Drastic action is needed to revive housing prices according to a
report by HSBC Securities. Anything less is unlikely to lead to a
recovery in the short-term. The warning comes as the Executive Council
meets today to discuss new measures which it hopes will revive the the
residential market and help lift the domestic economy out of the
doldrums. The report by analyst Derek Cheung notes that private
secondary prices have continued to fall despite numerous government
measures since 1998 to support the market. He forecasts that
residential prices will fall 5-10 per cent this year and by 0-5 per
cent next year. Cheung says the main reason for the parlous state of
the property market has been government policies that have distorted
the housing market mechanism. The best way to revive the market, he
says, is to eliminate these distortions and to restore supply-demand
equilibrium by enabling the market to freely regulate itself. The
oversupply in the private housing market has been driven by the
"unfair direct competition from the public housing sector and the
government's 85,000 housing target".
Government policies offering attractive subsidies have discouraged
owners/tenants in the public housing market from entering the private
HSBC's report includes suggestions for reviving the market from a
variety of sources together with the stockbroker's comments and has
been summarised here.
Proposals for reviving the housing market:
Measures to boost demand
Lower Land Premium for Subsidised Flats: Reduce the land premium
requirement for those who want to sell their Home Ownership Scheme
(HOS) and Tenant Purchase Scheme (TPS) flats on the open market, and
reduce the five-year occupation requirement.
Owners of HOS and TPS units are allowed to trade them in the HOS
secondary market after three years without paying subsidised land
premium (normally 35-50 per cent discount to market), and the open
market after five years. Owners of HOS and TPS units discouraged from
upgrading to private housing due to the improved quality of the
subsidised units, and increasingly liquid and expanded HOS secondary
Comment: May be effective as it boosts private residential prices
through higher HOS prices. Price of HOS units may rise due to lower
land premiums as owners seek to recover costs.
Given the opportunities for profit, the elimination of double benefit
and lower private housing prices, some HOS and TPS owners may upgrade
to private housing.
Limit subsidised loans for private housing: Since 1998 people have
been permitted to use Home Purchase Loans (HPLS) to buy HOS units in
the secondary market.
Comment: Should enhance demand for private housing as the government
will resume its new loan programme by end-2000 with an initial quota
Elimination of HOS/TPS secondary markets: Halt the transfer of HOS/TPS
flats at a land premium discount.
Comment: Although this will lower liquidity in the overall housing
market, any upgrade in the demand from the public housing market will
need to be via the private housing market at full market prices thus
boosting demand for private housing.
At present there is clear evidence of direct competition between
private and public housing markets.
Eliminating double benefit and excluding TPS owners from HOS
eligibility: Stop allowing public rental housing tenants to apply for
HOS flats as non-public housing (white form) applicants within 10
years after acquiring their public rental units under the TPS.
In 1997 about 74 per cent of new HOS units were sold to public rental
housing (green form) applicants, but last year non-public rental
housing (white form) applicants took ownership of 78 per cent of these
This implies an increasing number of public rental housing tenants
have acquired HOS flats with government subsidised loans or after
acquiring their public rental units at a discount under the TPS scheme
i.e. a double benefit.
Comment: Despite strong demand from public rental tenants to upgrade
(32 per cent of 2.1 million households live in public rental housing
units) many do not acquire private housing and wait for subsidised
But the income distribution of many of these households are comparable
to those in private housing.
Suspend or end Tenants Purchase Scheme (TPS): Introduced in 1998 and
aimed to sell 250,000 public rental flats over a 10-year period. About
171,000 units sold 1998-2001, more than than the 25,000 per annum
Comment: Could boost private housing demand since many tenants choose
to wait for subsidised upgrade.
Cancellation of two-year buyback for HOS flats: All HOS flat-buyers
are entitled to sell their flats back to the government at cost within
two years of purchase.
Comment: Will lower appeal of HOS flats and boost private housing
Amend Landlord and Tenant Ordinance: To protect rights of both tenants
Comment: Should enhance investment demand but impact will be
insignificant in short-term.
Measures to boost supply
Shorter Presale Period: From 20 months to, say, nine months.
Comment: Could reduce downward pressure on prices as "supply" is
lower at any one time.
End or Suspend Home Ownership Scheme (HOS): For a prolonged period.
HOS flats completed or under construction (estimated: 20,000 units) to
be used for resettlement of those affected by urban redevelopment
plans or used for civil servants' staff quarters.
Comment: Could quickly boost market confidence. Current supply will be
lowered and market destocking period shortened. Essential for the
healthy development of housing market long-term.
All HOS sites to be used for private development: Land sites
originally earmarked for HOS housing construction to be transferred to
Comment: Future land sales more market-driven. Additional revenue will
help ease the budget deficit.
Cancel land auction list: Only maintain land reserve list. Land sites
are auctioned upon application by developers.
Comment: HSBC believes this is the best mechanism for administering
future land supply since developers will only apply for sites that are
Cancel official home ownership goal: The government's goal was to
achieve 70 per cent home ownership by 2007.
Comment: Should rebuild confidence after concern that the government
may again flood the market with land once the market starts to
Lower plot ratios for new property projects
Comment: Insignificant short-term benefit but will lower medium- to
Slower urban redevelopment programme
Comment: Insignificant short-term benefit, but will lower medium- to
long-term supply given plot ratios of new buildings are materially
higher than previously.
Investment Immigration: Introduce a special immigration policy for
mainland Chinese who invest up to HK$7.8 million in Hong Kong (partly
in property market).
Initial suggested quota of 50,000 units (versus annual new private
completion of 25,000-30,000 units).
Comment: Could boost the market but may be difficult to implement.
Control land supply: to the MTRC, KCRC and Urban Renewal Authority.
Tightly control conversion of agricultural land.
Comment: Will reduce future supply and boost confidence. May be hard
to implement since MTRC is a listed company.
Suspend land and HOS sales until and unless unemployment and GDP
return to say 5 per cent.
Comment: Lowers supply and could boost confidence.
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