To Be or Not to Be – The Resumption of Home Ownership Scheme

1. To Be or Not to Be –The Resumption of Home Ownership Scheme Mr Marco Wu, SBSVice-Chairman, Hong Kong Housing Society

2. 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)

3. Objective of HOS • Enhance Social Stability • Enhance Sense of Belonging • Improve Quality of Living • Enable Asset Formation

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. Private Housing Take-up vs Completions Note: * government forecasted completions for 2011 Source: HK Government, BofA Merrill Lynch Equity Research

12. Housing Price Index vsNew Completions Source: CEIC, BofA Merrill Lynch Equity Research

13. 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

14. Average Housing Price vs Median Households Income vs Average Flat Size Source: CEIC, BofA Merrill Lynch Equity Research

15. 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

16. 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

17. 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

18. Home Ownership Rate Source: HK Government, BofA Merrill Lynch Equity Research

19. 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

20. Questions from the Public • Is MHPP a better option than HOS? • Should eligible applicants be given a choice between MHPP and HOS?

21. 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

22. Thank You!