Legislative Council

LC Paper No. CB(1) 1416/98-99
(These minutes have been seen
by the Administration)

Ref: CB1/PL/HG/1

Members present :

Hon LEE Wing-tat (Chairman)
Hon Gary CHENG Kai-nam (Deputy Chairman)
Hon HO Sai-chu, JP
Hon Edward HO Sing-tin, JP
Hon LEE Cheuk-yan
Hon Fred LI Wah-ming
Hon NG Leung-sing
Hon Mrs Selina CHOW LIANG Shuk-yee, JP
Hon Ronald ARCULLI, JP
Hon James TO Kun-sun
Hon CHAN Yuen-han
Hon CHAN Kam-lam
Hon LEUNG Yiu-chung
Hon Andrew WONG Wang-fat, JP
Dr Hon YEUNG Sum
Hon LAU Kong-wah
Hon Andrew CHENG Kar-foo
Hon SZETO Wah
Hon TAM Yiu-chung, JP

Members attending :

Hon LEE Kai-ming, JP
Hon CHEUNG Man-kwong
Hon CHAN Kwok-keung
Hon CHAN Wing-chan
Hon Mrs Sophie LEUNG LAU Yau-fun, JP
Hon Howard YOUNG, JP

Members absent :

Hon David CHU Yu-lin
Hon Albert HO Chun-yan
Hon Timothy FOK Tsun-ting, JP

Public officers attending :

For item IV

Housing Bureau

Miss Sandy CHAN,

Principal Assistant Secretary (2)

Housing Department

Mr C P Roberts,

Assistant Director/Tenants Purchase Scheme

Mr Andrew LAI,

Head, Corporate Strategy Unit

For item V

Housing Bureau

Miss Sandy CHAN,

Principal Assistant Secretary (2)

Civil Service Bureau

Ms Joyce TAM,

Principal Assistant Secretary (Civil Service) (4)

Housing Department

Mr Marco WU,

Deputy Director/Management

Mr Joseph LEE,

Business Director/Commercial & Business Development

Attendance by invitation :

For item V

Alliance of Housing Department Staff Unions

Mr LAM Man-cheuk

Mr TONG Wing-on

Mr KWAN Chi-fong

Mr WONG Chin-tao

Mr KWOK Shek-tong

Clerk in attendance :

Ms LEUNG Siu-kum, Chief Assistant Secretary (1)2

Staff in attendance :

Mr LAW Wing-lok,

Chief Assistant Secretary (2)5

Miss Becky YU,

Senior Assistant Secretary (1)3

Mr Matthew LOO,

Senior Assistant Secretary (1)7

Miss Mary SO,

Senior Assistant Secretary (2)8

I Confirmation of minutes of previous meeting
(LC Paper Nos. CB(1) 1072 and 1122/98-99)

The minutes of the meetings held on 4 January and 1 February 1999 were confirmed.

II Information paper issued since last meeting
(LC Paper No. CB(1) 1028/98-99)

2. Members took note of the complaint from Kam Fung Court Owners Association and the Administration's response regarding the decision of the Hong Kong Housing Authority to include three blocks of Kam Fung Court under the Buy-or-Rent Option.

III Date of next meeting and items for discussion

3. The next meeting would be held on Monday, 3 May 1999, at 4:30 pm to discuss the following:

- Year 2000 compliance in Government and non-government organizations funded or regulated by Government under the purview of the Housing Bureau; and

- Sandwich Class Housing Scheme projects: Pinnacle and Highland Park.

(Post-meeting note: Three additional items on "Rent review for public rental housing", "Lighting in corridors of public housing blocks" and "Development at Anderson Road and at Choi Wan Road/Jordan Valley" were subsequently included in the agenda for the meeting.)

IV Buy-or-rent scheme
(LC Paper No. CB(1) 1123/98-88(01))

4. At the invitation of the Chairman, the Head, Corporate Strategy Unit (H, CSU) highlighted the salient points in the information paper. He said that the Buy-or-Rent Option (BRO) aimed to provide prospective public rental housing (PRH) tenants an additional option of buying flats at a discounted price. Prospective tenants were free to choose between buying and renting PRH. Those who chose not to buy would be allocated PRH in normal course.

5. On target groups, Mr James TO considered it unfair that sitting tenants who wished to buy PRH flats had to wait until their flats were included for sale under the Tenants Purchase Scheme (TPS) while Waiting List (WL) applicants would be given the option to buy new PRH flats under BRO in the first instance. He was of the view that the Administration should allocate a certain percentage of BRO flats for sale to sitting tenants. H, CSU replied that the decision to exclude sitting tenants from BRO was made on the ground that they had already benefited from the heavily subsidized rental housing and were given opportunities to acquire their own homes through various subsidized home ownership schemes and loan schemes. He cautioned that the chances for prospective tenants to live in new PRH flats would be reduced if sitting tenants were allowed to buy BRO flats. Mr LAU Kong-wah was not convinced of the Administration's response since compared with the sitting tenants, BRO tenants would also become eligible for the various subsidized home ownership schemes and loan schemes after they moved in PRH. He pointed out that unlike BRO applicants who were given the option to buy new PRH flats at the outset, sitting tenants had no ideas on when their PRH flats would be offered for sale under TPS. To address the inequalities, Mr LAU considered that the Administration should allow all sitting tenants to buy BRO flats and should announce as soon as possible the time schedule for future programmes of TPS.

6. On selection of estates, the Chairman expressed worries that if new PRH estates in urban area were to be included under BRO, the choices of reception estates for tenants affected by the Comprehensive Redevelopment Programme (CRP) would be reduced. Expressing similar concern, Dr YEUNG Sum opined that effort should be made to ensure that reception flats were adequate within the same district for CRP tenants. Remaining flats not taken up by affected tenants could then be allocated for BRO. In response, H, CSU clarified that BRO estates were mostly new PRH estates in the New Territories not earmarked for re-housing committed categories. He added that it remained the Administration's intention to re-house CRP tenants within the same district, subject to the availability of housing resources. They would be given priority to new reception estates in urban area. CRP tenants could also choose to buy, rather than rent, new flats in the reception estates with financial assistance provided under the Mortgage Subsidy Scheme (MSS). In view of the similarities between MSS and BRO, Mr TAM Yiu-chung asked if the Administration would include CRP tenants under BRO. The Assistant Director/Tenants Purchase Scheme (AD/TPS) confirmed that consideration was being given to allow both CRP tenants and BRO purchasers to choose new flats in the urban area, extended urban area and the New Territories interchangeably under the two schemes. Details of the interface would be submitted for consideration by the Home Ownership Committee of the Housing Authority (HA) in May 1999.

7. On pricing, Mrs Selina CHOW, apart from expressing support of Members of the Liberal Party for BRO, asked if the Administration had taken into account the difference in value perceived by the public between BRO and Home Ownership Scheme (HOS) flats when formulating BRO. In reply, H, CSU agreed that it was important to define clearly the individual roles of these schemes in the overall housing development in Hong Kong. Consideration had been given to use different designs for different housing schemes such as New Cruciform Blocks for HOS and Harmony Blocks for BRO to show their respective uniqueness.

8. On mortgage subsidies, Mr CHAN Kam-lam opined that instead of providing a total mortgage subsidies of $162,000 to BRO purchasers, the Administration should reduce the sale price of BRO flats by the equivalent amount. H, CSU explained that the purpose of the subsidies was to ease the burden of mortgage repayment of purchasers during the early repayment period. In line with MSS, the mortgage subsidies would not be repayable upon resale of BRO flats. Mr CHAN was not convinced of the Administration's response. He remained of the view that a reduction in the sale price would immediately reduce the monthly mortgage repayments of purchasers. Mr NG Leung-sing also considered that the mortgage subsidies might not be of great assistance to BRO purchasers since they were largely low income nuclear families on WL. Their financial situation would be further aggravated if they gave birth to children after purchase of BRO flats.

9. On sale arrangement, AD/TPS advised that before a decision to put up a BRO block for sale was made, HA would make an assessment of applications received to ascertain the interest in buying these flats. For example, 50% of the respondents under BRO Phase One had indicated that they would choose to buy their own homes. On receipt of applications, HA would decide on the number of BRO blocks to be put up for sale. On completion of the BRO exercise, any unsold flats would be offered for sale to Green Form (GF) applicants in the following Home Ownership Scheme (HOS) sale exercise but the sale prices for these flats would follow that of other HOS flats. Mr CHENG Kai-nam questioned the rationale for requiring GF applicants to buy BRO flats under HOS terms. H, CSU explained that unlike BRO applicants who had to undergo an income-cum-asset test to establish their eligibility for PRH, GF applicants were mostly sitting tenants with better financial capability. It was therefore not unreasonable to apply HOS terms for the sale of BRO flats to GF applicants. Mr CHAN however considered the arrangement unfair taking into account the difference in design and quality between HOS and BRO flats.

10. Mr CHENG also expressed concern that mixed tenure of rental and home ownership flats within a BRO block would occur if any remaining unsold flats were offered for letting. H, CSU advised that although it would be more desirable in terms of management if a BRO block comprised all rental or home ownership flats, HA had to offer the remaining unsold flats for letting in order to optimize the use of housing resources. He nevertheless assured members that efforts would be made to ascertain the actual demand for buying BRO flats with a view to minimizing the number of mixed tenure blocks. As regards the nomenclature for these mixed tenure blocks, AD/TPS advised that these would be referred as "Courts".

11. Mr LEE Cheuk-yan noted that residents affected by clearance of Temporary Housing Areas (THA), Cottage Areas (CA) and Squatters were included in the target groups of BRO. He expressed concern that those clearees who were not yet eligible for PRH might be able to obtain PRH by virtue of BRO without having to move to Interim Housing. H, CSU explained that of the 26,000 eligible households under BRO Phase One, 21,000 were WL applicants who had been on WL since 1 April 1993 and 3,600 were residents affected by THA/CA/squatter clearances. He emphasized that the clearees concerned had to meet the prevailing eligibility criteria for PRH before they could join BRO. As regards WL applicants, H, CSU advised that only those who were due for allocation within 12 months would be offered the opportunity of BRO.

12. On reversion tenants' status, Mr TO enquired if BRO applicants could choose to rent the flats first before purchase. H, CSU advised that BRO applicants who opted not to buy would be allocated PRH in normal course. They would be given opportunities to acquire their own home through various subsidized home ownership schemes, including TPS, and loan schemes after they became PRH tenants. In response to a related question, AD/TPS confirmed that to be consistent with the practice in HOS, BRO purchasers would not be allowed to revert to prospective tenants after the signing of the sale and purchase agreements. However, HA would consider applications for re-housing to other PRH flats on compassionate grounds. Mr NG was not convinced of the Administration's explanation. He opined that if the objective of BRO was to provide applicants with an additional option to buy or rent PRH, they should be allowed to revert from owners to tenants upon rescission of purchase. He also sought clarification on the circumstances under which applications for compassionate re-housing would be granted. AD/TPS advised that these would be considered in accordance with the prevailing criteria applicable to HOS.

13. On arrangement for those who chose to rent, Mr LEE expressed concern that they might have to wait a longer period of time for PRH as the supply of rental flats would decrease after the implementation of BRO. In reply, AD/TPS reiterated that the number of BRO flats to be put up for sale would hinge on the demand of prospective tenants. By way of illustration, of the three blocks under the BRO Phase One project in Fanling, one was designated for rent, another for sale and the remaining open for rent or sale subject to the aspiration of BRO applicants concerned. In the event that applicants were not interested in buying, HA would offer these flats for letting and vice versa. Mr LEE however pointed out that the chances for those who wanted to rent flats in the Fanling project would be reduced if there were many purchasers.

14. As regards the allegation that the Administration would include the three uncompleted blocks in Kam Fung Court (KFC) under BRO, AD/TPS explained that all nine blocks in KFC had been earmarked for sale in accordance with the Government lease. So far, six blocks had been sold under HOS. Given that the target groups of BRO overlapped with that of HOS, there was a possibility that the remaining three blocks in KFC would be put up for sale under BRO. However, a decision on this had yet to be made. In view of the different resale conditions (e.g. land premium) under HOS and BRO that might affect the resale value of the flats, the Chairman considered it unfair to the existing KFC owners if the remaining three blocks were put up for sale under BRO. AD/TPS advised that the pricing proposals under BRO would make reference to HOS flats. Therefore, apart from the mortgage subsidies for BRO purchasers, there should not be any significant difference between existing KFC owners and BOR buyers. Mr Andrew CHENG remarked that as BRO would only cover new PRH estates, it would not be appropriate to include existing HOS estates such as KFC under BRO, in particular when there was strong opposition from owners concerned. AD/TPS reiterated that the inclusion of KFC under BRO was no more than a proposal which had yet to be endorsed by HA. He assured members that HA would take into account KFC owners' views before reaching a final decision.

15. In concluding, members generally felt that BRO was confusing, and that there was a need for the Administration to define clearly the different roles of HOS, BOR and TPS. They also reached a consensus that existing PRH housing tenants should be given the option of buying flats under BRO, and that the Administration should announce as soon as possible the time schedule of the future programmes of TPS and the names of estates to be included. The Chairman requested that the Administration should convey members' views to HA for consideration.

(Post-meeting note: A letter to the Administration was issued on 20 April 1999.)

V Corporate reform of the Hong Kong Housing Authority

Meeting with the Alliance of Housing Department Staff Unions
(LC Paper No. CB(1) 1123/98-99(02) and (03))

16. At the invitation of the Chairman, Mr LAM Man-cheuk said that the Alliance of Housing Department Staff Unions agreed with the need to reform the Housing Department (HD). However, the recommendation in the consultancy report entitled "A Review of Private Sector Involvement in Estate Management and Maintenance Services" to contract out all estate management and maintenance (EMM) services to private management agents (PMAs) was not necessarily the best solution to improve the efficiency and cost effectiveness of HD. The report had exaggerated the effectiveness of PMAs and failed to mention cases of non-performance of PMAs such as the commercial premises in Hing Tung and Yiu Tung Estates. He added that although HA could terminate the service of unsatisfactory PMAs, frequent changes of management companies would undermine the continuity of EMM services. Mr KWAN Chi-fong also pointed out that the findings in the report that the staff cost of PMAs was some 45% less expensive than the Housing Department (HD) for property management services and some 42% less for the maintenance and improvement services were misleading as these had not taken into account the facts that all estates managed by PMAs were new estates which required less repair works, and that some estate management works were still undertaken by HD. The inclusion of the huge indirect headquarters overheads had also resulted in the high staff cost of HD. By way of illustration, of the management fee of $10.5 for TPS estates currently managed by HD, only $1.92 were used for direct estate management. The remaining had to be used to cover the headquarters overhead cost. To this end, the Alliance put forward a sixth option which aimed to enhance the competitiveness of HD by streamlining the staffing structure at both the management and operational levels; excluding all indirect overhead cost from the estate management cost and delegating greater autonomy to front-line staff so that they could respond quickly to the needs of tenants. Under the proposal, both HD and PMAs would be separately assigned to manage similar estates and to work independently for a trial period of two years to enable a like to like comparison. An opinion survey would be conducted at the end of the two-year period to ascertain tenants' views on the performance of both parties. If tenants still preferred the service of PMAs, the Alliance would accept the recommendation on contracting out.

17. As to how the high staff cost in HD would be reduced, Mr LAM advised that this could be done by streamlining the entire staffing structure, in particular at the management level since operational staff had already experienced zero growth over the past few years. He pointed out that at present, there were 69 Directorate Grade staff in HD, of which 25 were in the rank of Assistant Director and above. The recurrent expenditure for these officers amounted up to $90 million per annum. As such, a cut in such expenses would definitely help to reduce the staff cost of HD.

18. On continuity, Mr Howard YOUNG asked if the Alliance had any information on the number of PMAs which had been sacked by Owners' Corporations (OCs) of large private residential estates as a result of poor service provision. In reply, Mr LAM made reference to the recent speech by the Secretary for Home Affairs that the problem of poor building management was attributed to the lack of OCs to take up management of their own buildings. According to information, only 10% of the private buildings in Hong Kong had OCs. The majority of these buildings were large residential estates managed by the developers concerned. However, these developers adopted an entirely different approach from HA. The former established subsidiary management companies to manage their development projects to ensure continuity and service quality while HA tendered out management contracts to PMAs with the lowest bids. The service quality would be further compromised in the event of sub-contracting.

Meeting with the Administration
(Final report on the Review of Private Sector Involvement in Estates Management and Maintenance Services, LC Paper No. CB(1) 933/98-99 and 1123/98-99(04))

19. Before commencing discussion, the Deputy Director/Management (DD/M) took the opportunity to respond to some of the points made by the Alliance. On HD overheads, DD/M clarified that of the total overhead cost of $109 per unit per month, $70 represented the non-estate based direct cost of property management services, including the staff cost associated with the District Maintenance Offices (DMO) and Regional Management Offices (RMO) of about $42. The remaining $39 were split between branch overhead ($17) and the cost of headquarters supporting services ($22). As regards the management fee of TPS estates, DD/M pointed out that the cost of $1.92 per square metre referred in paragraph 16 above had not taken into account the cost for DMO/RMO. On staffing structure, DD/M advised that there were only 15 Directorate Grade staff in the rank of Assistant Director or above who were involved in EMM services. Notwithstanding, he agreed that the overall staffing structure of HD should be streamlined to enhance competitiveness. Regarding the performance of PMAs, DD/M said that staff were encouraged to report non-performance of PMAs to HD for necessary follow-up. At members' request, the Administration undertook to provide information on the number of service contracts of PMAs in HOS estates which had been terminated prior to the expiry dates of the contracts.

(Post-meeting note: The required information was circulated vide LC Paper No. CB(1) 1239/98-99 on 30 April 1999.)

20. DD/M added that the need to speed up the reform process of HD was compelling, in particular after the implementation of TPS, under which owners could choose their own management agents two years after the first flats in each estate was sold. It was very likely that TPS owners would choose PMAs at the end of the two-year period in view of the substantial difference in staff costs between PMAs and HD. He said that HD had to work on the issue now, otherwise the number of surplus staff might reach some 4,000 in ten years' time. Natural wastage could only help reduce the figure to 1,300. To this end, the consultant had explored five possible options for greater private sector involvement and concluded that only the phased service transfer could best meet the needs of HA but the option of management buy-out could also be considered if staff came forward with workable proposals. Under the phased service transfer, the successful bidders, through contracting out process, would take on staff who chose to join the private sector. Mr LEE Cheuk-yan however pointed out that the surplus staff could be absorbed by HD if it did not contract out the management of new PRH estates to PMAs in the future. DD/M advised that the Administration had to take into account factors such as quality of service and cost effectiveness in considering the management of new PRH estates.

21. While acknowledging the need for reforms, Mr CHAN Kam-lam did not agree that HD should adopt such a high-hand approach to force its staff to accept the proposal in the consultancy report. He cautioned that HA should be very careful in considering the entire issue as this would not only affect the well-being of HD staff but also the livelihood of HA tenants and TPS owners. Expressing similar concern, Mrs CHOW and Mr LEE asked if HD would consider the option proposed by the Alliance before taking a final decision. In reply, DD/M emphasized that the recommendations in the consultancy report only represented the consultant's views. All the findings and recommendations would be carefully examined before these were submitted for consideration by HA in May 1999. As regards the option put forward by the Alliance, DD/M pointed out that as PMAs were only entrusted with works related to EMM services, they were not required to deal with issues such as tenancy management, processing of applications for overcrowding relief, issue of summonses for illegal parking within estates etc which had to be undertaken by HD staff. A like to like comparison thus was not feasible. Nevertheless, as the transfer of all existing EMM services would be phased out within a period of five to seven years, the Administration welcomed any proposal which would enhance the efficiency and cost effectiveness of HD in the management of the estates under its purview during the transitional period.

22. Mr CHEUNG Man-kwong opined that the Alliance should be given the opportunity to implement the sixth option in parallel with the phased service transfer. If this was proved to be effective taking into account tenants' views, the Administration should re-consider the need to contract out EMM services to PMAs. DD/M replied that the Administration would need to examine in detail the feasibility of the sixth option.

23. Mr NG Leung-sing questioned the rationale for establishing a split between HA's role as a client and HD's role as a contractor, DD/M explained that this aimed to address the potential conflicts with HD acting both as HA's major provider, while at the same time being required to provide impartial advice to HA on the greater use of the private sector which in turn would increase competition against itself.

Conclusion

24. Disputing the Administration's response, Mr LAM of the Alliance stressed that apart from the legal duties, HD staff had to undertake certain EMM related works. To facilitate members' understanding, he provided a list of duties performed by PMAs and HD staff under the contracting out of management services to PMAs in HOS estates. Mr LAM was of the view that the Administration was using the excuse that PMAs were not empowered to undertake legal duties to avoid the option put forward by the Alliance. He pointed out that administrative measures could be introduced to enable PMAs to take up legal duties as in the case of carparks managed by PMAs.

(Post-meeting note: The list of duties was circulated vide LC Paper No. CB(1) 1154/98-99(02).)

25. DD/M assured members that the option proposed by the Alliance, together with the Administration's recommendations on the consultancy report would be submitted to HA for consideration on the way forward in May 1999. Staffing issues would be carefully addressed after HA had decided on the way forward. Affected staff would be consulted on the staffing arrangements in accordance with the existing civil service guidelines.

26. In view of the far-reaching implications of the issue, the Chairman urged the Administration to take into account views of members, HD staff as well as tenants before taking a final decision.

VI Any other business

27. There being no other business, the meeting ended at 12:00 noon.


Legislative Council Secretariat
1 June 1999