The Chairman informed members that the special meeting had been arranged for the Administration to brief the Panel on its two proposals to be considered shortly by the Finance Committee (FC).

I. Briefing by the Administration on Sandwich Class Housing Sites

(Appendix I to LegCo Paper No. CB(1) 1713/95-96 (for English version)/ CB(1) 1744/95-96 (for Chinese version) and the additional information note tabled at the special meeting and circulated to absent members vide LegCo Paper No. CB(1) 1753/95-96)

2. As background information, the Chairman advised that the Finance Committee at its meeting on 21 June 1996 considered a request for an additional loan of $6.9 billion to enable the Hong Kong Housing Society (HKHS) to pay the land premia for Sandwich Class Housing (SCH) sites for the second batch of 10,000 flats . The item was however withdrawn as Members considered it necessary for the Housing Panel to be consulted first on the policy implications.

Briefing by the Administration

3. Mr Andrew Wells said that in response to requests from the public and LegCo Members for meeting the housing needs of middle income families, the Administration undertook at the end of 1994 to provide 20,000 SCH units before the year 2001 in two batches (Batches 1 and 2). As a result of the favourable response to the SCH Scheme, the Administration further pledged in the 1995 Policy Commitment to provide an additional 10,000 units (Batch 3), making a total of 30,000 SCH flats.

4. In referring to concerns raised by Members at the FC meeting on 21 June 1996, Mr Wells emphasized that SCH was a form of public housing which however was different from that offered by the Hong Kong Housing Authority. The SCH Scheme in question would be segregated from other projects handled by the HKHS and run as an independent and self-financing programme. He referred members to the cashflow forecast in Enclosure 5 of the information paper and advised that the loan was necessary to enable the HKHS to pay for land premia for the SCH sites. He assured members that the loan would only be made to the HKHS when the money was actually required and that it would have to be repaid upon the sale of the SCH flats. He added that any delay in implementing the programme might affect the policy objective.

Discussion Session

5. Members were supportive of the policy for providing SCH flats. In particular, a member advised that the Democratic Party was in support of the policy. They sought clarification on details relating to the request to which representatives from the Administration and the HKHS replied as follows:

as the SCH programme spanned a period of at least three to four years, the additional loan of $6.9 billion now requested would not be drawn down in one lump sum. In any case, the HKHS could not draw down the loan and use the money to earn interest because the Government would arrange for settlement of the demand note internally and no cash would actually be paid to the HKHS;
the problem of underspending would not arise even if the allocation were not used up in the 1996-97 financial year since the approved but undrawn loan funds would not be treated as underspending;
the maximum cash balance of $2.9 billion as at February 2000 represented the projected cashflow for flats in Batches 1 and 2 to that point of time. The balance might be required for the construction of Batch 3 flats;
with regard to the $7 billion loan approved in 1994, an additional loan would have been called for arising from an increase in land premia of the Batch 1 sites to $7.9 billion. However, an application for additional loan funds was not made as the HKHS was able to redeploy $1.4 billion from its internal resources as a result of which only $6.5 billion out of the $7 billion approved loan fund had been used;
development costs for both Batches 1 and 2 flats were financed by capital market funds and HKHSs internal resources. Loans in the amount of $3.5 billion had been raised for the development of Batch 1 flats, while the initial and total amount of external loan required for the development of Batch 2 flats would be $3 billion and $5.2 billion respectively;
the estimated premium for the first four pieces of land for construction of Batch 2 flats as outlined in Enclosure 3 of the information paper was in the region of $2.4 billion; and
Enclosure 5 was prepared on the assumption that Government loan was granted and drawn. Under this scenario the maximum cash deficit at December 1997 would be about $5.2 billion.

Funding Arrangements

6. Members were concerned about the efficient utilisation of funds and enquired about the implication if the loan were to be approved by stages, and the possibility of transferring the cash balance to the Treasury for other purposes pending further requirement by the HKHS.

7. Mr Victor SO of the HKHS emphasized the need for a commitment by the Government to extend the loan for land premia as this would facilitate the HKHSs applications for bank loans. Mr Wells added that once a piece of land had been identified, immediate payment of land premium would be required. As land was difficult to acquire and the timing for the grant of land could not be predicted precisely, certainty in obtaining funds for paying land premia would expedite the land acquisition process. Moreover, the approval of loans by stages would deviate from current arrangements for Home Ownership Scheme (HOS) projects handled by the Hong Kong Housing Authority where project fund allocations were approved in one lot with staged drawdowns. Mr Wells re-iterated that any surplus arising from the Scheme would be used in connection with SCH flats or, subject to the policy agreement of the Secretary for Housing, for other public housing programmes. The surplus would not be used by the HKHS for other purposes.

8. In commenting on the projected surplus of $2.2 billion in the year 2003, Mr Ambrose LAM of the HKHS said that the surplus figure was a projected figure based on todays best estimate and would be affected by many variable factors including the market conditions at the time of flats sale, escalation of construction costs, interest rate fluctuations, construction progress and fluctuations in land premia. In respect of land premia, these would have to be paid up front and as construction normally took 3 - 3 ½ years, the HKHS would have to bear the risk of fluctuations for that period. If flat prices dropped in the meantime, as in 1994-95, losses might result.

Interest Rate

9. In response to members on the interest rates payable, Mr Wells advised that a 5% interest was charged for Government loans while Mr LAM supplemented that an interest rate of 6 to 6.5%, which was well below the prime rate, was payable for external loans. As to the possibility of the Government charging the market interest rate, Mr Wells was of the view that the interest income would only be notional to the Government but purchasers of SCH flats would inevitably be affected as interest paid by the HKHS would have a bearing on the selling price. As loans to the Land Development Corporation and for the Batch 1 sites were charged at 5% interest rate, it would be inequitable and unfair to buyers of the Batch 2 flats if a higher interest rate was now charged.

Financial Position of the HKHS

10. A member asked if the financial position of the HKHS could sustain future financial risk and if further Government loans were needed in case the HKHS had financial problems. In reply, Mr Wells emphasized that the SCH programme was independent of other activities of the HKHS. The Government would re-examine the position if such critical situations arose. The selling prices of SCH flats required the approval of the Housing Branch. This would make it possible for the Administration to closely monitor the progress of the SCH programme.

Re-assessment of SCH Programme

11. Noting that there would be a large supply of private and HOS flats by 2001, a member pressed for a re-assessment of the SCH programme. In response, Mr SO said that the HKHS was running on prudent commercial principles, and had conducted sensitivity analyses for the SCH projects. Unless there were abrupt and major changes, changes of a smaller scale would unlikely cause financial problems. Furthermore, SCH flats represented only a small percentage of the total supply of residential housing units. He was confident that these flats, when sold at a discount price, would be welcomed by the target group. This was evidenced by the sale of the first two SCH projects in Tsing Yi and Ma On Shan.

12. In response to a member on the HKHSs withdrawal from the redevelopment project in the Tsuen Wan Seven Streets, Mr SO said that the significant compensation and re-housing demand involved had made it impossible for the HKHS to take part in the project. Mr Wells added that while the HKHS could not be too conservative in its operation on the one hand, it would also have to be realistic on the other.

Sale Price and Unit Costs

13. A member enquired whether the sale price of SCH flats should be at a fixed discount against market price or pegged to costs. Mr SO explained that a balance between the two pricing strategies would have to be struck and the affordability of buyers also taken into account. A member remarked that flats should be sold at cost in order to benefit the end-users.

14. On the average unit cost of flats already completed, Mr SO said that the land premium was over $10,000 per square metre and the construction cost about $7,000 per square metre. The total cost, including finance and other costs, would be over $21,000 per square metre.

Appointment of Architects and Award of Contracts

15. To address a members concern on preferential treatment in the appointment of architects, Mr SO strongly denied such a possibility. The appointment of architects took into consideration past experience and performance records as well as projects in hand to ensure a fair allocation. As regards the appointment of building contractors, the HKHS would have regard to the approved list of the Hong Kong Housing Authority and that of the Works Branch and would exclude firms which did not have experience in housing projects. Any consultancy firms interested in offering their services could apply to the HKHS in writing and the HKHS had in place a point-awarding system to assess the suitability of the firms. Such procedures were approved by the Corruption Prevention Department of the Independent Commission Against Corruption. At the request of the member, Mr SO undertook to provide an information paper on the topic.

Adm & HKHS

16. On the award of contracts for the SCH project in Tsing Yi which was quoted in the additional information note tabled at the meeting, Mr SO advised that the project was initially a HKHS Flat for Sale Scheme project but was later re-classified as the first SCH project. He confirmed that one of the consultancy contracts of the project was ultimately awarded to the firm in which one of the members of the HKHS Executive Committee had an interest. Such an interest had been fully declared at the meeting when the choice of the relevant consultancy was decided.

Additional Information

17. At members request, Mr Wells and Mr SO undertook to provide the following additional information:

Adm & HKHS

the financial statements and staffing complement of the first two SCH projects at Tsing Yi and Ma On Shan;
a breakdown of the selling price of flats in SCH projects into land premium, construction costs, financing costs, overheads and profits; and
data similar to those in Enclosure 7 of the information paper for other SCH projects. Members noted that the data would only be available after a piece of land had been granted and upon fixing of the selling price of flats concerned.

The available information would be incorporated into the paper to be submitted to the FC later on in the month.

II. Integrated Housing Information System

(Appendix II to LegCo Paper No. CB(1) 1713/95-96)

Briefing by the Administration

18. At the invitation of the Chairman, Mr Wells briefly introduced the Integrated Housing Information System (the system) proposed by the Administration. He said that currently various Government departments were using different means for collating, monitoring and disseminating data on land and flat production. In order to achieve a co-ordinated approach, the Administration had followed up on a policy commitment made in 1995 for setting up a centralised computer system to monitor territory-wide housing development. The system would also facilitate the making of new policy decisions by the Central Government on the basis of a comprehensive and up-to-date central database. Subject to approval of the financial commitments by the Finance Committee later in the month, the system would be in operation by end 1996.

Discussion Session

19. Members were generally in support of the setting up of the system as this was an improvement in technology and would enhance the Administrations efficiency. They were however concerned with the dissemination of relevant information to members of the public, and enquired if regular reports on the database could be provided to LegCo and if this could be uploaded onto Internet.

20. In response, Mr Wells emphasized that the basic objective of the system was to ensure rigorous monitoring of the property market by the Central Government. He however would not have any objection to providing data to the LegCo and the public provided that commercially sensitive information was excluded. He also highlighted the practical difficulties that might be encountered since some 70 different types of reports were involved and the sorting out of data which might be of interest to the public would be a complicated process. Mr Wells advised that the details would have to be worked out during development of the system.

21. On a members request for a copy of the system specification, Mr Stephen MAK said that the Administration had only just completed the feasibility study, and the system specification would be worked out at the detailed planning stage. In response to the member, Mr Wells undertook to provide a copy of the feasibility study together with, in due course, a broad indication of those data which could be uploaded onto Internet.

Adm

22. A member considered it necessary for the Administration to state clearly the anticipated usage of the database, the target group and the means for information retrieval. In reply, Mr William SHIU assured that the information would be provided. He supplemented that apart from facilitating policy decisions by the Central Government, the system would also assist in enhancing market transparency to facilitate personal decisions on property transactions.

Adm

23. On the seemingly high annual recurrent costs of over $9 million, Mr Wells explained that the system encompassed data from 10 Government departments and the volume of hardware and software involved alone was very significant. He drew attention to the fact that the system would net an annual saving in staff costs of $8.7 million and this would partly offset the recurrent costs. At the Chairmans request, Mr Wells undertook to address members concerns in the information paper to be provided to the Finance Committee.

Adm

24. There being no other business, the meeting ended at 10:45 am.

Council Business Division 1
LegCo Secretariat
26 July 1996

Last Updated on 20 Aug, 1998

LegCo Panel on Housing

Minutes of the Special Meeting on Wednesday, 3 July 1996 at 9:00 a.m. in the Chamber of the Legislative Council Building

Minutes of the Special Meeting
on Wednesday, 3 July 1996 at 9:00 a.m.
in the Chamber of the Legislative Council Building