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Following is a question by the Ir Dr Hon Raymond HO Chung-tai and an oral reply by the Secretary for Transport and Housing, Ms Eva Cheng, JP, in the Legislative Council today (5 November):
Question:
It has recently been reported that the Hong Kong Housing Authority ("HA") has incurred losses amounting to $2 billion in securities investments in this financial year. In this connection, will the Government inform this Council:
(a) whether HA will review and revise its investment strategy, with a view to reducing the investment losses caused by the present financial tsunami;
(b) whether it has assessed if the above losses will have any impact on HA's flat production programme and provision of existing services to public housing tenants; and
(c) what measures HA will adopt to ensure that the investment losses will not increase the rental burden on public housing tenants?
Reply:
President,
The investment strategy of the Housing Authority (HA) is devised by its Finance Committee, taking into account the findings and recommendations of independent and professional investment advisers. The objectives are to ensure that there is sufficient liquidity to meet the operational need of HA, and to put the rest of HA・s funds into long-term investment in a diversified manner to enhance long-term return.
HA・s Finance Committee has set up a Funds Management Sub-Committee (FMSC) specially responsible for assisting the committee in selecting and monitoring fund managers, and reviewing HA・s investment strategy periodically.
The selection process of fund managers includes detailed assessment of their proposals by HA・s investment advisers and in-depth analysis of the various models for diversified investment by FMSC. HA currently has six global bonds managers and six global equities managers.
The current approved investment strategy is to place 30% of HA・s funds in bank deposits to cater for the liquidity requirements of HA, 45% in global bonds and the remaining 25% in global equities. HA has drawn up a set of prudent investment guidelines for the investment managers to prescribe the scope of allowable investments that exclude any high risk or leveraged investments.
Investment return of HA for 2006-07 reached 6.1%, which was higher than 3.7% for 2005-06 and 1.6% for 2004-05 when HA had not made global investment. As a result of market fluctuation, HA registered a loss of about $2 billion on equities and bonds in its investment portfolio for 2007-08. However, after taking into account the income of $3.1 billion generated from interests, dividends and exchange gains, HA recorded an overall investment gain of $1.1 billion in 2007-08, representing a rate of return of 1.9%.
My reply to the 3-part question raised by Dr Ho is as follows:
(a) Given the financial tsunami, it is inevitable that the investment portfolio of HA is adversely affected. Nonetheless, HA・s diversification strategy and a comparatively lower proportion of investment in equities have helped mitigate the risk. HA・s FMSC is responsible for keeping track of the performance of the investment portfolio. The independent professional investment advisers hired by HA also assist in monitoring and carrying out analyses so that appropriate adjustment can be made when necessary. The day-to-day monitoring work is carried out by the Housing Department. Over the previous months, the weighting of equities held by HA has been kept below the target ratio of 25%, whereas cash level has been above the target ratio of 30%. This further helps reduce the risk at a time of global market volatility. FMSC will continue to keep watch on market developments and review the need for adjusting the investment strategy.
(b) HA had a fund balance of nearly $60 billion as at the end of September 2008. Its financial position remains strong, with sufficient liquidity to meet its operational needs.
I would like to emphasize that the production programme, being a component of our long term housing policy, will not be revised because of a short-term fluctuation in investment income. We will maintain our policy objective of keeping the waiting time for public housing at about three years on average. We will also maintain our services to public housing tenants. The various maintenance works and estate improvement programmes, e.g. the Total Maintenance Scheme, structural investigation for aged public housing estates, installation of additional lifts and escalators, will be carried out as scheduled.
(c) With effect from January 1, 2008, HA implemented a new income-based rent adjustment mechanism for public rental housing (PRH). The new mechanism was introduced pursuant to the Housing (Amendment) Ordinance 2007 enacted by the Legislative Council in June 2007. In accordance with the Ordinance, HA will conduct the first PRH rent review in 2010 and subsequent reviews will be conducted every two years thereafter. PRH rent has to be adjusted in accordance with changes in the income index which reflects changes in PRH household income levels. As the new rent adjustment mechanism is based on changes in the household income of PRH tenants, HA・s investment return will not have any impact on the level of rent adjustment for PRH.
Ends/Wednesday, November 5, 2008
Issued at HKT 15:04
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