5.1 The Government believes that home ownership is good for both the community and the individual. It helps to foster social stability and a sense of belonging. It also helps families to provide for their own future financial security. It is not surprising then that a large and increasing number of households in Hong Kong favour home ownership over other forms of tenure. They value independence, and control over their own homes. Flat owners know that, when their mortgages have been paid off, they will have the security of an asset that will help to maintain their standard of living.
5.2 The Government's policy is to encourage home ownership in the community. We look to the private sector to make a major contribution to meeting this goal, and we therefore do our best to ease any supply constraints which the private sector may face. But, for many years, we have also operated a number of schemes to help middle and lower income families directly to buy their own homes.
5.3 The Home Ownership Scheme (HOS) and the supplementary Private Sector Participation Scheme (PSPS), introduced in 1978, aim to provide flats for sale at prices well below market value to families with monthly incomes currently not exceeding $26,000 and to public housing tenants (who are not subject to this income limit). Up to March 1996, about 200 000 flats have been sold to eligible families, including 66 000 flats produced under the PSPS.
5.4 Favourable mortgage terms are provided by financial institutions to HOS and PSPS flats purchasers. The HA, in return, undertakes to indemnify them against loss in case of default. Purchasers can borrow up to 90 - 95% of the flat price at a favourable interest rate, with repayment periods of up to 20 years.
5.5 The Sandwich Class Housing (SCH) Scheme, introduced in 1993, aims to help families living in private rented accommodation with monthly incomes currently of between $26,001 and $60,000 to buy their own homes. It comprises a main scheme and a loan scheme.
5.6 The main scheme involves the granting of land on concessionary terms to the Housing Society to build 30 000 flats by 2003. Sites for 20 000 flats have been granted or earmarked. Sites for a further 10 000 flats are being identified. The loan scheme, set up with a grant of $2 billion from public funds, was designed to assist initially over 4 000 families to purchase their own homes in the private sector. We intend shortly to seek the approval of the Legislative Council for a further injection of funds to help more families to buy their own homes.
5.7 The Home Purchase Loan Scheme (HPLS), introduced in 1988, aims to help families with incomes currently not exceeding $26,000 and public housing tenants (who are not subject to this income limit) to buy flats in the private sector. Eligible applicants are offered by the HA an interest-free loan, repayable over the same period as the bank mortgage on the property, up to a maximum of 20 years. Alternatively, they may opt for a monthly subsidy for 48 months, which need not be repaid. The current amounts of loan and monthly subsidy for families living in private housing are $400,000 and $3,400 respectively. But, since June 1995, in order to encourage more public housing tenants to purchase property and to give up their rental flats for re-allocation, the amounts of loan and monthly subsidy for public housing tenants have been increased to $600,000 and $5,100 respectively.
5.8 Up to March 1996, some 11 500 loans and 650 subsidies have been granted, and 6 500 public rental flats recovered. We support the continued operation of the HPLS as a flexible and cost-effective means of encouraging home ownership.
5.9 Since inception of the subsidised home ownership schemes in 1978, we have built some 200 000 flats for sale at subsidised prices. As a result of these programmes and the important contribution of the private sector, we have been able to increase the home ownership rate in Hong Kong by one-third over the past ten years to a little over 50% today.
5.10 This is a significant achievement. But there is still a large unmet demand for home ownership. The Government's subsidised home ownership programmes, both flats for sale and home purchase loans, continue to be heavily over-subscribed. Furthermore, past surveys have indicated that many public housing tenants wish to own their homes.
5.11 In order to respond to this demand, we propose -
| (a) | to maintain and, where possible, expand the existing schemes to help eligible families to buy their own homes; and | |
| (b) | to provide new opportunities for public housing tenants to become home owners. |
5.12 We will continue to operate the existing subsidised home ownership schemes. Over the period from April 1995 to March 2001, we have pledged to build 175 000 flats for sale. The HA also expects to provide some 10 000 loans over the period from April 1996 to March 1998 to assist eligible families living in either public or private rented accommodation to buy their own homes in the private property market.
5.13 We will also look for opportunities to increase the supply of HOS and PSPS flats in future. As a first step, we propose that the HA should look at ways to expand its existing 'transfer block' scheme. Under this scheme, the HA transfers new rental blocks to the HOS for sale to households which qualify for allocation of public rental housing and to existing public housing tenants. Sale prices are set at a discount of 5% to those in HOS "Harmony" blocks, in recognition of the difference in the standard of finishing.
5.14 This scheme brings three important benefits : it helps to meet unsatisfied demand for home ownership; it reduces the demand for public rental flats among households which can afford to buy their own homes and which would otherwise qualify for public rental housing; and it releases public rental flats for re-allocation to others in need. As such, the scheme helps to promote home ownership, while not affecting the rehousing opportunities of households awaiting allocation of public rental flats. Public housing resources can be allocated therefore in a more equitable and flexible manner.
5.15 We propose that the HA should consider widening this scheme to provide more opportunities for home purchase among both existing and qualified prospective tenants, subject to both demand and available supply.
5.16 We also support the HA's recent proposal in its HOS review9 to grant a monthly mortgage subsidy during the first three years to Comprehensive Redevelopment Programme (CRP) tenants who choose to buy, rather than rent, new flats in reception estates.
5.17 Under this proposed mortgage subsidy arrangement, CRP tenants would purchase flats in the 'transfer blocks' in the usual way, i.e. full payment of the purchase price to the HA through 5% downpayment and a mortgage loan from financial institutions. The HA would assist home buyers in the repayment of their mortgage loans through a monthly grant of $6,000, $4,500 and $3,000 in the first, second and third year respectively. (This concession would not be available to those tenants who would have had to pay market rent should they have opted to remain as public housing tenants.) To deter speculation, owners who wished to resell their flats during the first three years would have to repay to the HA the total amount of subsidy received. However, after three years, the subsidy would not be clawed back upon resale.
5.18 Any remaining flats in those 'transfer blocks' not taken up by CRP tenants would be offered for sale to public housing tenants living in estates in the same district which were less than ten years old. The benefit of the mortgage subsidy would also be available to these buyers as an exceptional concession, to ensure that a sufficient number of reasonably new flats would be available in the same district for allocation to CRP tenants who did not wish to buy.
5.19 We also believe that we should do more to encourage public housing tenants to become home owners. This is because, by doing so, we not only improve the living standards of those concerned, we also increase the supply of rental flats for re-allocation to families in greater need. We propose two new opportunities for home purchase for public housing tenants.
5.20 Public housing tenants are not currently eligible to apply for purchase of SCH flats. Nevertheless, if allowed to apply, many would qualify and certainly some would wish to buy. We believe that public housing tenants should be allowed to apply for the purchase of SCH flats both to encourage better-off tenants to move out of subsidised housing which they no longer need and, more importantly, to release flats for re-allocation to other families in greater need. Successful applicants would need to meet in full the standard eligibility criteria including income, net asset limits and restrictions on private property ownership. While this proposal could, in theory, reduce the opportunities for sandwich class families living in private rented accommodation, we do not expect the impact to be great, especially given the separate proposal to expand the SCH loan scheme.
5.21 In 1991, the HA introduced a pilot scheme to enable sitting tenants to buy their own flats. The scheme was unattractive because -
| (a) | the price of flats was set too high relative to prevailing rents; | |
| (b) | tenants were concerned about high future maintenance costs; | |
| (c) | purchase would bring no apparent improvement in living conditions, as tenants already enjoyed security of tenure at low rents; and | |
| (d) | resale restrictions were too stringent. |
5.22 There have been widespread calls in the community to launch a new scheme to sell rental flats to public housing tenants at affordable prices. We fully support this proposal which will enable public housing tenants to become stakeholders in the community.
5.23 As a matter of principle, the price of flats sold under such a scheme should be set at a level which is both attractive to the prospective buyer and fair to the general community. We propose that prices should be set at a level which would enable the HA to recover the replacement cost of the concerned flats. Adjustments could be made to reflect depreciation and the relative value of, say, location. And a modest contribution to a maintenance fund could be levied to ease the problem of future maintenance and improvement works.
5.24 A number of important operational details will need to be worked out, including the choice of blocks, conditions on resale, future arrangements for management, maintenance and any structural repairs. We propose to invite the HA to work out the details for such a scheme to be launched as soon as possible.
5.25 While we focus in particular on increasing home ownership opportunities for public housing tenants, we must not forget that there are many families in the private rental sector who would also like to buy their own homes but who may not be eligible for subsidised home ownership flats produced by the HA or the Housing Society. For these families, we will encourage the private sector to increase the supply of flats to meet demand. We also endorse an adequate supply of mortgage loans to meet demand.
5.26 In July 1996, the Government announced its intention to set up a Mortgage Corporation. Initially owned by the Government through the Exchange Fund, the Corporation will purchase mortgage loans from authorised banks and deposit taking companies for its own portfolio, and in due course issue mortgage backed securities. In this way, the Corporation will provide an additional source of finance for Hong Kong's growing property sector. Apart from enhancing banking and monetary stability and promoting the development of the local debt market, the Corporation will thus help to channel funds to provide mortgage finance to home buyers. And by helping banks and other lending institutions to provide an adequate supply of credit for prospective home buyers, the Corporation will help to boost the overall home ownership rate in the community.
5.27 The Government's goal is to encourage home ownership in the community. Home ownership helps to foster social stability and a sense of belonging, and to provide personal financial security.
5.28 Since home ownership in the private sector remains beyond the reach of many families, the Government has implemented a series of carefully targeted subsidised home ownership schemes for middle and lower income families. As a result, the home ownership rate has increased by one-third over the past ten years to just over 50% today. We believe that the Government's housing delivery agents - the HA and the Housing Society - should continue to operate and, where possible, expand these successful schemes. We will shortly seek the approval of the Legislative Council for a further injection of funds into the SCH loan scheme to help more families to buy their own homes.
5.29 At the same time, we should do more to help and encourage public housing tenants in particular to become home owners. By doing so, we not only improve the living standards of those concerned as well as increase the overall home ownership rate, we also increase the supply of public rental flats for re-allocation to families in greater need. Accordingly, we propose to allow public housing tenants to apply for the purchase of SCH flats on equal terms with families living in private housing; to invite the HA to consider widening its existing scheme to transfer new rental blocks to the HOS for sale to existing and qualified prospective public housing tenants, with the additional benefit of a monthly mortgage subsidy for CRP tenants who choose to buy new rental flats in reception estates; and to invite the HA to work out the details for a new scheme to sell suitable existing rental flats to tenants at affordable prices.
5.30 We support the establishment of the Mortgage Corporation which will help banks and other lending institutions to provide an adequate supply of mortgage loans to help families wishing to buy their own homes.
9 Details are set out in Chapter 3 of the Report of the Home Ownership Scheme Review published in April 1996.