Sensible ways to encourage home ownership in HK
Updated: 2014-12-02 07:52
By Ho Lok Sang(HK Edition)
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Chief Executive (CE) Leung Chun-ying repeatedly said housing policy was his "priority among all priorities" - when campaigning for election as CE and also after he assumed his post. True to his word, when he became CE, he worked hard to tackle Hong Kong's housing problems. He pushed hard to increase the supply of both the private and public housing. These initiatives helped push the projected supply of homes to 74,000 over the next three to four years. Wong Leung-sing, an associate research director at Centaline, said developers could sell 17,000 units this year, the largest figure seen since 2007.
Leung has also brought in the Residential Properties (First-hand Sales) Ordinance. This is to increase transparency and the accuracy of information when developers sell properties. His government also introduced three different stamp duty categories - the special stamp duty on homes resold within three years of purchase, the double stamp duty for buyers who already own a home in Hong Kong, and the buyer stamp duty for non-Hong Kong buyers and companies. These are all aimed at curbing speculation in the housing market.
Despite this, home prices have continued to rise. This has raised concerns about the affordability of property in Hong Kong and the risk of another devastating housing price collapse.
Shih Wing-ching of Centaline has proposed a new Home Ownership Scheme (HOS) (New HOS below) that seems to provide what Hong Kong needs. I have expanded on his proposal. I think these will work quickly to stop price increases and also deal with the problem of expensive property prices.
The proposal suggests the government allow Hong Kong permanent residents over the age of 30 the right, during their lifetime to buy one residential unit from the New HOS. These would all be small-starter homes. They would be price indexed to Hong Kong's median household income.
These flats would be sold subject to the following conditions:
Buyers must be first-time homebuyers; buyers must live in these homes; they must not be rented out; owners of these New HOS flats will subsequently only be permitted to resell to Hong Kong permanent resident first-time buyers; resale of flats will be permitted at any time, without the need for the repayment of land premiums as currently required for traditional HOS flats.
I also propose a "benchmark unit" should be priced at 10 times the median household income. Better quality (in terms of location, orientation, floor, etc.) flats will be priced above the benchmark price; lower quality flats will be priced below.
The rationale behind these proposals is thus:
First, the reason these proposals would not require means testing is the size and quality of the flats would automatically block more affluent families able to afford better homes. The proposed homes, given their designs, requirements for resale and obligation for owner occupancy, would have little potential as investment properties. Not requiring a means test would ensure we could avoid the undesirable distortion effects of traditional HOS flats - to qualify to buy a flat under the traditional HOS, potential buyers are likely to give up the chance for promotion or other opportunities to earn higher incomes. This creates a loss of efficiency due to the misuse of human capital.
Second, given that those who can afford a better home will generally want to sell their home to purchase a better one, a new HOS flat would become available whenever the existing owner sells it. Without the requirement to repay a land premium before resale, owners would be more ready to resell their flat when they are able to afford a better home.
Third, linking prices to the median household income would take away the fear from would-be buyers that home price increases could outpace any rise in their income. This would help reduce the problem of "compulsive buying".
I have also proposed that the SAR government invite "orders" from would-be buyers over the next five years. Anyone who wanted to buy within the next five years could provide details to the Housing Authority and pay a deposit of say $50,000. The Housing Authority would then have an understanding of how many flats would be needed in the next five years. It would then be able to find suitable sites to fulfill the orders. It is likely that when there are actual orders being taken, then any objections to "New HOS" housing would fall.
Along with the announcement of the "New HOS" policy, the government could abolish the special stamp duty. This has effectively reduced the supply of "filtered down" starter-home flats as owners have been concerned about the risk of having to retain their new homes for three years should they later sell them for better ones. This would also help cool down the housing market for buyers of starter-homes.
The author is the director of the Centre for Public Policy Studies at Lingnan University.
(HK Edition 12/02/2014 page1)