Property

How to make the Starter Homes scheme beneficial

Hong Kong property

When the topic of the Starter Homes scheme first surfaced, it instantly became the talk of the town. While details won’t be released until mid-October, many people have been looking into the possible effects it will have on the property market. Who will qualify? What will the prices be like? The answers are extremely anticipated by home seekers.

I suspect that the purpose of the Government releasing the information of the scheme without a concrete plan is to elicit public debate and draw out opinions from opposing sides. This gives the authorities a deeper and more comprehensive understanding of the public’s opinion and concerns, which will help them draft the details of the scheme more effectively.

The initial phase of the Starter Homes initiative is likely to offer a limited number of housing units that won’t satisfy the vast demand. So the first difficult question that the Government has to face is who gets to be prioritised.

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>> The pros and cons of Starter Homes

The current housing ladder has three tiers: public housing, Home Ownership Scheme (HOS) flats and private housing. The monthly income cap for HOS applicants is HK$52,000. So it poses a major question mark on whether the Starter Homes scheme will target those above or below this income bracket. It is true that people who make between HK$52,000 and HK$70,000-80,000 a month are in an awkward position - they cannot afford private properties and at the same time aren’t qualified to apply for HOS flats. Therefore it makes a lot of sense that there should be a housing scheme designed for them, such as the Sandwich Class Housing Scheme introduced in the 1990s.

However, I have a lot of preservations about the Starter Homes scheme going towards this direction. First of all, it’s clear that the prices of this new type of public housing are not based on market rate, which means that these units may be cheaper than HOS flats. If they can be acquired by the middle class, yet the lower-earning population has to afford the more expensive HOS housing, that would create an incredibly unfair situation. In addition, if the market prices drop, the middle class would go back to the private market, and their Starter Homes would end up like the poorly received Sandwich Class Housing Scheme homes and disappear into oblivion.

Personally, I think the current HOS applicants should benefit from the Starter Homes. At present, they are buying HOS flats whose prices are set based on the market rate, but whose ownerships are shared with the Government, which means they are entitled to a share of the profit should they choose to sell the home. The Starter Homes give them an alternative choice: these units are cheaper since their prices aren’t associated with the market rate, but they don’t possess appreciation potentials, and the owners can only sell it back to the Government or other qualified Starter Homes applicants.

Only when land supply increases and a sufficient number of new HOS units and Starter Homes are added, can the government start to raise the income cap to benefit more home seekers. Otherwise, the already severe supply and demand imbalance will only exacerbate. The Sandwich Class Housing Scheme should serve as a cautionary tale for the Government to steer away from its past mistakes.

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