Starter Homes’ pricing and repurchasing strategies

In the past few years, we have seen several high-ranking officials from the Hong Kong Government warning home seekers about the risks of rising interest rates, and it is indeed true that the current home prices are far from affordable for most Hongkongers. 

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However, from private housing to Home Ownership Scheme and Tenants Purchase Scheme flats, most of Hong Kong’s residential properties are viewed as commodities or investments. Therefore, when the market rate rises, home owners who have previously purchased a property at a lower price can make a sizeable profit if they choose to sell it. For example, in September 2008, the average per-square-foot price of Hong Kong homes was HK$4,809; if a homeowner bought a home back then and sold it this May, when the average per-square-foot price had soared to HK$11,524, the seller could potentially make a 140% profit. If the home owner had taken out an 80% mortgage, the profit rate of this leveraged investment would be considerably high. 

On the other hand, let’s imagine that someone has recently bought a home for self-use, and the housing prices drop by 30% in the next three years. If the home owner is forced to sell the property due to financial difficulties, how big of a loss will they be subjected to? Not to mention the extra stamp duty penalty that he/she will have to pay. It is clear to see that the profit potential and risk of loss are both real possibilities in home ownership, so buyers must be prepared for the best and the worst.

>> How to make the Starter Homes scheme beneficial

When it comes to the Starter Homes scheme, I believe that the authorities ought to offer these units strictly as self-occupied homes, as it matches the common understanding of the purpose of a “Starter Home” for Hongkongers. The units available should include two-bedroom flats, as well as one-bedroom units and studios for childless couples and single homeowners. Since the price of Starter Homes is set to be much lower than market rate, a friend thinks the price tag should not exceed HK$3 million. If a buyer takes out a 90% mortgage over a 20-year period, the monthly payment will be around HK$15,000; and even if there is a 3% interest rate hike in the future, the monthly payment will only increase to HK$19,000 — manageable for a double-income household. 

Since Starter Homes are for self-use only, homeowners can’t expect to make a profit from them; however, once the mortgage is paid off, they will enjoy a rent-free life. As for the actual transaction, I personally think the government should oversee setting the prices and repurchasing the units in order to mitigate private market profiteering and to ensure the homes will be recycled and sold to other qualified candidates. 

In addition, I would really hope to see the applicant requirements set in the schemes benefit second-generation Hong Kong migrants and attract them to make their way back to the city, which would alleviate the problems caused by Hong Kong’s ageing population and bring in foreign expertise, talent and connections. It is worthy to consider such a policy that could be greatly beneficial for the future of Hong Kong.

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