Housing Supply in Hong Kong

Legislative Council Secretariat IN20/12-13

INFORMATION NOTE

Housing supply in Hong Kong

1. Background

1.1 Flat prices have been on an almost uninterrupted uptrend since 2004, when the Hong Kong economy entered into a full-fledged upturn after the waning of the Severe Acute Respiratory Syndrome. Tight supply of new residential flats, combined with strong end-user and investment demand alongside the stable economic performance, and fuelled further by the environment of low interest rates amid ample liquidity since 2009, have boosted flat prices successively during the period. By February 2011, overall flat prices had surpassed the peak levels of the 1997 property boom.

1.2 Against the background of rising flat prices and the ensuing deteriorating home purchase affordability ratio, the Government has introduced a number of measures since November 2010 to ensure a healthy and stable development of the property market. These measures included the establishment of a two-tier institutional framework for Long Term Housing Strategy ("LTHS") in August 2012, featuring (a) the LTHS Steering Committee that has an overview and offers advice on various housing aspects and initiatives under LTHS, and (b) an inter-departmental Working Group 1 established under the Steering Committee. The Government plans to issue a consultation paper on LTHS for a planning horizon of 10 years by mid-2013.

1.3 In view of the importance of LTHS, the Subcommittee on the Long Term Housing Strategy ("Subcommittee") was established under the Panel on Housing of the Legislative Council in December 2012. Its terms of reference are "to study all relevant housing-related information and ways to increase housing supply to meet the needs of various groups in the community, and make recommendations on the Long Term Housing Strategy."

1 The Working Group is tasked with compiling and examining relevant housing-related information, reviewing housing and other relevant policies, and formulating appropriate options for the consideration of the LTHS Steering Committee.

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1.4 At its meeting on 18 December 2012, the Subcommittee requested the Research Office to conduct a study on housing supply in Hong Kong. As such, the purpose of this information note is to provide the Subcommittee with information on the current supply situation of both private and public flats, the Government's measures to increase housing supply, and the short- and medium-term housing supply forecasts.

2. Current housing supply

2.1 Housing in Hong Kong is mainly supplied through three channels: private housing, public rental housing ("PRH") and subsidized home ownership housing. PRH and subsidized home ownership housing are provided by the Hong Kong Housing Authority ("HA") and the Hong Kong Housing Society ("HKHS"). HA was established in 1973 as a statutory body responsible for implementing the majority of Hong Kong's public housing programmes, including PRH to assist low-income families who cannot afford private rental accommodation. For HKHS, it is an independent, non-for-profit organization established in 1948. One of its major functions is to provide subsidized housing to specific target groups at affordable rent.

2.2 There were about 2 599 000 flats in Hong Kong as at end-March 2012, comprising about 761 000 PRH flats, 391 000 subsidized sale flats and 1 447 000 flats in the private sector. About 30.6% of Hong Kong's population lived in PRH flats, 15.8% in subsidized housing and 52.9% in private housing during the fourth quarter of 2012.2

2 There were about 0.6% of Hong Kong's population living in temporary housing during the fourth quarter of 2012.

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Private housing

2.3 The private sector plays an important role in meeting the housing needs of the community. The residential property transaction figures over the past decade indicate that the secondary market has been the major source of flat supply for home buyers. There were an average of 99 421 private residential property transactions each year during 2003-2012, of which 16 700 were primary market transactions and 82 721 secondary market transactions. In other words, over 80% of property market transactions were secondary market transactions.

Table 1 – Number/value of sale and purchase ("S&P") agreements for private residential property and number of newly completed private residential flats during 2003-2012

Primary sales Secondary sales Total Number of newly completed Year No. of S&P Amount No. of S&P Amount No. of S&P Amount agreements (HK$ agreements (HK$ agreements (HK$ private million) million) million)(1) residential flats 2003 26 498 73,048 45 078 80,531 71 576 153,578 26 397 2004 25 694 97,763 74 936 178,973 100 630 276,735 26 036 2005 15 994 93,208 87 368 219,623 103 362 312,832 17 321 2006 13 986 57,725 68 486 174,303 82 472 232,026 16 579 2007 20 123 122,470 103 452 311,561 123 575 434,033 10 471 2008 11 046 77,331 84 885 266,494 95 931 343,827 8 776 2009 16 161 119,222 98 931 306,616 115 092 425,840 7 157 2010 13 646 129,703 122 132 430,983 135 778 560,686 13 405 2011 10 880 130,885 73 582 311,638 84 462 442,527 9 449 2012 12 968 130,968 68 365 321,308 81 333 452,275 10 149

Average of 2003- 16 700 103,232 82 721 260,203 99 421 363,436 14 574 2012 Note: (1) Figures may not add up to total due to rounding. Sources: Census and Statistics Department and Rating and Valuation Department.

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2.4 Many first-time home buyers have chosen flats available in the secondary market which are more affordable than new flats. Also contributing to the dominance of secondary market transactions is the tight supply of new flats in recent years. As shown in Table 1 above, completions of private residential flats have been on a generally declining trend over the past decade. It amounted to a modest of 10 149 units in 2012, as compared with a high of 26 397 in 2003 and 26 036 in 2004. The tight supply of new flats during 2003-2012 can be viewed against the supply of residential sites under the Application List system over the period.

2.5 The Application List system came into place in 1999 when the Government introduced the system to supplement the annual Land Sale Programme. In November 2002, the Government announced a package of property market measures to restore public confidence in the property market, which had been on the decline since the outbreak of the Asian financial crisis. These measures included stopping all scheduled land auctions and suspending the Application List system until the end of 2003. Thereafter, the supply of new land would only be triggered from the Application List. In October 2003, the Government decided to resume the Application List system from January 2004. As shown in Table 2, the Application List system had limited impact on boosting the supply of residential sites between FY2004-2005 and FY2009-2010. Only 30 residential sites with a total area of about 33 hectares were disposed of during the period.

Table 2 – Land sale result for residential sites between FY2004-2005 and FY2012-2013

Total area covered Fiscal year Number of sites sold (hectares) 2004-2005 5 5.86 2005-2006 3 2.80 2006-2007 9 7.73 2007-2008 8 10.61 2008-2009 1 0.02 2009-2010 4 5.45 Sub-total 30 32.47 2010-2011 11 11.66 2011-2012 25 25.62 2012-2013 22 25.18 Sub-total 58 62.46 Source: Lands Department.

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2.6 In February 2010, the Government decided to fine-tune the land supply arrangements by taking the initiative to sell land through public auction or tender subject to the market situations. In February 2011, the Government announced the 2011-2012 Land Sale Programme comprising an Application List and a Sale by Tender List. That means, apart from the Application List, the Government put up additional sites for disposal by tender on its own initiative. Reflecting the Government's proactive measure to increase land supply, 58 residential sites with a total area of about 62 hectares were sold between FY2010-2011 and FY2012-2013. There were only 10 residential sites triggered and sold by the Application List system during the period: seven in FY2010-2011, one in FY2011-2012 and two in 2012-2013.3

Supply of private residential flats

2.7 The Rating and Valuation Department divides private residential units into classes A to E, with a saleable area of less than 40 sq m, 40-69.9 sq m, 70-99.9 sq m, 100-159.9 sq m, and 160 sq m or above, respectively. Small/medium-sized flats are commonly defined as those in classes A to C with a saleable area of less than 100 sq m. For large flats, they are commonly referred to as those in classes D and E with a saleable floor area of 100 sq m or above.

(A) Supply of small/medium-sized flats

2.8 Supply of small/medium-sized flats had generally been on a declining trend since 2004 and reached a low of 4 740 units in 2009, about one-fifth of the flat supply in 2004 (see Table 3). Although completions of small/medium-sized flats rebounded to an annual average of 9 300 per year during 2010-2012, the new supply was still lower than the annual average of about 14 560 during 2003-2009.

3 On 28 February 2013, the Government finally announced to abolish the Application List system starting from the FY2013-2014 and fully resume the lead to initiate sale of sites by continuing the practice of announcing scheduled tenders on a quarterly basis.

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Table 3 – Completions, take-up and vacancy of small/medium-sized flats, 2003-2012

No. of units 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Completions 25 000 23 460 16 250 15 130 9 730 7 600 4 740 11 970 8 320 7 730 Demolitions 323 681 491 902 708 1 277 1 503 982 1 517 2 190 Completions net of 24 677 22 779 15 759 14 228 9 022 6 323 3 237 10 988 6 803 5 540 demolitions Take-up 20 800 30 890 16 150 14 040 19 300 6 290 10 420 5 790 10 770 6 680 Vacancy 62 980 56 400 56 000 56 190 45 920 45 950 38 770 43 960 40 000 38 860 %(1) 6.7 5.9 5.7 5.7 4.6 4.6 3.8 4.3 3.9 3.8 Note: (1) Vacancy at the end of the year as a percentage of stock Source: Rating and Valuation Department.

2.9 Amid the relatively tight supply of small/medium-sized flats, the mass residential property market has seen strong end-user demand fuelled by factors such as low interest rate, stable economic performance, increasing number of households, rise in divorce rate and shrinking household sizes.4 As shown in Table 3, take-up was similar or larger than completions net of demolitions throughout most of 2003-2012. As a result, the vacancy rate has been steadily decreasing since 2003 and reached a low of 3.8% in 2012.

(B) Supply of large flats

2.10 The vacancy rate of large flats has been consistently higher than that for small/medium-sized flats.5 The divergence has become more apparent in recent years as the supply of large flats increased rapidly and outstripped take-up during most of 2008-2012 (see Table 4). Indicative of this trend, large flats accounted for 11%-34% of total completions of new flats during 2008-2012 as compared with a range of 5% to 10% during 2003-2007. Also contributing to the high vacancy rates was the slow take-up of large flats in recent years conceivably due to active participation of investors and speculators in this market segment.

4 See Legislative Council Secretariat (2013). 5 Due to larger amount of money involved, the vacancy prior to resale and leasing transactions tends to be longer for more sizeable flats. The larger floor area involved also tends to require a longer vacant period for renovation and decoration process.

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Table 4 – Completions, take-up and vacancy of large flats, 2003-2012

No. of units 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Completions 1 400 2 580 1 070 1 450 740 1 180 2 420 1 440 1 130 2 420 Demolitions 67 20 87 146 118 139 156 205 149 330 Completions net of 1 333 2 560 983 1 304 622 1 041 2 264 1 235 981 2 090 demolitions Take-up 2 410 510 1 300 2 360 550 600 670 2 240 630 870 Vacancy 5 800 7 850 7 540 6 480 6 550 6 990 8 580 7 570 7 920 9 140 %(1) 8.0 10.4 9.9 8.4 8.4 8.8 10.5 9.2 9.5 10.7 Note: (1) Vacancy at the end of the year as a percentage of stock. Source: Rating and Valuation Department.

Construction of private residential units

2.11 Construction of private residential units ranged between 12 900 to 18 300 during 2001-2007 (see Figure 1). However, housing construction dropped to a low of 8 000 in 2008 with property prices coming under pressure after the outbreak of the global financial crisis. Construction of private flats picked up in 2009 and increased thereafter to a high of 18 600 units in 2012, the most since 2001 and an 81% increase from 10 300 in 2011. The surge could be attributed to both local property boom and the new guidelines which took effect on 1 April 2011 restricting the development of "inflated buildings". Developers might have rushed to start construction of private flats prior to the commencement of the new guidelines to take advantage of the Gross Floor Area ("GFA") concession.6

2.12 Most recently, construction of private residential units eased to a low of 1 100 units in the first quarter of 2013. It has yet to ascertain whether property developers have become more cautious of starting new development projects after the Government introduced further demand management measures in late February 2013 to curb exuberance in the property market.

6 To address the local concerns about the negative impact of excessive building bulk and height on the environment, the Government has introduced new policy measures to promote a quality and sustainable built environment. These measures include reducing a range of existing GFA concessions for balconies and utility platform, recreational facilities, and imposing an overall cap on the total GFA concessions granted at 10% for domestic development.

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Figure 1 – Construction of private residential units

Number of units 35 000 30 100 30 000

25 000 18 300 17 800 17 300 18 600 20 000 15 000 12 900 13 400 15 000 14 100 14 000 10 300 10 000 8 000 8 200 5 000 1 100 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013(1)

Note: (1) Provisional figure up to end March 2013. Figures of previous year are full-year figures. Source: Transport and Housing Bureau.

Public rental housing

2.13 The Government assists low-income families who cannot afford private rental accommodation through PRH programme. Table 5 shows the number of PRH flats built between FY2002-2003 and FY2011-2012.

Table 5 – Public rental housing production between FY2002-2003 and FY2011-2012

No. of units Financial year Housing Authority Housing Society Total 2002-2003 20 390 0 20 390 2003-2004 15 148 243 15 391 2004-2005 24 682 333 25 015 2005-2006 17 153 0 17 153 2006-2007 7 192 0 7 192 2007-2008 13 726 872 14 598 2008-2009 19 050 0 19 050 2009-2010 15 389 0 15 389 2010-2011 13 672 0 13 672 2011-2012 11 186 0 11 186 Annual average 15 759 145 15 904 Source: Hong Kong Housing Authority.

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2.14 As shown in Table 5, production of new PRH flats fluctuated between a high of 25 015 in FY2004-2005 and a low of 7 192 in FY2006-2007 during the past decade. In recent years, the figure averaged at 13 416 per year between FY2009-2010 and FY2011-2012, lower than the annual average of 16 970 between FY2002-2003 and FY2008-2009. The unstable production of PRH might have affected the length of Waiting List for PRH flats.7 The number of applicants for PRH flats increased markedly from about 110 000 applications per year in mid-2000s to about 222 200 at end-December 2012.

Figure 2 – Number of applicants on the public rental housing Waiting List

Number of applicants

250 000 222 200

200 000 189 500

152 400 150 000 129 100 114 400 107 300 111 600 97 402 100 000 91 921 90 955 91 415

50 000

0 Dec 2012 Mar 2003 Mar 2004 Mar 2005 Mar 2006 Mar 2007 Mar 2008 Mar 2009 Mar 2010 Mar 2011 Mar 2012 Mar Source: Hong Kong Housing Authority.

7 A Waiting List has been put in place for the allocation of PRH flats to eligible applicants in accordance with the order of registration of eligible applicants. The Government has pledged to keep the average waiting time at three years for the general applicants and two years for the elderly one-person applicants.

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Subsidized home ownership

2.15 Since 1978, about 390 900 (as at end-December 2012) subsidized flats have been sold to households of low- and middle-income groups at discounted prices under the Government's various subsidized home ownership schemes, including the Home Ownership Scheme ("HOS"), the Private Sector Participation Scheme ("PSPS") and the Tenants Purchase Scheme ("TPS") introduced by HA, as well as the Flat-For-Sale Scheme and Sandwich Class Scheme of the HKHS. In 2003, HA ceased the production and sale of HOS flats, terminated PSPS, and ceased the sale of PRH units under TPS. In October 2011, the Government announced the resumption of HOS in response to the growing aspirations of low- and middle-income families to buy their own homes in recent years. The first batch of HOS flats is to be built by HA and scheduled for pre-sale in 2014.

Table 6 – Subsidized sale flats production between FY2002-2003 and FY2011-2012

No. of units Financial Year Housing Authority(1) Housing Society(2) Total 2002-2003 0 0 0 2003-2004 320 0 320 2004-2005 0 0 0 2005-2006 0 0 0 2006-2007 1 200 576 1 776 2007-2008 1 386 576 1 962 2008-2009 1 624 0 1 624 2009-2010 370 0 370 2010-2011 1 110 0 1 110 2011-2012 0 0 0 Annual average 601 115 716 Notes: (1) HA subsidized sale flats production figures include the production of HOS, PSPS and Buy or Rent Option Scheme/Mortgage Subsidy Scheme flat housing. Surplus HOS/PSPS flats completed between 2002 and 2004 with unspecified usage are counted as production at the first time they put up for sales. (2) HKHS sale flats production figures include the production of Flat-For-Sale Scheme, Sandwich Class Housing Scheme and Urban Improvement Scheme flats. Source: Hong Kong Annual Digest of Statistics.

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3. Government's measures to increase housing supply

3.1 In August and early September 2012, the Government announced a series of measures to step up its efforts to increase housing supply. These measures are summarized in Table 7.

Table 7 – Measures to increase housing supply

Short-term measures  arranging to sell about 1 000 flats under the first My Home Purchase Plan ("MHPP") in Tsing Yi at a discounted price to target families by end-2012(1);  putting up six residential sites on the 2012-2013 Land Sale Programme for government initiated land sale in the fourth quarter of 2012. Together with West Rail development project at Tsuen Wan West Station to be tendered in the same quarter, the total new flat supply will reach about 2 650 flats;  selling 830 units of unsold HOS flats in early 2013;  converting Chai Wan Industrial Building into 180 public rental units in the middle of 2013 and inviting the Urban Renewal Authority to redevelop two industrial buildings in the form of a pilot scheme; and  expediting the approval for pre-sale applications for uncompleted flats. Medium-term measures  inclining to sell the remaining 4 000 units originally planned for MHPP as subsidized sale flats at discounted prices;  granting part of the Kai Tak Development site originally reserved for the Urban Renewal Authority to provide additional "Flat-for-Flat" units but yet to have development programme to HA to develop HOS flats;  changing 36 Government, Institution or Community sites and other government sites for residential use to provide about 11 900 public and private flats;  converting an open space in Cheung Sha Wan to build 2 300 public rental units; and  exploring the potential of converting existing industrial buildings for transitional residential use under the planning and buildings regulatory regime. Note: (1) HKHS released the first MHPP project, Greenview Villa in Tsing Yi, for applications in December 2012 and all units were sold out in April 2013.

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Table 7 – Measures to increase housing supply (cont'd)

Hong Kong Property for Hong Kong People  implementing the "Hong Kong Property for Hong Kong People" measure to give priority to the housing needs of Hong Kong people in making use of land for residential development. For selected land sale sites, the sale and re-sale of flats built on these sites will be restricted to Hong Kong Permanent Residents through land sale conditions. The Government will implement this measure on a pilot basis for two sites located at the Kai Tak Development Area to be sold in the first quarter of 2013.(2) Note: (2) The tender invitation for both lots commenced on 28 March 2013 and will close on 31 May 2013. Source: Government of the Hong Kong Special Administrative Region (2012).

3.2 Further to the Government's measures announced in August-September 2012, the Chief Executive announced a number of measures regarding housing and land supply in his 2013 Policy Address. The measures aim at achieving four objectives of housing policy, namely:

(a) assisting grassroots families to secure public housing to meet their basic housing needs;

(b) assisting the public to choose accommodation according to their affordability and personal circumstances, and encouraging those who can afford it to buy their own homes;

(d) maintaining the healthy and steady development of the private property market, with priority to be given to meet Hong Kong permanent residents' needs.

3.3 As announced in the 2013 Policy Address, the Government will increase the supply of subsidized housing in short- to medium-term through:

(a) setting a production target of building at least 100 000 units of PRH over the five years starting 2018;

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(b) setting aside a site in Sha Tin for HKHS to develop a subsidized housing project, and allocating a site in Sha Tau Kok for rental housing development by HKHS, which together provide about 1 000 units;

(d) combating the abuse of PRH resources. Together with the PRH flats surrendered voluntarily by tenants, on average a net number of about 7 000 units will be recovered every year;

(e) offering about 2 100 new HOS flats for pre-sale in 2014;

(f) earmarking four pieces of land in Tai Po, Diamond Hill, Choi Hung and Ma On Shan originally reserved for MHPP for new HOS development; and

(g) reviewing and expediting the construction of public housing flats and finding ways to simplify technical assessments under different regulatory requirements.

Other government measures proposed/implemented to increase housing supply

Expediting the construction procedures

3.4 The public has been calling for the expedition of housing construction in both the public and private sectors so as to meet housing demand. With regard to construction procedure of private housing, it was reported that among the 37 sites that had been auctioned or tendered since 2010-2011, 13 of them had been idle for more than one year, including one site which had been idled for 26 months before commencement of works. For another eight sites, works only began one year after auction or tender.8

8 《統計3年度37地皮逾半地皮批出1年未動工》,明報, 17 February 2013.

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3.5 Moreover, surveyors and architectural professionals have urged the Government to review the efficiency of its land administration procedures and approval processes for development plans. Specifically, they call for the Lands Department to prescribe a fixed processing standard and timeframe for professionals to obtain the necessary approvals and certificates. They claim that the present approval system is over-excessive and unwarranted, and that property developments which used to take three to four years to complete now require six to ten years as a result of the lengthy approval process.

Shortening the Building Covenant period

3.6 There have been calls for the Government to set a shorter Building Covenant ("BC") period so as to reduce the time from land grant to sale of residential units in the market. For a development project, the lot owner is required to complete the construction of the minimum GFA specified in the land grant or lease conditions and obtain an occupation permit from the Building Authority within the BC period specified in the land grant or lease conditions. In general, the BC period for residential developments ranges from 48 to 72 months from the date of the land lease document, the actual period of which depends on the scale and complexity of the development. Factors such as the need to demolish the original building before redevelopment or to submit the required impact assessment to the Government are considered before a reasonable BC period is fixed.

3.7 The Government considers that a shortened BC period might affect building quality. As such, it will take into account various factors, such as development scale and complexity as well as the circumstances of each development project, in setting a reasonable BC period for the development project.

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Streamlining the construction process of public housing

3.8 In response to the need for a more and speedier supply of public housing, HA has refined the construction process over the years to compress the lead time from three years to one year required for preparing various feasibility studies, consulting the District Council and local communities, and conducting preliminary planning and design. According to the Transport and Housing Bureau, the time required for constructing a 40-storey housing project, which could normally take some seven years in the past to complete, may now be shortened under the fast-track programme to within five years. The fast-track programme features one year for the planning and design stage, half a year for tendering, one year for foundation works, and another two and a half years for superstructure works (see Appendix).9

Redeveloping aged estates

3.9 In 2011, HA refined its policy on redevelopment of aged PRH estates to further incorporate key elements when considering the clearance and redevelopment of aged PRH estates. Apart from applying the criteria of structural safety and economic repair under the Comprehensive Structural Investigation Programme10, HA also examines the build-back potential of aged PRH estates and the availability of suitable rehousing resources. This refined redevelopment policy aims at striking a balance between the sustainability of existing buildings and the redevelopment potential of older estates. Pak Tin Estate was selected under the refined policy as the first project. The phased clearance will start in 2014 or earlier, and some 5 650 new flats will be completed in phases between 2018 and 2023, representing a net gain of about 2 150 flats.

9 Information provided by the Transport and Housing Bureau. 10 The Comprehensive Structural Investigation Programme was launched by HA in 2005 to examine aged public housing estates. The objective is to ascertain the building conditions of aged estates and identify the repair and strengthening works required to sustain the buildings for a reasonable period of time, say, at least 15 years. HA will work out the improvement and repair plans for individual aged estates, and, if the buildings are beyond economic repair, consider the need for clearance according to the findings of the investigation.

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4. Public housing supply forecast

4.1 According to HA's forecast, approximately 81 100 units of public housing will be provided between 2012-2013 and 2016-2017. Of the total, 79 000 units of PRH will be provided during the forecast period, representing an annual average of 15 800 units from 2012-2013.

Table 8 – Forecast public housing production from 2012-2013 to 2016-2017

No. of units Public rental Subsidized sale Year Total housing flats 2012-2013 13 100 0 13 100 2013-2014 14 100 0 14 100 2014-2015 12 700 0 12 700 2015-2016 20 400 0 20 400 2016-2017 18 700 2 100 20 800 Total 79 000 2 100 81 100 Source: Hong Kong Housing Authority.

4.2 Supply of public housing averaged at 16 600 units per year over the past decade. As shown in Figure 3, future annual supply of public housing will be below this long-term average between 2012-2013 and 2014-2015 and exceed it in the ensuing two years.

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Figure 3 – Supply of public housing

Number of units 30 000 Long-term averge supply 25 015 16,600 units p.a. 25 000 20 800 20 390 20 674 20 400 20 000 15 711 17 153 16 560 15 759 14 782 14 100 15 000 13 100 12 700 11 186 10 000 8 968

5 000

0 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Public Rental Housing Subsidized Sale Flat 2012-13F 2013-14F 2014-15F 2015-16F 2016-17F

Source: Hong Kong Housing Authority.

Public rental housing

4.3 HA has a five-year rolling Public Housing Construction Programme, with suitable adjustments made annually to the PRH production in accordance with the latest demand and supply situation. In the five-year period of 2012-2013 to 2016-2017, there will be a total PRH production of some 79 000 flats (see Table 9). Most of these new PRH flats will be located in urban (55%) and extended urban areas (28%) with the remaining in the New Territories (18%).

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Table 9 – Public rental housing flat production forecast by district from 2012-2013 to 2016-2017

Number of Year of completion/district Sub-district planned PRH flats 2012–2013 Urban Kowloon City 5 200 Kwun Tong 2 700 Sham Shui Po 1 400 Extended Urban Sha Tin 2 800 New Territories Tuen Mun 1 000 Sub-total 13 100 2013–2014 Urban Kowloon City 8 200 Sham Shui Po 1 500 Extended Urban Kwai Tsing 2 300 Sai Kung (Tseung Kwan O) 2 100 Sub-total 14 100 2014–2015 Urban Sham Shui Po 2 900 Wong Tai Sin 1 000 Extended Urban Sha Tin 3 000 New Territories North 1 400 Yuen Long 4 400 Sub-total 12 700 2015–2016 Urban Eastern 200 Kwun Tong 9 600 Extended Urban Sha Tin 8 000 New Territories Tai Po 500 Yuen Long 2 100 Sub-total 20 400 2016–2017 Urban Kwun Tong 9 200 Sham Shui Po 400 Wong Tai Sin 900 Extended Urban Island (Tung Chung) 3 500 New Territories Tuen Mun 4 700 Sub-total 18 700 Total : 79 000 Note: Figures are rounded to the nearest hundreds and may not add up to total due to rounding. Source: Transport and Housing Bureau (2013b).

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4.4 As announced in the 2013 Policy Address, there will be an average of about 7 000 flats to be recovered every year from surrender of flats by existing tenants as well as through enforcement actions against abuse of PRH resources. Including these recovered flats, there would be an average of some 23 000 flats available for allocation to Waiting List applicants each year over the next five years.

Subsidized sale flats

4.5 As mentioned above, the Government has decided to resume the production and sale of HOS flats in response to growing aspirations of low- and middle-income families to buy their own homes. It will provide a total of some 17 000 HOS flats over the four years starting from 2016-2017 and an annual average of about 5 000 HOS flats thereafter.

4.6 The sites for the first batch of the six HOS projects are located in Shatin, Tsuen Wan, Kwai Tsing and Yuen Long respectively. HA is currently carrying out relevant preparatory works for the development of these HOS flats. Construction works for five of these projects will commence in mid-2013 for completion in 2016-2017. The exception is the project at Hin Tin Street, which will be completed in 2017-2018 due to difficult site constraints. In addition, HA has worked with other Government departments and bureaux to identify suitable sites for HOS development in different areas of the territory to ensure that a total of 17 000 HOS units will be completed in the four years from 2016-2017. These include Kai Tak Site and four of the former MHPP sites which are located in Choi Hung, Diamond Hill, Ma On Shan and Tai Po districts.

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5. Private housing supply forecast

Short-term forecast by the Rating and Valuation Department

5.1 In his 2013-2014 budget speech, the Financial Secretary stated that "Government's aim is to maintain on average the provision of land for building about 20 000 residential units each year". On new flat supply, the Rating and Valuation Department forecasts that a total of 13 550 private flats will be provided in 2013, 33% more than in 2012 and the highest since 2006. The supply of private flats will increase further to 15 820 units in 2014. In 2013, about 83% of completions will come from the New Territories and the remaining 17% will spread between Hong Kong Island and Kowloon in approximately equal share. On district level, Tseung Kwan O and Yuen Long will each contribute 25% of the new units. In 2014, the share of New Territories will fall to 56%, where Yuen Long, Tsuen Wan and Shatin altogether provide about 40% of the completions.

Figure 4 – Private housing supply and short-term forecast

Number of units

30 000

26 400 26 040 25 000 Government's target 20,000 units p.a. 20 000 17 320 16 580 15 820 15 000 13 410 13 550

10 470 10 150 9 450 10 000 8 780 7 160

5 000

0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013F 2014F Source: Rating and Valuation Department.

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Small/medium-sized flats

5.2 According to the Rating and Valuation Department, the supply of small/medium-sized flats will increase markedly to 12 270 units in 2013 and 13 750 units in 2014, compared with 7 730 units in 2012. The new supply of small/medium-sized flat will account for 91% and 87% of total completions in 2013 and 2014 respectively. Looking ahead, the Government's recent policy of specifying the minimum number of units and/or unit size restrictions in the land sale conditions should help sustain the supply of small/medium-sized flats in the years ahead.

Figure 5 – Supply of small/medium-sized flats and short-term forecast

Number of units 30 000

25 000 25 000 23 460

20 000 16 250 15 130 15 000 13 750 11 970 12 270 9 730 10 000 7 600 8 320 7 730

4 740 5 000

0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013F 2014F

Source: Rating and Valuation Department.

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5.3 In 2012, the Government introduced a fine-tuned measure of land supply by specifying in the land sale conditions the minimum number of flats to be constructed and their size restrictions, also known as "sites with flat size restrictions", in order to increase the supply of small/medium-sized flats in the market.11 In 2011-2012, the Government introduced another measure requiring developers to provide a minimum number of flats on some residential sites, known as "sites with flat number restrictions".

5.4 After specifying the restriction on flat size and/or number in the land sale conditions, among the total 7 900 flats that can be provided in residential sites sold in 2011-2012, 6 600 flats or 77% have restrictions on flat size or number of flats. For 2012-2013 (as at early February 2013), the estimated number of flats to be provided by the residential sites sold and the number of flats among those with restriction on flat size and/or number are 5 100 flats and 4 600 flats (or 89%) respectively.12

Large flats

5.5 According to the Rating and Valuation Department, the supply of large flats fluctuates during 2013-2014 (see Figure 6). It is forecast to decrease by 47% to 1 280 units in 2013 before picking up to increase by 62% to 2 070 units in 2014.

11 The first residential site with flat size restrictions sold by tender is the development project in Yuen Long. The land sale conditions specify that the total flat number of the development project shall not be less than 960 flats, including 800 flats of a saleable area from 35 m2 to 40 m2 and 160 flats of a saleable area from exceeding 40 m2 to 60 m2. 12 Development Bureau (2013d).

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Figure 6 – Supply of large flats and short-term forecast

Number of units 3 000

2 580 2 500 2 420 2 420

2 070 2 000

1 500 1 400 1 450 1 440 1 280 1 180 1 070 1 130 1 000 740

500

0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013F 2014F

Source: Rating and Valuation Department.

Medium-term forecast by the Transport and Housing Bureau

5.6 According to the private housing supply released by the Transport and Housing Bureau, a total of 67 000 new units will be available in the next three to four years. The figure comprises (a) 4 000 unsold units in completed residential projects, (b) 53 000 units under construction less 7 000 units sold by pre-sale, and (c) 17 000 units from disposal sites where construction may start anytime.

Prepared by Diana WONG 28 May 2013 Tel: 3919 3217

------Information notes are compiled for Members and Committees of the Legislative Council. They are not legal or other professional advice and shall not be relied on as such. Information notes are subject to copyright owned by The Legislative Council Commission (The Commission). The Commission permits accurate reproduction of information notes for non-commercial use in a manner not adversely affecting the Legislative Council, provided that acknowledgement is made stating the Research Office of the Legislative Council Secretariat as the source and one copy of the reproduction is sent to the Legislative Council Library.

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Appendix

Construction project life cycle of public rental housing flats and home ownership scheme flats

3 years ½ yr 1 yr 2 ½ yrs Normal programme : 7 yrs 1 year ½ yr 1 yr 2 ½ yrs Fast-track programme : 5 yrs

Planning and Design Stage Tendering and Construction Stage

Source: Transport and Housing Bureau.

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References

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7. Development Bureau. (2013b) Administration's paper on flats with size/number restrictions. Follow-up Paper submitted to the Panel on Development of the Legislative Council for discussion on 22 January 2013. LC Paper No. CB(1)553/12-13(01).

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