LCQ5: HK residential property prices

     Following is a question by the Hon Ronny Tong Ka-wah and a reply by the Secretary for Transport and Housing, Ms Eva Cheng, in the Legislative Council today (March 30):


     At the end of last year, the Government introduced measures to curb speculations on residential properties, including an increase in the stamp duty for a conveyance on sale of property valued at more than $20 million, and the levy of a Special Stamp Duty on a conveyance on sale of residential property resold within a short term. Notwithstanding this, the survey report published by a consultancy in the United States in January this year indicates that the residential property prices in Hong Kong are the highest in the world, and the median property price is equivalent to 11.4 times the median annual household income. In addition, some market data reveal that the number of private residential property transactions has not decreased recently, nor have the prices of luxurious residential units or more affordable flats dropped. In this connection, will the Government inform this Council:

(a) whether the Government has established a mechanism for measuring or assessing the housing needs and affordability of the public; if it has, since when such mechanism has come into operation, how it operates, and who is responsible for its operation; if not, of the reasons for that;

(b) of the respective numbers of residential property transactions valued at $2 million or below, $2.01 million to $3.5 million, $3.51 million to $5 million, $5.01 million to $10 million, $10.01 million to $30 million, $30.01 million to $50 million, and more than $50 million in each of the years since 1997, as well as the respective median personal income each year; and

(c) as it has been reported recently that the residential properties in Hong Kong are the most expensive in Asia and such a situation will last for 20 years, what effective measures the Government will take to tackle the problem that it is increasingly difficult for the young generation to acquire home ownership; if it will not formulate any measure, of the reasons for that?



     We note that various local and overseas organisations have conducted surveys on the flat prices and home purchase affordability of people in Hong Kong and various other places. Different surveys adopted different data and assumptions, and the assumptions may not have taken into account the specific situations of individual places. For example, these surveys do not appear to have taken into account the important factors that public rental housing (PRH) has addressed the basic housing need of 30% of the population in Hong Kong, and that our mortgage market is diversified and well developed. In fact, different economies/cities have different characteristics (e.g. resources, expenditure pattern, saving rate, population density and social system), and are at different stages of development. We have to be very careful when making direct comparison on home purchase affordability in terms of flat prices and the income of the people in different economies/cities.

     My reply to the three parts of the questions is as follow.

(a) and (c) For the first and third parts of the question, on the overall demand for housing, our experience revealed that the hard figures estimated by any model could not accurately quantify demand, in particular demand in the private residential market which is affected by many factors, including changes in socio-economic environment such as market sentiment, liquidity and interest rate which would have an impact on demand. It is very likely that any estimation will be very different from the actual situation. Therefore, we have not worked out any fixed target on housing demand on the basis of any model.

     The Rating and Valuation Department (RVD) works out the home purchase affordability using the Mortgage-to-Income Ratio (MIR), which is based on the assumptions that private households with median household income buy a flat of 45 square metres, take out a 20-year mortgage loan at a 70% loan-to-value ratio and at an average mortgage rate. The MIR in the fourth quarter of 2010 was 44.5%, and was lower than the annual average of 51% for the period from 1990 to 2009.

     The Government has been monitoring developments in the private residential property market closely and remains vigilant on the risks of a property bubble. In this respect, the Government has repeatedly reminded the public to carefully assess their risks and their own financial position when making a home purchase decision. In February, April, August, October and November 2010, the Government introduced various measures in four areas to ensure the healthy and stable development of the property market. The four areas include increasing land supply to tackle the problem at source, combating speculative activities, enhancing the transparency of property transactions, and preventing excessive expansion in mortgage lending.

     To tackle the supply problem at source, the Government has set the target of making available land for an average of some 20,000 private residential flats per annum in the next 10 years. It is estimated that the housing land may reach a total of about 35,000 units in the coming year. MTR Corporation Limited is going to be an important source of supply of sites for residential developments. The sites at Nam Cheong, Tsuen Wan, Tai Wai, Tin Shui Wai and Tseung Kwan O are expected to provide an estimated 14,600 units. Also, the Government has decided to sell five residential sites by tender this year, and will impose restrictions on the minimum flat number and flat size in the conditions of sale. The objective is to increase the supply of small and medium-sized flats. These sites will be able to provide about 3,000 small and medium-sized units.

     On PRH, the Government is committed to ensuring an adequate supply of land to produce on average about 15,000 PRH flats each year, and maintaining the target average waiting time (AWT) for general Waiting List applicants at about three years. In addition, the Government's policy is to provide PRH to low income families who cannot afford private rental accommodation. The Hong Kong Housing Authority has already endorsed the Waiting List income and asset limits for 2011/12. When compared with that in 2010/11, the income and asset limits have increased by an average of 15.6% and 3.3% respectively. It is estimated that under the new limits, about 131,100 non-owner occupied households in the private sector will be eligible for PRH, representing an increase of about 25,400 households over that of 2010/11. We will keep in view the demand situation, and roll forward and suitably adjust the Public Housing Construction Programme to maintain the target of AWT at about three years.  

     The Government recognises the importance of a stable home, and is fully aware of the people's wish to improve their quality of life and move up the social ladder through home ownership. Any form of subsidised home ownership will, however, only serve as a buffer. In the long run, we should increase land supply to tackle the problem at source to provide opportunities for affordable homes. In the face of short-term market fluctuations, the Government considers it appropriate to provide relief measures to potential home buyers with affordability in the long term to give them time to save up to realise their home purchase plan.  

     The Government will, in collaboration with the Hong Kong Housing Society, introduce My Home Purchase Plan (MHPP) premised on the concept of "rent-and-buy". The MHPP will effectively target at households with the ability to pay mortgages in the long run, but who cannot immediately afford the down payment in the face of short-term property price fluctuations, and allow such potential home buyers some time to save up for their home purchase. Also, MHPP helps increase the supply of "no-frills" small and medium-sized private residential flats.  

     MHPP, together with Government's commitment to address the housing needs of those low-income households who cannot afford private rental housing through the provision of PRH, measures introduced to increase land supply, the revitalisation measures for the Home Ownership Scheme (HOS) Secondary Market Scheme, and efforts to enhance the transparency and fairness of first-hand sales in the private sector, will increase choices to meet the different housing needs of the community in a sustainable manner.  

     Overall, the Government aims to provide people that have different levels of affordability with various housing options for purchase or rental. The first level is PRH for low-income families who cannot afford private rental accommodation. Above PRH is the second-hand HOS flats in the HOS Secondary Market where HOS owners may sell their flats to Green Form certificate holders without paying premium. The next levels are flats of lower prices (including HOS flats sold in the open market after payment of premium) in the private property market targeting the general public, and the MHPP flats. In the private property sector, residential flats at various market prices are also available in both the primary and secondary markets to satisfy the diverse demands of those who can afford private flats.

(b) For the second part of the question, with reference to the Members' request for the Administration to provide the number of Agreements for Sale and Purchase (ASPs) by consideration on a yearly basis from 1997 to the present and the median income of individuals in those years, the Land Registry's statistics on the yearly number of ASPs of private residential flats by consideration are available from 2002 only. Also, RVD works out the home purchase affordability on the basis of median household income rather than median income of individuals. The figures are set out at the Annex of the written reply for Members' reference. Over the past nine years, there were on average about 53,000 transactions on private residential properties valued below $2 million. In 2010, there were about 51,000 such transactions, which was similar to the annual average in the past nine years. This shows there is a stable supply of private residential properties valued below $2 million.

Ends/Wednesday, March 30, 2011
Issued at HKT 15:05