Financial Secretary Paul Chan Mo-po said the government will consider helping people who don’t have enough for a down payment to buy their first flat, while making sure such a move won’t fuel the housing market.
This reminds us of a similar move by the city’s first chief executive, Tung Chee-hwa, who launched the “Home Starter” loan scheme targeting first-time homebuyers in 1998.
Back then, the housing price was skyrocketing, and many residents were anxious to buy their own homes.
Tung also announced that the government would build 8,5000 flats every year and increase the supply of public housing units.
He provided HK$18 billion for housing loans of up to HK$600,000 for each family and HK$300,000 for individual applicants. Based on income and asset thresholds, about 92 percent of Hong Kong households were eligible for the scheme.
The special loan, together with first and second mortgages from banks, allowed Hongkongers to buy a flat with almost zero down payment.
The scheme led to a brief rally of the property market at a time when it was beginning to correct from a high level.
Data showed that more than 9,000 individuals and 20,000 families participated in the scheme. Sadly, most of them ended owning a property with a market value below the size of the mortgage after home prices slumped.
As history shows, helping those not financially fit enough to buy a flat at the wrong time could turn into a disaster.
Policymakers have learned a bitter lesson.
The Hong Kong Monetary Authority launched counter-cyclical measures in recent years to tighten mortgage loans. The current administration is very cautious in relaxing the home policy.
In determining the details and timing of the planned assistance to first-time homebuyers, Chan said the government would consider the extent and pace of the decline in home prices as well as the price gap between the primary and secondary home markets, among other factors.
The way I see it, the government may raise the mortgage loan cap for low-priced secondary homes costing under HK$6 million from 60 percent to 70 percent for first-time buyers.
This would make secondary homes more competitive and put downward pressure on new home prices.
At the moment, new projects are often priced at a high premium as developers typically offer aggressive supplementary mortgage plans that make new homes more affordable.
The timing is critical. If the housing price falls 15 percent from its peak last year by the second quarter of this year, that might be a good opportunity for Chan to introduce the kind of new initiatives he is currently pondering.
This article appeared in the Hong Kong Economic Journal on Jan 8
Translation by Julie Zhu
[Chinese version 中文版]
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