net rent they have paid as part payment for the flat they purchase
Questions from the Public • Is MHPP a better option than HOS? • Should eligible applicants be given a choice between MHPP and HOS?
Suggested Way Forward • To resume annual assessment of housing supply and demand • To resume regular review of LTHS • To establish a “Land Bank” • To resume HOS