Easing the burden for new homebuyersSeptember 11, 2011 / By
I came across a news article recently about a young man in his mid-20s earning a monthly salary of HKD 8,000 who pays HKD 300 per month for a tiny 80-sq-ft public rental unit. He hopes to then save enough for the down payment on a Home Ownership Scheme (HOS) flat (a type of government-subsidised flat sold to the public at a discount) in the secondary market.
These days, young adults like to express their grievance towards their difficulties in buying homes in Hong Kong, and one of the major problems they have is the disconnection between home prices and salary growth. A 600-sq-ft apartment, for instance, was priced at an average of about HKD 2,900 per sq ft back in 2001, according to the Rating and Valuation Department. It would take about 6.5 years for a home buyer who earned a median monthly income of HKD 22,600 to fully own such an apartment should the family incur no other expenses at all, in the most extreme scenario. Now, the same 600-sq-ft unit is priced at an average of HKD 7,000 per sq ft which is equivalent to 13 years of the household’s income at HKD 27,800 per month.
It’s true that cheap credit, strong economic growth and enhanced job security have all contributed to the strong demand for housing and capital value growth in recent years. However, the running short of new supply is also an important factor and, therefore, we see the public’s wish to have the HOS revisited.
It will take a few years before eligible buyers can take possession of any new HOS flats even if the government announces the resumption of building them. There is no way anyone in the market can help rectify the supply shortage problem in the next two to three years. But with the return of HOS flats to address the home ownership desire of low-to-middle income groups, hopefully social harmony will be improved and rising pressure on private home prices will also be relieved.
In order to avoid an overlap with the private residential sector, the government should examine carefully the number of HOS flats that needs to be built. Too few of these units may bring criticism if it appears inadequate to fulfill demand from the low-to-middle income groups, whereas too many will flood the market and affect the ecology of the private sector market. It is also important to set the income eligibility criteria and other limitations for applicants at a level where target buyers of private residential flats will not be pulled away. The government needs to find a good balance between the interests of less well-off buyers and property developers who make serious investment in their projects.
Very soon in October, the Chief Executive Donald Tsang will deliver his last piece of Policy Address for 2011-12. It is widely anticipated by the public that he will throw out some good visions for Hong Kong’s long-term housing strategy this time round. Let’s hope for it.
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