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Tuesday, October 01, 2019, 00:10
New plans to help youth buy property stumble
By Ho Lok-sang
Tuesday, October 01, 2019, 00:10 By Ho Lok-sang

The latest proposals from Our Hong Kong Foundation include many interesting and helpful ideas, but there are nevertheless some key issues of concern.

In view of the difficulty among young people in coming up with the down payment for a home purchase, Our Hong Kong Foundation proposed to help out by offering interest-free loans to those below the age of 40 who do not qualify to apply for HOS (Home Ownership Scheme) housing. Such loans will cover 30 percent of the price of a flat. Buyers are required to seek a mortgage loan from banks to cover 60 percent of the price. Thus buyers will only need to pay 10 percent of the price of a home — which must be below HK$8 million ($1.02 million). The outgoings under this loan program will be funded by designating 20 percent of the special administrative region government’s yearly land premium revenues for the purpose. The foundation also proposed that those in the queue for public housing who have waited beyond some years be granted a subsidy on their rental payments to alleviate their financial pressures. 

The foundation also proposed to relax the sales or rental restrictions that now apply to owners under the Home Ownership Scheme or Tenants Purchase Scheme who have not yet repaid the owed land premiums. Owners can, according to the proposal, rent or sell the unit to those waiting in the queue for public housing and to new (White Form) applicants for HOS housing. Presently, White Form applicants are under very strict quotas to buy HOS flats from the Housing Authority or in the secondary market. On the other hand, Green Form applicants have a better chance to buy these flats.

As for the interest-free loan proposal, I would propose that the loan ratio be reduced from 30 percent to 20 percent, and that repayment should start 10 years after the purchase

A proposal made by Our Hong Kong Foundation that I like a lot is the proposal that those who have repeatedly failed in the HOS lottery be given a higher chance in the lottery for purchase rights. It is reasonable to assume that those who have tried and tried and still failed to get the chance to buy are facing higher cost of waiting for another chance.

As for the interest-free loan proposal, I would propose that the loan ratio be reduced from 30 percent to 20 percent, and that repayment should start 10 years after the purchase. The reduction from 30 percent to 20 percent is to reduce the leverage ratio, so buyers effectively have 20 percent equity in the home that they buy in the first instance. This will reduce the chances of negative equity should the housing market go south. The postponement of repayments is in order to alleviate the burden on buyers. As incomes are expected to rise, repaying the government loan after 10 years will be much easier.

Finally, I do not think that selling an HOS flat to people in the queue for PRH (public rental housing) homes is viable. Those in the queue for public housing will generally have family incomes much lower than those of White Form or Green Form applicants. There is just no chance that they could outbid the other buyers. 

Now let me go to the parts of the proposal package for which that I have the most reservations.

First of all, I am most concerned with the prospect, offered by the proposed Our Hong Kong Foundation program, of huge capital gains for buyers. The 75-percent discount off the market price, as well as the frozen land premium that needs to be repaid, will guarantee that buyers will pocket capital gains worth millions of dollars. These potential gains cannot be easily achieved from savings from the meager salaries of middle-class income people who do not meet the income or asset limit requirements stipulated. Such huge gains unavoidably will send a message to young people: in order to be rich, better stay poor until you get a cheap flat from the government. 

Under the program, a heavily subsidized government-provided flat will eventually be resold in the open market after repayment of the frozen land premium that will not be worth much after inflation. Who will purchase such flats on the open market? The purchasers most likely will be middle-class people who do not qualify to buy such flats at discounted prices from the Housing Authority in the first place. When they eventually can buy them in the open market, not only will the flats be old flats, but they will also have to pay much higher market prices so the beneficiaries of the subsidized scheme can pocket huge capital gains. Remember that these are the taxpayers who made the public housing program possible in the first place. To me, they are robbed twice. If they are smart, they would make sure that they will earn less income, so they will be the beneficiary rather than the benefactor. 

What does this mean for the sustainability of the program? If more and more people prefer to be beneficiaries and no one wants to pay taxes, the government will have long queues of buyers but will have less and less revenue. I doubt that the SAR government can afford it.

In the long run, the viability of the Hong Kong economy could suffer.  Even though I share the vision of shared prosperity, I believe this must be based on rewards to those who earn them and affording more opportunities to all those who try.

The author is a senior research fellow, Pan Sutong Shanghai-Hong Kong Economic Policy Research Institute, Lingnan University.


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