6 Sept 2017 - For the seventh consecutive year, Hong Kong has been ranked the world’s most expensive property market by the Demographia International Housing Affordability Survey. In view of high rents with no end in sight, former Chief Executive Leung Chun-Ying raised the stamp duty twice in three years in an effort to suppress increasing home prices. In 2012, Leung introduced the “Hong Kong Property for Hong Kong People” scheme which started off as a Hong-Kong-resident-first affordable housing plan, but ended up pricing out the majority of local home buyers with a per-square-foot price ranging from HKD15,080 to HKD18,418. Earlier this year, current Chief Executive Carrie Lam pledged in her election manifesto that she would launch a ‘Starter Home’ scheme to tackle housing issues. Now that Lam has assumed office, the people of Hong Kong will be watching to see if she will realize her promise.
The concept of a ‘starter home’ is not a new idea among costly housing markets across the globe. Below are some of the housing assistance initiatives from local governments in highly priced housing markets:
Sydney is the second-most expensive city to buy an apartment. The Australian government launched the First Home Owner Grant scheme that provides AUD $10,000 to assist first-time home purchases.
In London, the English Starter Homes Initiative is set to provide a minimum discount of 20 percent on homes worth up to GBP 250,000 outside of London, or GBP 450,000 within London to first-time home buyers aged between 23 and 40.
The Canadian government allows new homeowners to borrow up to CAD $25,000 in a calendar year from their registered retirement savings plans and claim a non-refundable tax of up to CAD $750.
New home buyers in the United States with annual incomes less than 80 percent of the median income for their area are eligible for a maximum down payment grant of USD $10,000 or 6 percent of the home price, whichever is greater, under the American Dream Downpayment Initiative (ADDI).
Facing increasing grievances from the young generation in regard to high property prices, ‘starter homes’ could be a feasible, practical and affordable choice offered to them. For a Starter Home Policy that could truly help average Hong Kong home buyers, government intervention may be required in the pricing of social housing flats. The program should be closer to public housing and the Home Ownership Scheme (HOS) in principle, but sufficiently differentiated enough to target the sandwich class who earns just enough to be unqualified for public housing, but too little to own a private flat.
In 2016, the number of applications for public housing by non-elderly singletons with tertiary education amounted to 140,000, accounting for 46 percent of all applicants. Despite long wait times – from four to seven years – an alarming percentage of young graduates nonetheless resort to public housing, with no expectations or aspirations for getting an apartment in the private market.
During the election period, Carrie Lam admitted that neither stamp duty policies nor the “Hong Kong Property for Hong Kong People” scheme were effective in helping Hong Kongers get on the property ladder. Instead of suppressing private property price levels, Lam is more inclined to render her “Starter Home” project as an alternative subsidized housing option to the HOS. Hong Kong people are awaiting Lam’s promise of a ‘starter home’ scheme.
Compared with other cities with soaring housing prices, Hong Kong is lacking in financial assistance to help first-time home buyers and the younger generation climb the housing ladder. A ‘starter home’ scheme is a good starting point for the government to step in and help the younger generation tackle unaffordable residential prices. However, the government will need to thoroughly analyze how the scheme should be carried out and how it might be able to attract property developers to cooperate on the construction of such developments.