Ho Lok-sang

Notes the prob­lem of sub­si­dized prop­erty flow­ing into the mar­ket, and sug­gests re­sale al­ways be re­stricted to buy­ers qual­i­fy­ing for sub­si­dized hous­ing

China Daily (Hong Kong) - - COMMENT -

Tra­di­tion­ally Hong Kong’s Home Own­er­ship Scheme (HOS) hous­ing, as well as pri­va­tized hous­ing un­der the Ten­ants Pur­chase Scheme (TPS), re­quires re­pay­ment of the owed land price pre­mium be­fore own­ers can sell in the open mar­ket. The Hous­ing Au­thor­ity can sell these units be­low mar­ket price be­cause pur­chasers have not paid the full price of the land. Un­der the tra­di­tional think­ing, the land pre­mium owed has to even­tu­ally be paid at the pre­vail­ing mar­ket price if these units are sold or rented out in the open mar­ket. Start­ing in June 1997, how­ever, the Hous­ing Au­thor­ity es­tab­lished the HOS Sec­ondary Mar­ket Scheme, and let HOS own­ers sell to Green Form Cer­tifi­cate hold­ers with­out pay­ing the owed land pre­mium. The logic is that when a Pub­lic Rental Hous­ing (PRH) ten­ant buys an HOS unit in the sec­ondary mar­ket, a PRH unit will be made avail­able to ap­pli­cants. Since PRH is so­cially very costly to pro­duce, and since de­vel­op­ing pub­lic hous­ing may take a long time, the so­cial ben­e­fit of the HOS Sec­ondary Mar­ket Scheme is be­lieved to be well jus­ti­fied, even though it means the Hous­ing Au­thor­ity has to forgo the land pre­mium. Since the new pur­chaser could con­tinue to re­sell to a green-form ap­pli­cant with­out pay­ing the land pre­mium, there is a chance the au­thor­ity might never be re­paid the land pre­mium.

As it turns out, many HOS and TPS home­own­ers prof­ited sig­nif­i­cantly, tak­ing ad­van­tage of the Sec­ondary Mar­ket Scheme. A PRH flat in Yiu On Es­tate in Ma On Shan was re­cently sold at HK$3.9 mil­lion to a green­form ap­pli­cant — a per square foot price of HK$6,522, com­par­ing with a pre­mium-paid price of HK$8,753 per square foot for an­other flat in the same es­tate which was sold at HK$4.28 mil­lion. This lat­ter flat had been pur­chased by the sit­ting ten­ant at HK$199,000 in 2000. The fig­ures sug­gest that pay­ing the land pre­mium and sell­ing in the open mar­ket is not par­tic­u­larly at­trac­tive. The TPS owner cap­tured, in 17 years, a gain of well over 1,000 per­cent, whether or not the The au­thor is dean of busi­ness at the Chu Hai Col­lege of Higher Ed­u­ca­tion. unit is sold in the open mar­ket, pre­mium paid, or in the sec­ondary mar­ket, pre-pre­mium. In Tin Shui Wai, an HOS flat was sold at over HK$4.68 mil­lion pre-pre­mium, for a gain of some 80 per­cent in three years.

Sev­eral ques­tions im­me­di­ately come to mind:

First, is there a prob­lem when pub­lic hous­ing — which is in­tended to pro­vide a roof for those who need as­sis­tance — be­comes an in­vest­ment ve­hi­cle?

Sec­ond, if more and more own­ers choose to sell in the sec­ondary mar­ket, the land pre­mium in­comes of the Hous­ing Au­thor­ity will fall. Will this cre­ate fi­nan­cial pres­sure on the Hous­ing Au­thor­ity?

Third, do we need to change the re­stric­tions on re­sale? If so, how?

Pro­fes­sor Richard Wong of the Univer­sity of Hong Kong does not think the first prob­lem is a prob­lem at all. Pri­va­tized pub­lic hous­ing or HOS hous­ing, ac­cord­ing to him, al­lows grass-roots peo­ple to share the gains from eco­nomic pros­per­ity.

This sounds great but then there are two prob­lems. One is that the prospec­tive eco­nomic gains will draw ap­pli­cants who have eyes on fi­nan­cial gains. This will make it more dif­fi­cult for ap­pli­cants with gen­uine and press­ing needs to be al­lot­ted a flat.

An­other prob­lem is that when a PRH or HOS flat is sold for a profit, that flat is no longer avail­able to serve the needs of the poor. Re­place­ment cost is os­ten­si­bly very high, and that in­cludes both land cost and con­struc­tion cost.

Chief Ex­ec­u­tive Car­rie Lam Cheng Yuet-ngor has been re­ported to be ac­tively think­ing about ex­empt­ing HOS own­ers from hav­ing to pay a land pre­mium be­fore re­sale. But this could in­crease fi­nan­cial pres­sures on the Hous­ing Au­thor­ity.

I would ad­vise that ex­empt­ing HOS own­ers from hav­ing to pay a land pre­mium be­fore re­sale is fine, as long as buy­ers of resold HOS flats are re­stricted to those who qual­ify for HOS ap­pli­ca­tions. With this re­stric­tion, plus the re­stric­tion that HOS home­own­ers are not al­lowed to own pri­vate flats, I would ar­gue own­ers should be al­lowed to re­sell any time they like with­out re­stric­tion. The flats will for­ever be re­served for serv­ing the needs of the hous­ing-needy house­holds. The sec­ond-hand mar­ket prices will be much lower, and home­own­er­ship will be­come much easier. Although the Hous­ing Au­thor­ity will not col­lect land pre­mi­ums, they will also have less pres­sure to pro­duce more units, since in­vest­ment-minded pur­chasers will go to greener pas­tures.

Of course my two pro­posed re­stric­tions should not be im­posed on ex­ist­ing HOS own­ers who had bought with the un­der­stand­ing that old rules ap­ply. But for new HOS hous­ing, the two pro­posed re­stric­tions should be an­nounced and en­forced. This will drive in­vest­ment-minded peo­ple to the pri­vate mar­ket, leav­ing only the hous­ing-needy house­holds in the queue for HOS hous­ing, and that will be good for Hong Kong.

With this re­stric­tion (buy­ers of resold HOS flats are re­stricted to those who qual­ify for HOS ap­pli­ca­tions), plus the re­stric­tion that HOS home­own­ers are not al­lowed to own pri­vate flats, I would ar­gue own­ers should be al­lowed to re­sell any time they like with­out re­stric­tion.

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