Discussion Paper for
Provisional Legislative Council Panel on Housing

Home Starter Loan Scheme

Purpose

This paper seeks Members' views on a proposal to set up a Home Starter Loan Scheme (HSLS) to assist eligible families, in particular first time home buyers, to purchase flats in the private sector.

Background

2. The Government believes that home ownership is good for both the community and the individual. It helps to foster social stability and a sense of belonging. It also helps families to provide for their own future financial security. The policy of promoting home ownership as set out in the Long Term Housing Strategy Review consultative document has received strong support from the community.

3. The current home ownership rate is 52%. The Chief Executive has pledged in his speech on 1 July 1997 that Hong Kong will achieve a home ownership rate of 70% in ten years. In order to achieve this target, we intend to provide increased opportunities for low and middle-income families to fulfil their aspirations to home ownership. The measures we will take include expanding our existing subsidised home ownership schemes1 , implementing a scheme to sell public rental flats to tenants, and implementing a "buy or rent" scheme, under which public rental housing Waiting List applicants will be offered the opportunity to buy flats when their turn comes for flat allocation.

Justification

4. The chief beneficiaries of these measures will remain in public sector housing, and most will originally be public housing tenants or prospective tenants. We must also take steps to meet the aspirations to home ownership of those who wish to buy in the private sector but lack the means to do so, including not only low income families but also families in the middle-income group for whom the opportunities for home purchase have receded as property prices (despite recent adjustments) have increased. The majority of these families are first time home buyers.

5. At present, the Government operates two loan schemes designed to help low and middle-income families to buy homes in the private sector. The Home Purchase Loan Scheme (HPLS), operated by the Housing Authority, was set up to help low-income families. The Sandwich Class Housing Loan Scheme (SCHLS) operated by the Housing Society, was introduced in 1993 to help middle-income households. These schemes have persistently been oversubscribed2 , demonstrating the extent of pent-up demand. Simply expanding these schemes, however, will not be an adequate solution. This is because-

  1. the HPLS is targeted only at low-income families (with incomes below $30,000 a month), with a bias in favour of public housing tenants (Green Form applicants). About 70% of the loans approved over the last two years have been to Green Form applicants, and the Housing Authority has not accepted new White Form (private sector) applicants since November 1996;

  2. the SCHLS is targeted at families with incomes in the $30,001 - $60,000 a month range3 . It was intended originally as an interim scheme, pending the construction of an adequate number of flats under the Sandwich Class Housing Main Scheme; and

  3. neither of the schemes is specifically targeted at first time home buyers.

The proposal

6. It is against this background that the Chief Executive announced in his Policy Address on 8 October 1997 that a new "Home Starter Loan Scheme" (HSLS) will be launched, targeted at first time home buyers. Under this scheme, we intend to offer low interest loans to eligible low and middle-income families who are unable to purchase their own homes owing to high property prices and the requirement for substantial downpayments4 .

Details of the scheme

7. The focus of the scheme is on genuine first time home buyers. We will impose a condition that applicants must not own any residential property in Hong Kong, nor have owned one in the previous five years. A shorter restriction period would open up the scheme to a significant number of applicants who wished to "trade up" their property, rather than to buy for the first time. A longer period would be difficult to enforce, and would deny access to applicants whose personal circumstances had changed in five years to the extent that they could reasonably be regarded as being in the same category as first time home buyers (for example, returned emigrants).

8. There will be no minimum income requirement. The maximum income limit will be set at $70,000 a month.

9. A net assets limit of $1.2 million will be set to ensure that the HSLS benefits those who have a genuine need for assistance.

10. The maximum loan amount will be $600,000, or up to 30% of the price of the property, whichever is lower. Repayment will start in the fourth year of the drawdown of the loan, by 120 equal monthly instalments.

11. There will be two interest rates, depending on incomes of the beneficiaries at the time of application. This will take into account the stronger economic position of those with higher incomes. For households with incomes not exceeding $30,000 per month, we intend to set the annual interest at 2%. For households with incomes between $30,001 and $70,000 per month, the annual interest will be set at 3.5%. Interest will accrue from the day of the drawdown.

12. To allow greater flexibility to beneficiaries, there will be no limit on the value of the property to be purchased. The maximum permitted age of the property will be 30 years.

13. We intend to adopt the same resale conditions as those applying to the SCHLS, so as to reduce potential abuse. That is to say, in the first three years after the purchase of a flat, resale will be permitted only upon repayment of the loan in full, any accrued interest, and any gain in the property value. From the fourth year onwards, resale will be permitted upon repayment of the loan in full together with an administrative charge.

14. We plan to offer 6,000 loans a year. We shall invite the Hong Kong Housing Society to operate the new loan scheme, in view of its experience in operating the SCHLS, and the non-profit-making nature of the organisation.

Impact on property market

15. The new loan scheme will not have a significant impact on the property market. Assuming an annual production rate in the private sector of 35,000 new flats, a maximum of 17% of these flats could in theory be taken up by such loans. However, we expect many, if not the majority of, beneficiaries will purchase flats in the secondary market.

Review of existing loan schemes

16. If the new scheme is approved, we shall review the current operation of the HPLS and SCHLS -

  1. in the case of the HPLS, we shall explore with the HA the possibility of increasing the number of loans granted , as pledged in our 1997 Policy Programme. We consider that the focus of the scheme should increasingly be Green Form (public housing) applicants, leaving the HSLS to be the principal vehicle for eligible private sector households; and

  2. in the case of the SCHLS, we shall review the terms with a view to determining whether the scheme should be amalgamated with the HSLS.

Way forward

17. Subject to Members' views, a submission will be made to the Finance Committee of the Provisional Legislative Council for the funds necessary to launch the proposed scheme.

1-- These are : the Home Ownership Scheme and Private Sector Participation Scheme, operated by the Housing Authority; and te Flat For Sale Scheme and Sandwich Class Housing Scheme operated by the Housing Society.
2 --By an average of 3 times (HPLS) and 4 times (SCHLS) in the last two years.
3 -- Currently about 65,600 families in this group do not own domestic private property.
4 -- By way of example, a family buying a flat for $2 million will generally need to have $600,000 in savings to meet the necessary downpayment.

Last Updated on 5 December 1997