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

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-allocatio

n Surplus from HOS sale used to finance PRH

development Income stream to Housing Authority through r

eceipt 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 For the 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

Annual production : Private housing + Subsidized sale housing + Public rental housing

-

20,000

40,000

60,000

80,000

100,000

120,00019

84

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Un

its

11

Private Housing Take-up vs Completions

Note: * government forecasted completions for 2011

Source: HK Government, BofA Merrill Lynch Equity Research

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

198

0198

1198

2198

3198

4198

5198

6198

7198

8198

9199

0199

1199

2199

3199

4199

5199

6199

7199

8199

9200

0200

1200

2200

3200

4200

5200

6200

7200

8200

9201

0201

1

Units

Completion Take-upAv erage Take-up from 1980 Av erage Take-up from 1998

Average historical take-up since 1980 = 22,407 units

Average historical take-up since 1998 = 18,743 units

12

Housing Price Index vs New Completions

Housing Price Index vs New Private Completions

0

50

100

150

200

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

Ind

ex

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

un

its

Housing Price Index - LHS New Priv ate Completions (units) - RHS

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

Annual production : Private housing vs Subsidized sale housing

-

10,000

20,000

30,000

40,000

50,000

60,000

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Uni

ts

Home ow nership + priv ate sector participation schemes Priv ate Housing Total

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

Average housing price (psf) vs median household income (HK$/mth) vs average flat size (sf) - indexed at 100 in 1986

0

200

400

600

800

1,000

1,200

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

Av erage Price (HK$psf)Median Household IncomeAv erage flat size

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

0

100

200

300

400

500

600

700

800

900

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

Ind

ex (

Mar

198

5=10

0)

0

5,000

10,000

15,000

20,000

25,000

30,000

(Un

its)

Class A Price Index (LHS) Annual Subsidized Housing sales (RHS)

17

Effect of HOS on Private Housing Market – Private Housing Rental

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

Class A (<40sqm) residential rental vs Subsidized sale housing production

0

50

100

150

200

250

300

350

400

450

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

Ind

ex (

1985=

100)

0

5,000

10,000

15,000

20,000

25,000

30,000

(Un

its)

Class A Rental Index (LHS) Annual Subsidized Housing sales (RHS)

18

Home Ownership Rate

29%

35%

43%45% 46% 47% 47% 48%

51% 52% 53% 53% 54% 54% 53% 53% 53% 53% 53%

20%24%28%32%36%40%44%48%52%56%

1982

1986

1991

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

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

Thank You!