Hong Kong News

Nonpartisan, Noncommercial, unconstrained.
Sunday, Jun 23, 2024

Reform the market for subsidised homes to give young people hope

Reform the market for subsidised homes to give young people hope

Extend the mortgage guarantee on HOS resale flats to make loans more affordable, abolish limits on buyer eligibility certificates and give failed applicants of new flats a weighted chance
The recent launch of Hong Kong’s first hotel-to-youth-hostel conversion project has returned attention to the hot topic of young people’s housing needs. Today, fewer young people are able to own a home due to skyrocketing housing prices and stagnating income mobility.

With their hopes of home ownership fading as upward mobility deteriorates, many feel frustrated and defeated. The sense of powerlessness has led to a “let it be” lifestyle, with many taking to “lying flat” and rejecting the rat race.

Against this backdrop, Our Hong Kong Foundation launched its latest study on home ownership and youth social mobility, aiming to raise awareness of the difficulties faced by young people. It proposes to reform the Home Ownership Scheme (HOS) market, an underused resource that could be a game-changer.

Using population census data from the past two decades, we analysed changes in the median monthly incomes of young people aged 30-34. Without adjusting for inflation, the incomes of degree and non-degree graduates have increased by 20 per cent and 36 per cent respectively from 2001-2021. In the same period, housing prices have soared 399 per cent.

To measure changes in home-ownership affordability, we looked at a 30-year mortgage at 90 per cent of the property’s value, based on the median monthly income of young people. After obtaining the corresponding maximum loan amount based on the prevailing interest rate, the figure is divided by the average per square foot price of

residential units of different sizes, thus arriving at the maximum affordable flat size.

The results are telling. In 2001, university graduates could afford a large flat of 798-1,061 sq ft. But, by 2021, they could only afford an apartment measuring no more than 263 sq ft.

The trend is even more worrisome for non-degree holders. In 2001, they could afford a mid-sized flat ranging from 435-548 sq ft; by 2021, they could only afford nano flats of no more than 131 sq ft. In recent years, this has been epitomised by the scramble for cheaper units, irrespective of size. Nano flats swarmed the market and per capita living space shrunk.

HOS flats were meant to be a stepping stone for aspiring homebuyers who find the private market inaccessible. But, every year, sales of new HOS flats are hugely oversubscribed. In 2017, the success rate for applicants aged under 30 was below 1 per cent – and just 3 per cent for applicants aged 30 or above. There are barely enough HOS flats built and launched for sale each year.

Since these subsidised flats are highly sought after, the White Form Secondary Market Scheme, under which second-hand HOS flats can be bought and sold without a land premium, is particularly important. But we found that here, buyers are often deterred due to policy limitations.

The government guarantees mortgages on new HOS flats for 30 years, which means buyers can obtain a 90 per cent mortgage from banks without having to provide proof of income or undergo income stress tests. But the shorter the guarantee period left, the stricter banks become about mortgages. Where there are less than five years of guarantee left, banks would lend less and/or demand a shorter mortgage period.

For older HOS flats where the mortgage guarantee has run out, bank loans are capped at 60 per cent of the property’s value. This means a hefty down payment of at least 40 per cent, pricing out those on a limited budget, usually younger buyers.

Moreover, the number of second-hand HOS flats eligible for a 90 per cent mortgage is rapidly decreasing and a supply cliff is expected in five years. According to Housing Authority figures, 65 per cent of second-hand HOS flats are no longer eligible – that’s over 210,000 flats out of 320,000.

Out of the remaining 35 per cent or 110,000 flats still eligible, over 80,000 have a remaining guarantee period of just five to nine years – in other words, the eligible stock could drop sharply to around 30,000 flats in five years.

If nothing changes, newer second-hand HOS flats will become even more sought-after and expensive, while older second-hand HOS flats will be more unwanted and become illiquid assets.

To help more young people own homes, we propose a three-pronged solution to make better use of these overlooked second-hand HOS flats. First, we recommend extending the guarantee period so older second-hand HOS flats become eligible for a 90 per cent mortgage. Buyers would no longer be cornered into getting newer second-hand HOS flats, while speculation and overpriced transactions would be curbed.

Second, we propose gradually abolishing the annual quota and deadline on the Certificate of Eligibility to Purchase, eventually fully opening up the “white form” secondary market. Given the total stock of 410,000 flats, a sea of options could be unlocked for aspiring homeowners.

Notwithstanding concerns over the potential influx of demand that might drive up the second-hand market, it is important to note that “white form” buyers are still restricted by income and asset limits. The opening up of the secondary market would also ease the oversubscription in demand for new HOS flats.

Third, we recommend refining the ballot system for new HOS flats. The process should be weighted towards those with multiple failed applications, to compensate for their wait.

Through these measures, we hope a reformed HOS system would bring new hope of home ownership to young people.
Newsletter

Related Articles

Hong Kong News
0:00
0:00
Close
It's always the people with the dirty hands pointing their fingers
Paper straws found to contain long-lasting and potentially toxic chemicals - study
FTX's Bankman-Fried headed for jail after judge revokes bail
Blackrock gets half a trillion dollar deal to rebuild Ukraine
Steve Jobs' Son Launches Venture Capital Firm With $200 Million For Cancer Treatments
Google reshuffles Assistant unit, lays off some staffers, to 'supercharge' products with A.I.
End of Viagra? FDA approved a gel against erectile dysfunction
UK sanctions Russians judges over dual British national Kara-Murza's trial
US restricts visa-free travel for Hungarian passport holders because of security concerns
America's First New Nuclear Reactor in Nearly Seven Years Begins Operations
Southeast Asia moves closer to economic unity with new regional payments system
Political leader from South Africa, Julius Malema, led violent racist chants at a massive rally on Saturday
Today Hunter Biden’s best friend and business associate, Devon Archer, testified that Joe Biden met in Georgetown with Russian Moscow Mayor's Wife Yelena Baturina who later paid Hunter Biden $3.5 million in so called “consulting fees”
'I am not your servant': IndiGo crew member, passenger get into row over airline meal
Singapore Carries Out First Execution of a Woman in Two Decades Amid Capital Punishment Debate
Spanish Citizenship Granted to Iranian chess player who removed hijab
US Senate Republican Mitch McConnell freezes up, leaves press conference
Speaker McCarthy says the United States House of Representatives is getting ready to impeach Joe Biden.
San Francisco car crash
This camera man is a genius
3D ad in front of Burj Khalifa
Next level gaming
BMW driver…
Google testing journalism AI. We are doing it already 2 years, and without Google biased propoganda and manipulated censorship
Unlike illegal imigrants coming by boats - US Citizens Will Need Visa To Travel To Europe in 2024
Musk announces Twitter name and logo change to X.com
The politician and the journalist lost control and started fighting on live broadcast.
The future of sports
Unveiling the Black Hole: The Mysterious Fate of EU's Aid to Ukraine
Farewell to a Music Titan: Tony Bennett, Renowned Jazz and Pop Vocalist, Passes Away at 96
Alarming Behavior Among Florida's Sharks Raises Concerns Over Possible Cocaine Exposure
Transgender Exclusion in Miss Italy Stirs Controversy Amidst Changing Global Beauty Pageant Landscape
Joe Biden admitted, in his own words, that he delivered what he promised in exchange for the $10 million bribe he received from the Ukraine Oil Company.
TikTok Takes On Spotify And Apple, Launches Own Music Service
Global Trend: Using Anti-Fake News Laws as Censorship Tools - A Deep Dive into Tunisia's Scenario
Arresting Putin During South African Visit Would Equate to War Declaration, Asserts President Ramaphosa
Hacktivist Collective Anonymous Launches 'Project Disclosure' to Unearth Information on UFOs and ETIs
Typo sends millions of US military emails to Russian ally Mali
Server Arrested For Theft After Refusing To Pay A Table's $100 Restaurant Bill When They Dined & Dashed
The Changing Face of Europe: How Mass Migration is Reshaping the Political Landscape
China Urges EU to Clarify Strategic Partnership Amid Trade Tensions
The Last Pour: Anchor Brewing, America's Pioneer Craft Brewer, Closes After 127 Years
Democracy not: EU's Digital Commissioner Considers Shutting Down Social Media Platforms Amid Social Unrest
Sarah Silverman and Renowned Authors Lodge Copyright Infringement Case Against OpenAI and Meta
Why Do Tech Executives Support Kennedy Jr.?
The New York Times Announces Closure of its Sports Section in Favor of The Athletic
BBC Anchor Huw Edwards Hospitalized Amid Child Sex Abuse Allegations, Family Confirms
Florida Attorney General requests Meta CEO's testimony on company's platforms' alleged facilitation of illicit activities
The Distorted Mirror of actual approval ratings: Examining the True Threat to Democracy Beyond the Persona of Putin
40,000 child slaves in Congo are forced to work in cobalt mines so we can drive electric cars.
×