Page 2 - ENGLISH_Housing

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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