LI, Tao @ Hong Kong

The potential resumption of the Home Ownership Scheme (HOS), which gives eligible low-income residents certain discount on purchasing a flat in Hong Kong, will not affect the city’s home prices, analysts said.

According to Albert Wong, deputy chairman of Midland Holdings, past experience shows that it was an imbalance of supply and demand in the city’s private residential stock rather than subsidized housing programs that led to price fluctuations in the property market.

“The negative viewpoint that the resumption of HOS will cause home prices to slump is not tenable as we believe its significance is neutral,” said Wong.

“On the contrary, the Hong Kong government, as the largest developer which holds a large number of subsidized housing (plots) in the city, could adjust the supply of new subsidized homes,” Wong told a media briefing on Tuesday.

According to data provided by the relevant official departments, during 1997 and 1999 when the city’s home prices started dropping from the previous peak in 1997, the Hong Kong government launched 63,000 subsidized flats while the developers launched 71,000.

However, the price slump didn’t stop between 2000 and 2002 even though the government had reduced the sales of subsidized residential flats by 19,000. Private home supply reached 74,000 during those three years, which led to a huge surplus in supply and a further decrease in home prices.

Wong said that unlike developers – who are very vulnerable to changes in the market value of homes and land banks – the Hong Kong government could take note of market trends and regulate supply and demand through the timely introduction of subsidized homes.

The government figures show that due to the dismal property market in the early 2000s, Hong Kong government suspended the sales of nearly 60,000 completed subsidized homes when they axed the HOS program in November 2002. Among these were 40,000 flats which were then converted into public rental flats and the rest were held back for later sales. The government put the HOS flats that had already been built back on the market in 2007. However, Wong admitted that the decision to stop the scheme had tremendous social costs.

A research report by Citigroup echoed the argument that there are no obvious correlations in Hong Kong history that the rise and fall of home prices were related to the development of HOS units.

But the possible resumption of the HOS will “have a bigger impact on investment sentiment, rather than the actual completions which should take place at least four years later if the Hong Kong government decides to resume (the scheme) in October”, according to the report, which was released on Monday.

Home prices may see a turning point if excessive HOS supply is announced with a concrete pipeline in mind, according to Citigroup. But due to the limited land banks available for subsidized homes, it expects the initial plan for the program to be less than 5,000 units per annum, which should have only a mild effect on market sentiment.

Simon Lynch, managing director of valuation and advisory at Cushman & Wakefield Asia-Pacific said he doesn’t believe the resumption of HOS will have much significant impact on reducing the housing market’s strength given it affects only a limited part of it.

“But the reintroduction should be welcomed as it enables the lower income sector to enter into the housing market. But home owners should keep in mind affordability based on interest rates, not now, but when they will inevitably rise, before making a decision to purchase for the long term,” Lynch told China Daily.

On Monday, Financial Secretary John Tsang said the government has taken note of people’s demand for homes and that Chief Executive Donald Tsang will reveal whether to resume the HOS program during his policy address in October.

The Hong Kong government has yet to reach a consensus on the matter as it is concerned with the impact on the whole market, as well as its feasibility in terms of land supply, some local reports said on Tuesday, citing unidentified government sources.

China Daily

(HK Edition 06/22/2011 page2)

http://www.chinadaily.com.cn/hkedition/2011-06/22/content_12748230.htm