Page 11 - ENGLISH_Housing

during this period (i.e. from $1 million to $2 million), the amount payable
by the household before the unit can participate in the open market
will also double (i.e. from $300,000 to $600,000).

In the example above, the word ‘discount’ should not be interpreted
at the face value. This is because unlike, for example, discounts in brick-
and-mortar businesses where a discount on the price of a product does
not have to be repaid in the future, the unpaid land premium has to be
repaid in full upon resales of the unit in the open market. Not only that,
instead of being fixed at the date of occupation, the said repayment is
made according to the market value as the example shown above. In
other words, this amount due to the government is not just a “loan”, but
effectively an “equity” in the property. The only subsidy under the current
mechanism, if any, is the role the government plays in terms of financing,
where it currently acts as a guarantor of the said property and the
household in question may obtain a mortgage up to 95% of the property’s
value.

The direct consequence of the above mechanism is that it has
rendered the term ‘homeownership’ in the public housing programme in
Hong Kong spurious. Historically, the land value of the land premium has
grown at a faster rate than inflation or household income, making it very
difficult for families living in subsidised sales flats to save up sufficient
capital to settle the unpaid premium.

Take HOS as an example. As of 2012, only 22% of some 320,000
HOS units have their premiums settled, making their owners bona fide
homeowners. The remaining 78% are homeowners without the same
property rights commonly prescribed to private ownership. This is because
the requirement to repay the land premium poses a major hindrance
to bona fide ownership of public housing units and restricts them from
trading the asset in the open market without first settling the hefty
premium. Hence, the majority of purchasers of HOS units are in fact quasi
homeowners.

The situation under the TPS is even direr. Only 1% of some 120,000
units have their premiums settled (See Figure 1). This is possibly due to the
generally steeper discounts offered to TPS households, and consequentially,
leads to an even higher unpaid premium that is even more difficult to pay
down.

16