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Executive Summary

                                             1. The Contemporary Picture

                                                    In Hong Kong today, household dwellings are roughly evenly divided
                                             between the private and public sector. At the same time, Hong Kong
                                             also has a massive public sector housing programmes on a scale that is
                                             unprecedented in free-market economies.

                                                    Among the public housing sector, the government provides a
                                             substantial number of “subsidised sales flats” for eligible households to
                                             purchase. In essence, the prevailing mechanism of subsidised sales flats is
                                             as follows:

                                             (i)  Assume a subsidised sales unit has an estimated market value of $1
                                                million (HK$, same hereafter unless otherwise specified). It is first sold
                                                at a “discount” of, say, 30% against the market value (i.e. $700,000) to an
                                                eligible household satisfying the relevant means test;

                                             (ii)  The government also acts as the guarantor for the said property,
                                                allowing the household to obtain a mortgage up to 95% of the
                                                discounted price (i.e. $665,000);

                                             (iii)  The unpaid 30% of the house’s market value (i.e. $300,000), is commonly
                                                termed the “unpaid (land) premium”, and is payable to the government
                                                when the unit is sold in the open market in the future upon satisfying
                                                other requirements; and

                                            (iv)  The value of this unpaid premium is determined with reference to the
                                                market value not at the date of occupation of unit, but at the time
                                                when repayment is to be made. For example, if home prices double
                                                during this period (i.e. from $1 million to $2 million), the amount payable
                                                by the household before the unit can participate in the open market
                                                will also double (i.e. from $300,000 to $600,000).

                                                    This has made the term “homeownership” spurious in the public
                                             housing sector as very few “owners” of the “Homeownership Scheme” (HOS)
                                             (22%) and “Tenant Purchase Scheme” (TPS) (1%) can successfully settle the
                                             unpaid land premium, rendering the market for such units effectively non-
                                             existent and non-functional. This has grave socioeconomic consequences
                                             far beyond housing issues.

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