24 October 2016
De Novo apartments are priced at a range of HK$3.92 million to HK$6.7 million per unit. Photo: HKEJ
De Novo apartments are priced at a range of HK$3.92 million to HK$6.7 million per unit. Photo: HKEJ

Why are we subsidizing wealthy homebuyers through URA?

One might still remember that Victor So Hing-woh, the current chairman of the Urban Renewal Authority (URA), served as chief executive of the Hong Kong Housing Society back in the ’90s.

During his term as Housing Society CEO, one of his best-known projects was the Sandwich Class Housing Scheme.

Between 1995 and 2002, a total of 10 Sandwich Class Housing projects were completed, providing more than 8,920 residential units.

Before the Hong Kong government finally called a halt to the scheme in 2000 after the housing bubble burst, three projects were still under construction.

Later the government gave the Housing Society special permission to sell these flats as private properties.

Victor So left the Housing Society in 2002, and shortly afterwards he was appointed the first CEO of The Link Real Estate Investment Trust.

One might also remember that back in 1997 when the Hong Kong government was formed, Leung Chun-ying, then an Executive Council member, was entrusted by Chief Executive Tung Chee-wah with the important task of formulating the new administration’s housing policy.

The then Secretary of Housing, Wong Shing-wah, was in fact only responsible for carrying out the policy drafted by Leung.

The plan to construct 85,000 housing units was first conceived in early 1997, but it was only after Tung Chee-wah assumed office as chief executive that the idea was officially put into practice.

After the housing bubble burst back in the late ’90s, many homeowners were haunted by the term “negative equity”.

In 1998, the number of households in negative equity hit 38,000, and in 2003 the number soared to an all-time high of 17,8000, with a total of 620,000 people being affected.

That accounted for almost a tenth of the entire population, probably including many buyers of Sandwich Class Housing projects.

Today’s property market is very different.

Victor So, as URA chairman, has introduced the authority’s first-ever subsidized housing project, the De Novo in Kai Tak.

The project provides 484 residential units of different sizes ranging from 332 to 568 square feet, up for sale at a 20 percent discount to the market level.

Only families with a total monthly income of less than HK$60,000 and with a net worth of less than HK$3 million are eligible to apply; any application submitted by single homebuyers will not be considered.

It is estimated that the average per square foot price of a De Novo apartment is around HK$12,000, with total price per unit ranging from HK$3.92 million to HK$6.7 million.

The URA said it has to carry out further studies before it makes a decision on whether to impose restrictions on resale like the Home Ownership Scheme flats.

Even though the URA has claimed that the De Novo is a government-subsidized project, the fact that it is targeted at buyers who can afford a down payment of more than a million dollars immediately calls into question whether the government should subsidize these wealthy buyers with public money.

It remains questionable whether a residential unit worth several million dollars can still be called a subsidized flat, and whether those who buy these flats are actual homebuyers or “stealth” speculators.

The government has already injected more than HK$10 billion into the URA over the past decade.

The URA has built hundreds of thousands of luxury homes for sale through its acquisition and redevelopment of old urban land and properties using public power, making billions of dollars over the years.

Many have begun to doubt if the URA has already in effect turned into a profit-oriented property developer entrusted with public power, and whether the government should continue to fund this organization.

During the chief executive election campaign in 2012, the then CE hopeful Henry Tang Ying-yen already criticized the URA for building homes that were far too expensive and extravagant.

Unfortunately, even though he did have a point, his criticism was largely politically motivated and was directed against the then URA chairman Barry Cheung Chun-yuen, the chief supporter of Leung Chun-ying.

However, within a month’s time after Henry Tang had made that criticism, he himself became suddenly engulfed by the scandal over the illegal structures found in his mansion in Kowloon Tong.

And after he had lost the election and Barry Cheung was no longer the URA chairman, the issue of the URA’s role has become forgotten.

Since 2010, the URA has been reporting its financial status to the Legislative Council regularly, and people are just astounded by its soaring profits, which even outdid some major private developers.

And that begs the question: is it really in the public interest to allow the URA to continue to take part in the highly lucrative business of high-end property development using public funds?

If the setting up of the URA was aimed to improve the living conditions in our urban area, then what has it actually done for our grassroots citizens?

The article first appeared in the Hong Kong Economic Journal on Aug 5.

Translation by Alan Lee

[Chinese version 中文版]

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A member of Shadow Long Term Housing Strategy Steering Committee, a non-governmental organization.

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