Research | Land, housing and infrastructure | 2010-08-23

First Time Home Purchase: Strategic Options

Child birth, adolescence and marriage tend to trigger off new families and needs for new homes. “For an individual, buying a flat is one of the major decisions in life, both in terms of financial commitment and lifestyle planning. From a macro perspective, home ownership is conducive to social cohesion and security,” said Mr Anthony Wu, Chairman of the Bauhinia Foundation Research Centre (BFRC).

The Bauhinia study targets those households whose monthly income is just above the income limit of Public Rental Housing (PRH) Waiting List and below that of the former Sandwich Class Housing Scheme (e.g. $16,916 to $39,000 for a four-person household).

As a result of the shortage in supply, private residential prices of both first- and second-hand flats have gone up by nearly 40% in the past 18 months, while recent wages only moved up about 1% to 3%.

“What worries us most is the widening of the affordability gap as the median mortgage to income ratio continues to go up,” said Mr Wu.

Rents for private housing are also moving up fast. Average private housing rents were up from $14.24/s.f in January 2009 to $18.81/s.f. in July 2010, representing an increase of 32%.

“This means that those who rent are unlikely to save enough to buy now or in the near future. Some households have to resort to cross-generation support or family contributions to achieve their housing goal,” said Mr Wu.

An average price of new flats in 2010 (January – June) is $7.87 million, while that of second-hand flats is $3.36 million.

“Given the current high property prices, households above the PRH Waiting List income have practically no prospect of buying a home for their own use”, said Mr Wu.

Historically, PRH and assisted home ownership have co-existed, irrespective of ups and downs in the private market.

Staged subsidy is a significant feature of Hong Kong’s housing policy, from assisted home ownership (least subsidized) to the most subsidized PRH. But the 2002 moratorium on all forms of assisted home ownership, including new production, unsold flats and all loan schemes, have created an ‘all or nothing’ situation.

“Upon retirement, a renting household may eventually fall back on public rental housing, which will in turn add burden to the Government,” said Mr Wu. The BFRC has come up with a list of policy options to help first-time purchasers whose monthly household income is just above the income limit of Public Rental Housing (PRH) Waiting List and below that of the former Sandwich Class Housing Scheme (e.g. $16,916 to $39,000 for a four-person household)) to procure lower-end flats valued up to $3 million for their own use. These options, however, are not concerned with purchase of properties for investment or speculation purposes.

1. New housing flats with zero downpayment
• Government to build or to provide sites to relevant organizations for developing housing flats (e.g. flats with zero downpayment) tailored for eligible households at lower income levels.

2. Increase land supply
• Steady supply of sites for auction and from Application List to ensure timely production to meet end-user demand
• Regulating and expediting pace of processing applications for lease modification (e.g. agricultural land to residential land use) at sub-planning level.
• Incremental penalty on idle or delayed development of land holdings.

3. Encourage the production of “no frills” premises
• Encouraging the production of no frillspremises, i.e. estates without luxuries such as clubhouse, sky gardens, grand entrance, etc, which increase both the purchase price and recurrent expenses.
• Government can influence organizations such as MTRC and URA to develop this type of flats, or provide special sites exclusively for this purpose.

4. Withdrawal from MPF
• A home is a life-long asset and vital for retirees. Eligible first-time home buyers may be allowed, for once only, to withdraw all or part of the accumulated MPF for downpayment purpose.
• Setting an upper limit on the amount for withdrawal to avoid deliberate encashment through subsequent trading down of premises; and a requirement to return the amount in case the flat is sold within say five years.

5. Mortgage and tax relief for eligible first-time home purchasers
• Providing underwriting for a longer mortgage period and interest fluctuation protection and offering additional tax relief on mortgage interest.
• Waiving stamp duty payment for purchasers with a live-in requirement of say five years.

6. Shared ownership scheme
• Eligible applicants may purchase 50% of a flat and co-own the premises with an intermediary designated by the Government.
• The applicant pays a concessionary rent for the other 50% of the flat, and has the option to buy back this 50% at the original price within a fixed period.
• The rent already paid, or part of it, would form part of the final purchase payment.
• The scheme may take a variety of forms to meet the needs of the applicants and the ability of the intermediary.


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