Saturday, November 28, 2015   

In search of a homes revival

Paris Lord

Tuesday, November 05, 2002

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

of 10,000.

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

upgrade opportunities.

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

originally envisaged.

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

and landlords.

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

private development.

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

long-term supply.

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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