The Chairman advised that the special meeting had been called in order for the Administration to brief members on the initial findings of the Review of the Home Ownership Scheme (HOS). The review was initiated by a motion debate moved by the Hon SZETO Wah in May 1995 during which the Administration was urged to conduct a comprehensive review of the HOS covering various aspects, such as the number of flats produced and pace of production; the ratio of such flats to public rental flats; the pricing policy and method of mortgage repayment; the construction materials used and maintenance and repair; and the system of management and other related issues.

2. In response to the Chairman, Mr Andrew R Wells advised that the review had been commissioned by the Home Ownership Committee (HOC) and covered the HOS and the Private Sector Participation Scheme (PSPS), as well as issues raised in the motion carried in the Legislative Council. The initial conclusions of the review would be submitted to the HOC shortly and, subject to its views, to the Housing Authority (HA) for endorsement. Mrs Fanny LAW supplemented that the review covered the major areas pertaining to the Hon SZETO Wahs motion, whereas broader policy issues such as the future direction of the HOS and the PSPS would be considered in the context of the Long Term Housing Strategy (LTHS).

Measures to promote home ownership among tenants affected by the Comprehensive Redevelopment Programme (CRP)

3. Members expressed reservations at the sale of public rental housing (PRH) blocks earmarked as reception estate for displaced CRP tenants. They were worried that CRP tenants, in particular those who could not afford to acquire flats, would be deprived of the opportunity of living in new flats. Some members suggested deferring implementation of the sale since it was at variance with the existing housing policy. They also found it difficult to accept that the Administration should be transferring estates earmarked for redevelopment households to the HOS. They urged the Administration to consider the sale in the context of the review on Sale of Flats to Sitting Tenants Scheme (SFSTS) and to undertake prior consultation with CRP tenants. A member cautioned that if small flats were retained for letting, it might bring about the problem of mixed tenure.

4. In response, Mrs LAW said that the proposed sale as well as other measures outlined in the information paper had yet to be endorsed by the HOC. On the sale of PRH blocks, Mrs LAW advised that in an earlier survey undertaken by the department, some 16% of CRP tenants had indicated interest in buying flats in "transfer blocks" if financial incentive was available, 7% would buy if flats offered were in the same district and 12% would apply to purchase HOS flats in any event. Mrs LAW said that a full survey of the affected CRP tenants would be conducted to ascertain the number of tenants who wished to purchase before a decision would be taken to transfer. The Administration would not proceed with any transfer of blocks for sale if strong opposition, or not enough interest to purchase was received from CRP tenants.

5. Generally, the prices of the "transfer block" flats would be about 15% lower than the prices of HOS flats. The current proposal included the grant of a mortgage subsidy to CRP tenants in the first three years. As regards the flats in the "transfer blocks" not taken up by CRP tenants, they would be offered for sale to PRH tenants within the same district. Mrs LAW added that the objectives of the sale of transfer block flats to CRP tenants and that of the SFSTS were different. The former aimed to offer CRP tenants an immediate home ownership alternative to being re-accommodated in rental units, and the latter was only applicable to sitting tenants. At members request, Mrs LAW undertook to provide further details on the survey of CRP tenants mentioned earlier.

6. Some members were opposed to the sale of PRH flats as it would alter the splitting ratio between HOS and PRH. They were worried that CRP tenants, in particular those small households with one or two family members, might be forced to take up refurbished units in other districts in the event insufficient units were produced as a result of improved space and layout requirements in redeveloped sites.

7. Mrs LAW re-iterated the Administrations intention to re-house CRP tenants in the same district. If this did not prove possible under circumstances envisaged by members, every effort would be made to re-house these tenants to refurbished units which were less than 10 years old. This would represent a very significant improvement to their living environment. Mrs LAW quoted for example that the recent allocation of refurbished units in Chai Wan district was well received. Mr LEE King-chi supplemented that according to past experience, over 10% of CRP tenants preferred refurbished flats for various reasons such as the convenient locations etc. At members request, Mrs LAW undertook to provide further information on CRP tenants who were interested in taking up refurbished units. She also assured members that flats earmarked for CRP tenants would go mainly to the target group i.e. CRP tenants, whether they remained as rental units or transferred for sale.

8. On the pricing policy, Mrs LAW emphasized that the basic principles for determining flat prices were affordability and income limits. To quote an example, the median sale price of a 50 square metres flat in a "transfer block" was about $1.1 million which was 15% lower than an HOS flat. Given the proposed monthly mortgage subsidy of $6,000, $4,500 and $3,000 to be offered in the first three years respectively, a prospective buyer would only be required to pay a monthly instalment of $2,800 in the first year. Some members welcomed the Administrations approach in promoting home ownership but considered that the mortgage subsidy should be applied flexibly to encourage more CRP tenants to become home owners.

9. On the quality of flats, Mrs LAW assured members that some upgrading work would be done on the "transfer blocks" before they were made available for sale.

Proposed relaxation of resale restriction for HOS flats

10. On the feasibility of reducing from ten to seven years the restriction period for the resale of HOS flats, Mrs LAW advised that the proposed relaxation would be considered in the context of the LTHS. In response to members on whether owners of flats were allowed to acquire a larger unit in the event of family expansion, Mr CHAN Yiu-loon advised that owners concerned would have to go through the normal application procedures pertaining to the HOS. He however expressed doubt over such a need given the relatively large sizes of HOS flats. On the possibility of re-housing back to PRH in the event owners of flats failed to repay mortgage loans due to financial difficulties, Mr CHAN advised that compassionate re-housing would be considered under very exceptional circumstances but in view of the favourable financing terms offered, the situation envisaged by members would most unlikely occur.

Proposed introduction of a secondary market for HOS flats to promote turnover of flats and to encourage PRH tenants to move towards home ownership

11. In reply to members, Mrs LAW advised that the objectives outlined in paragraph 2(c) of the information paper were to introduce a secondary market for HOS flats on the one hand and to encourage home ownership among PRH tenants on the other. Mrs LAW confirmed that purchasers of HOS flats in the secondary market would have to take over the liability of paying to the HA the requisite premium should they decide to sell the flats in open market after the ten-year restriction period. Members said that some prospective buyers might not be aware of their obligation for premium and suggested that every effort should be made to promote a better understanding of such a requirement.

Pricing and mortgage arrangements

12. Members considered that the high sale prices of HOS flats had discouraged home ownership among PRH tenants and urged the Administration to review the pricing formula of HOS flats. They further suggested reducing the mortgage income ratio (MIR) of "White Form" applicants from the existing 40% to 30% in order to attract more home purchasers. Mrs LAW said in response that the successive over-subscription of HOS flats from "White Form" applicants served as a useful indicator on the pricing policy and that the current MIR was a mortgage repayment level commonly adopted by financial institutions.

Design and quality assurance of HOS flats

13. In response to members, Mrs LAW advised that the review conducted in 1993 on quality assurance for PSPS flats had prompted the inclusion of additional quality control procedures on developers. The results of these inclusions would be assessed upon completion of the respective HOS flats in June 1996. Members suggested extending the same quality assurance approach under the HOS to cover PSPS buildings. Mr Wells said in response that the overall review on the operation of the PSPS would be considered in the context of the LTHS. In reply to a related question, Mrs LAW advised that consideration would be given to extending the defect liability period for HOS buildings to five years. In addition, an owners handbook would be produced to advise flat owners on re-decoration work which they might wish to carry out.

Timely construction of HOS flats

14. Mrs LAW confirmed that the ex-gratia payment for delays in completion of HOS flats stipulated in paragraph 2(f)(ii) of the information paper was applicable to the Ko Chun Court case and to PSPS buildings. She also clarified that the scheme would not have any retrospective effect.

Management of HOS estates

15. In referring to paragraph 2(g)(ii), Mr Wells corrected a mistake therein and confirmed that the Deed of Mutual Covenant would require the owners in each estate to form an Owners Corporation (OC) within one year. While members agreed in principle with the establishment of OCs in HOS estates, they suggested that consideration should be given to relaxing the implementation period of 12 months. Mr LI assured members that flexibility would be applied for the setting up of the OCs within a reasonable time-frame; the important point was to encourage owners to take a greater interest in managing their own properties.

Concluding Remarks

16. Members expressed dissatisfaction over the lack of public consultation on measures proposed in the review given the fact that major changes in subsidized housing policy, in particular the sale of PRH under the CRP, had been proposed. They urged the Administration to undertake comprehensive consultation as proposed in the Hon SZETO Wahs motion.

II. Any Other Business

17. With the agreement of the Chairman, Hon LI Wah-ming moved the following motion:

"that the LegCo Panel on Housing was opposed to the measures proposed by the HOC to promote home ownership among tenants affected by the CRP".

While Hon LIU Sing-lee moved an amendment to the motion as follows:

"that the LegCo Panel on Housing expressed reservations on measures proposed by the HOC to promote home ownership among tenants affected by the CRP".

18. Hon SZETO Wah then moved the following motion:

"that the LegCo Panel on Housing urged the HA to undertake comprehensive consultation with members of the public on the new measures proposed in the review of the HOS"

19. Both motions including the amendment were supported by members present. The Chairman instructed that the results of the two motions be conveyed to the chairman of the HOC.

(Post meeting note: A letter to the chairman of the HOC was issued on 17 April 1996.)

20. There being no other business, the meeting closed at 4:45 pm.

LegCo Secretariat
13 August 1996

Last Updated on 20 Aug, 1998

LegCo Panel on Housing

Minutes of Meeting held on Tuesday 16 April 1996 at 2:30 pm in the Chamber of the Legislative Council Building

I. Review of the Home Ownership Scheme