PAPER NO. SHC 21/2014

Memorandum for the Subsidised Housing Committee of the Housing Authority

Sale of Flats in Tin Lee Court - Sale Prices and Sales Arrangements

PURPOSE

This paper seeks Members’ approval for the average selling prices and sales arrangements for the sale of flats in Tin Lee Court (TLC), and one rescinded flat in Tin Chung Court (TCC).

BACKGROUND

Tin Lee Court

2. Tin Lee House (TLH) is one of the nine public rental housing (PRH) blocks in Lung Tin Estate, which is situated at Tai O on Lantau Island. Adjoining Lung Tin Estate is a Home Ownership Scheme (HOS) development named Lung Hin Court, which was sold in 1999 under HOS Phase 20B. The location plan is at Annex A. TLH is a 12-storey rural type block completed in 1995 and comprises 86 flats. The vacancy rate of the block had been high since its completion. To better utilize public housing resources, Members endorsed on 7 February 2013 vide Paper No. SHC 10/2013 the conversion of TLH from a PRH block into an HOS block for sale. Members also endorsed the recovery of 14 occupied flats through management transfer of the affected households with offer of Domestic Removal Allowance, one-month rent free period in the tenancy, a choice of any districts for transfer and first priority in the purchase of a converted flat in TLH when the flats are put up for sale.

3. The management transfer of the 14 affected households was successfully completed in September 2013. The preparation of the land lease, Deed of Mutual Covenant (DMC) and other title documents to facilitate the sale of flats was also completed in February 2014. Upgrading works for the block and the associated external areas to facilitate management of TLH as a standalone HOS block is scheduled for completion by end April 2014. After

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consultation with relevant Government Departments Note 1, we have renamed the converted HOS block as TLC, and have informed the Council of the same on 16 December 2013.

4. Upon the conversion of one flat into a combined management and Owners’ Corporation (OC)’s office, TLC comprises 85 flats. With the land lease, DMC and other title documents obtained and upgrading works nearing completion, we are preparing the sales brochure for sale of the 85 flats in June 2014.

Tin Chung Court

5. In the sale of the remaining 832 surplus HOS flats under Phase 7 in 2013, one purchaser failed to complete the sale and purchase for a flat in Block L of TCC. The agreement for sale and purchase in respect of the flat was cancelled and the rescinded flat will be offered for sale together with the 85 flats in TLC under this sale exercise.

ASSESSMENT OF SELLING PRICES

Pricing Principle

6. According to the HOS pricing formula, selling prices of flats are determined by applying a discount to the market value. The discount is related to the affordability of the eligible households within the HOS income limit. The affordability is determined based on the principle that for at least 50% of the flats for sale, a mortgage-to-income ratio of not more than 40% can be achieved for eligible households with income at the level of the current HOS Income Limit Note 2 for White Form (WF) applicants. In 1991, the then Home Ownership Committee agreed that HOS flats should under normal circumstances be sold at 30% discount from the market value, but a higher discount could be offered if the affordability criteria could not be met. The

Note 1 The Commissioner of Rating and Valuation, Postmaster General, Principal Official Language Officer of Civil Service Bureau, the Director of Home Affairs and the District Officer (Islands) were consulted and had no objection to the renaming of the converted HOS block as TLC.

Note 2 HOS Income Limit for White Form applicants is proposed to be $44,000 per month for household size of two persons or above. Details are set out in Paper No. SHC 20/2014, which will be considered by Members separately.

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general guideline of offering a discount of 30% from market value was reaffirmed in 2006 for the sale of surplus HOS flats and the same discount rate was set for the sale of surplus HOS flats under Phase 7 in 2013.

Assessment of Market Values

7. In assessing the average market values for the current sale, we have considered sale transactions up to December 2013 of residential properties in the open market for both private developments and HOS developments in the vicinity of the subject developments (i.e. mainly on Lantau Island for TLC and in for TCC). For TCC, reference has also been made to the prices of flats in the subject HOS development sold in the open market. In our valuation, we have taken into account the difference in age, location, design and facilities, etc. between the comparable developments and the subject developments. For both TLC and TCC, due regard has been given to the fact that these blocks were not newly completed, although upgrading and defects rectification works had been carried out on both TLC and TCC.

Proposed Selling Prices

8. The assessed market values in respect of the developments for sale and the average selling prices based on a discount of 30% from the assessed market values are shown in Annex B. The proposed selling prices for the flats range from $641,100 to $897,300 in TLC, reflecting different attributes of individual flats including floor level, orientation, aspect, etc. The proposed selling price for the flat in TCC is $1,934,300.

9. In a separate Paper No. SHC 20/2014 to be considered by Members, the income limit for WF applicants for this sale exercise is proposed to be $44,000 for household size of two persons or above. Based on the proposed selling prices and the proposed income limit, the overall affordability in respect of the flats for sale under this sale exercise is at 100%. We therefore propose that the average selling prices for the respective developments for sale as shown in Annex B be adopted. Upon Members’ approval of the average selling prices, we will put up the selling prices for individual flats for approval by the Chief Estate Surveyor in charge of the pricing of flats in this exercise in accordance with the delegated authority approved by the then Home Ownership Committee vide Paper No. HOC 11/89.

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QUOTA ALLOCATION AND FLAT SELECTION

Quota Allocation

10. In the past sales of HOS and surplus HOS flats, the ratio for quota allocation between Green Form (GF) and WF applicants varied from 80:20 to 50:50 with a view to balancing the objective of promoting the mobility of PRH flats for reallocation to those on the PRH Waiting List and assisting low and middle income families to buy their own homes. Any remaining GF quota after exhausting all GF applicants in the flat selection exercise will be allocated to WF applicants, and vice versa.

11. For the sale of surplus HOS flats from Phase 1 in 2007 to Phase 5 in 2009, the quota allocation ratio between GF and WF applicants were set at 80:20. For Phase 6 and Phase 7, a ratio of 60:40 was adopted in response to public views for a higher WF quota. Recently, there have been different views in the community calling for an increase in either the GF or the WF quota. In this connection, it is worth noting that although the actual number of surplus HOS flats sold to GF and WF applicants in the last seven phases Note 3 was on average at a ratio of 51%:49%, the number of flats sold to GF applicants in each phase was generally slightly higher than that sold to WF applicants. Besides, we have all along maintained the flexibility to allocate any remaining quota in one category to the other.

12. Taking into account the above, and in order to encourage more GF applicants to buy HOS flats so that they can return their PRH flats to the Hong Kong Housing Authority (HA) for allocation to those on the PRH waiting list, we propose to maintain the ratio for quota allocation between GF and WF applicants at 60:40 and the flexibility to switch the unused quota between GF and WF applicants for the sale of converted HOS flats in TLC and the rescinded flat in TCC under this sale exercise.

Note 3 Number of flats sold to GF and WF applicants in the sale of surplus HOS flats under Phases 1 to 7 are as follows –

Number of Flats sold

Phase 1 Phase 2 Phase 3 Phase 4 Phase 5 Phase 6 Phase 7 Total (2007) (2007) (2008) (2008) (2009) (2010) (2013) GF applicants 1 591 1 837 2 034 530 1 002 1 761 365 9 120 (44%) (56%) (56%) (28%) (72%) (55%) (44%) (51%) WF applicants 2 037 1 434 1 599 1 389 392 1 456 467 8 774 (56%) (44%) (44%) (72%) (28%) (45%) (56%) (49%) Total 3 628 3 271 3 633 1 919 1 394 3 217 832 17 894

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Priority for Flat Selection

13. As endorsed by Members on 7 February 2013, the 14 affected households relocated from TLH will have first priority in flat selection for purchase of flats in TLC. Subject to the above, the priority for flat selection between GF and WF applicants will be 3:2 to follow the proposed quota allocation ratio. Thereafter, we shall follow the order of priority for flat selection by category of applicants Note 4 with family households having priority over one-person households, as adopted for the sale of surplus HOS flats.

RESIDENCE REQUIREMENT

14. In the 2014 Policy Address, the Government announced that the annual production of HOS will be set at about 8 000 flats on average. This is a significant increase comparing to the HOS production pledged by the Government Note 5 earlier. HA is liaising with relevant Government bureaux and departments to identify sites to increase the HOS production. Due to scarce land and housing resources, we consider it necessary to prioritise the provision of home ownership assistance. As such, for the sale of flats under this sale exercise and in future HOS sale, we propose to maintain the

Note 4 In respect of the GF queue, flat selection priority will follow previous practice in the order of families affected by HA’s clearance programmes; families applying under the Priority Scheme for Families with Elderly Members; other families; one-person households affected by HA’s clearance programmes; and other one-person households. Regarding the WF queue, nuclear families applying under the Priority Scheme for Families with Elderly Members will come first, followed by other nuclear families; non-nuclear families and one-person households.

As approved vide Paper No. SHC 33/2007, if GF applicants who obtained a PRH unit through the Express Flat Allocation Scheme launched from 2007/08 onwards apply for the purchase of surplus HOS flats within 3 years from intake of their PRH unit, they will be treated as if they were WF applicants in the flat selection order, and any surplus HOS flats taken up by this category of GF applicants will be counted against the WF quota. SHC further endorsed vide Paper No. SHC 53/2012 that the same measure should be extended from surplus HOS flats to cover all future HOS flats. Upon purchase of an HOS flat, this category of GF applicants, similar to other GF applicants, will have to surrender their PRH units to the HA.

Note 5 The Government has previously set a planning target to provide about 17 000 new HOS flats over four years from 2016/17 onwards, thereafter 5 000 flats per annum.

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requirement as in the Interim Scheme of Extending the HOS Secondary Market Scheme to WF Buyers and the sale of surplus HOS flats under Phase 7, in that a WF applicant must himself/herself have lived in Hong Kong for at least seven years on or before the closing date of the application, and their stay in Hong Kong not be subject to any condition of stay (except the condition on limit of stay).

APPLICATION AND PUBLICITY ARRANGEMENTS

Application Fees

15. Application fees are generally set to recover HA’s operation costs. To streamline the fee collection procedures for the sale of surplus HOS flats under Phase 7, Members endorsed on 7 February 2013 vide Paper No. SHC 9/2013 the arrangement to charge a one-off application fee upon application and to waive the subsequent top-up fee. We propose to follow this arrangement of charging a one-off application fee for the sale of flats under this sale exercise and in future HOS sale. To recover HA’s operation costs, for this sale exercise, the one-off fee upon application will be $200.

Timetable

16. We intend to launch the sale in mid 2014. Detailed timetable is as follows –

Activities Timing

Announcement of sale Note 6 June 2014 Invitation of applications June 2014 Balloting July 2014 Flat Selection August 2014

Note 6 Publicity activities will be launched for announcement of the detailed arrangements for the sale.

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Sales Documents

17. The converted flats in TLC and the rescinded flat in TCC are regarded as first-hand residential properties. Although Divisions 2 to 8 of Part 2 of the Residential Properties (First-hand Sales) Ordinance (the Ordinance), which regulate the sales arrangements (including preparation of sales brochure) do not apply to HA, it is HA’s intention to follow the requirements under the Ordinance as far as practicable.

18. To follow the requirements of the Ordinance, relevant sales documents will be made available as follows -

(a) sales brochure for TLC, updated sales brochure for TCC Note 7, price lists for TLC and TCC and documents on sales arrangements Note 8 for TLC and TCC will be made available at the HOS Sales Unit (HOSSU) Note 9 at the HA Customer Service Centre (CSC) for collection by the public round the clock starting seven days before commencement of the application period until the last day of the application period. Upon the expiry of the application period and up to the end of the flat selection period, hard copies of the sales brochure, price lists and documents on sales arrangements will be made available at the HOSSU during its opening hours only. The aforementioned documents will be made available at the

Note 7 For the sale of surplus HOS flats in Blocks K & L and one unsold flat in Block G under Phase 7, a sales brochure was prepared for Blocks F, G, H, J, K & L of TCC. For the purpose of sale of the rescinded flat in TCC under this sale exercise, the sales brochure for TCC will be examined and updated within three months before commencement of the application period. Note 8 The Ordinance requires that the price list and document on sales arrangements be made available at least three days before sale. For convenience of the public, we will make available the price lists and documents on sales arrangements seven days before sale together with the sales brochures.

Note 9 In previous HOS sales, sales documents as well as application forms and guides were made available for collection by the public at the HOSSU as well as other locations including estate offices of the HA and Hong Kong Housing Society, District Tenancy Management Offices, the Public Enquiry Service Centers of the Home Affairs Department and the Sham Shui Po Housing Information Centre. In view of the small number of flats for sale under this sale exercise and for environmental concerns, copies of the sales documents will only be made available for collection at the HOSSU. Copies of the sales documents will be made available for inspection only in other locations. We have consulted the Sales of First-hand Residential Properties Authority and they have no adverse comment on such arrangement.

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website designated by HA starting from seven days before commencement of the application period until the end of the flat selection period. The Sales of First-hand Residential Properties Authority (SRPA) considers this arrangement agreeable;

(b) Vendor’s Information Forms for TLC and TCC will be provided to successful applicants before they attend the HOSSU for flat selection; and

(c) Registers of Transactions will be displayed and updated daily at the HOSSU and on the website designated by HA from the date of commencement of the application period together with other documents and plans required to be made available for public inspection at the HOSSU and on the website designated by HA as required by the Ordinance.

As in the sale of surplus HOS flats under Phase 7 in 2013, the sales brochures, price lists and Registers of Transactions will not be uploaded onto the Sales of First-hand Residential Properties Electronic platform, in order to distinguish the sale of the flats of TLC and TCC, which are subsidised flats, from the sale of other first-hand residential properties in the private property market.

Show Flat / Flat Viewing Arrangement

19. There is no requirement under the Ordinance that show flats must be provided for the sale of first-hand residential properties. In line with the arrangements for the sale of the surplus HOS flats in Blocks K and L of TCC under Phase 7, we will not provide any show flats for TLC for viewing during application and flat selection periods in this sale exercise. However, to follow the requirements of the Ordinance for completed developments, arrangements will be made for purchasers to view their selected flats in TLC as well as the rescinded flat in TCC before signing of the ASPs. Furthermore, a photo album containing photos of the interior of typical flat types and the external view from TLC will be made available for public viewing at the HOS Information Centre at the CSC and on the HA website.

MANAGEMENT FEES DISPUTE IN TIN CHUNG COURT

20. There is a management fees dispute in TCC in which one owner has instituted proceedings in the Lands Tribunal and the hearing is fixed on 26 and 27 March 2014. The HA will make full disclosure of the dispute, the

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consequence of the potential encumbrance on title and the latest position of the legal proceedings in the sales documents, including the sales brochures and particularly in the ASP. Subject to the conditions as set out in the ASP, the HA will indemnify the purchaser and his/her successors and assigns for any sum of money ordered to be paid by the court or agreed to be paid by HA in respect of the management fees in dispute, including any interest, costs and expenses.

21. Warnings will be incorporated in the sales documents urging purchasers to seek independent legal advice on the implications of the management fees dispute prior to flat selection and the signing of ASP and to engage their own solicitors to act for them in the purchase.

OTHER ARRANGEMENTS

Defects Liability Period

22. According to the mandatory provisions in the ASP as required by the Ordinance, a defects liability period (DLP) of six months from the date of assignment of individual flats should be provided. However, to follow the long established practice for the sale of HOS and surplus HOS flats, we propose to offer a DLP of one year from the date of assignment of individual flats by HA for the 85 flats in TLC and the rescinded flat in TCC.

Structural Safety Guarantee

23. Members agreed vide Paper No. SHC 6/2006 that HA will provide a structural safety guarantee (SSG) of 10 years (20 years for projects in Tin Shui Wai) for unsold blocks/development from the commencement date of the flat selection period of the first sale phase for each unsold block. We propose to follow the practice for surplus HOS flats and a SSG of 10 years will be provided to the flats in TLC from the commencement date of the flat selection period for this sale exercise.

24. As for the rescinded flat in TCC, the first sale phase for Blocks K and L of Tin Chung Court was the Sale of Surplus HOS Flats Phase 7. Accordingly, a SSG of 20 years from the date of commencement of flat selection for that phase (i.e. 24 July 2013) will be provided to the rescinded flat in Block L of TCC.

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Buyback Arrangements

25. Members endorsed on 24 January 2006 vide Paper No. SHC 6/2006 that HA will decline all buyback offers for the surplus HOS flats sold from 2007 onwards. Members further endorsed on 12 September 2012 vide Paper No. SHC 53/2012 that HA should decline buyback requests from purchasers of future HOS flats. Accordingly, owners of flats in TLC, as well as the surplus HOS flat in TCC, may sell their flats in the open market immediately after paying the premium to HA Note 10 or sell their flats in the HOS Secondary Market to eligible purchasers without payment of premium upon expiry of the first two years from the date of first assignment.

LEGAL IMPLICATIONS

26. The current legal proceedings relating to the management fees dispute will not prevent the sale of the rescinded flat in TCC under this sale exercise. However, HA will need to make full disclosure of the latest position regarding the legal proceedings in the sales documents.

27. There are no legal implications as far as compliance with Divisions 2 to 8 of Part 2 of the Ordinance (which relates to sales practices) is concerned, since this part of the Ordinance does not apply to developments constructed by HA.

28. For advertisements, HA has to comply with the requirements of Part 3 of the Ordinance. It should also be noted that Part 4 of the Ordinance, which covers misrepresentation and dissemination of false or misleading information, is applicable to HA.

FINANCIAL, STAFFING AND IT IMPLICATIONS

29. The total sales proceeds for the sale of the converted HOS flats in TLC and the rescinded flat in TCC is estimated to be $72.46 million. After deducting the estimated total costs at $67.27 million, the operating surplus is estimated to be $5.19 million.

Note 10 Under the alienation restrictions, HOS owners may sell their flats in open market after paying the premium when either (a) a period of 5 years has elapsed from the date of first assignment; or (b) before the 5-year period has elapsed, the HOS owner has offered to sell the flat to HA and HA has declined the offer.

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30. Additional workload required to implement the sale, including preparation of land grant, DMC, other title documents, sales brochure (which follows the requirements of the Ordinance as far as practicable) and other sales materials and documents, pricing, sales arrangements, etc. will be absorbed by existing staff.

31. IT support will be required to enhance the system for the handling of first priority in flat selection for the 14 affected households transferred out of TLH as well as the setting up of the website designated by HA and updating of the Register of Transactions as required under the Ordinance.

PUBLIC REACTION AND PUBLICITY

32. The TLH was completed and occupied since 1995. For sales purposes, upgrading works for the block and the associated external areas to facilitate management of TLH as a standalone HOS block have been carried out. Based on the established methodology and valuation principles, the selling prices had reflected the remote location, age and other characteristics of the TLC development. As the selling prices are at relatively affordable levels, the sale of TLC should provide a good opportunity for eligible families to attain home ownership. We also expect that the early sale of the HOS flats in TLC, which will enable better utilization of public housing resources, should be welcomed by the public.

33. Since the enactment of the Ordinance in 2012, this is the second exercise in which first-hand residential properties are offered for sale by HA. Notwithstanding the fact that Divisions 2 to 8 of Part 2 of the Ordinance regulating sales arrangements do not apply to developments constructed by HA, HA has followed the requirements of the Ordinance in the sales arrangements as far as practicable. We do not expect much public or media interest in this respect. A press statement will be issued after the SHC meeting to announce the decisions.

CLASSIFICATION OF THE PAPER

34. We recommend that this paper be declassified after the meeting. The paper will be made available to the public at the HA homepage, the Department’s library and through the Departmental Access to Information Officer if it is declassified.

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ADVICE SOUGHT

35. Members are recommended to endorse the following –

(a) the discounted average selling prices as set out in Annex B (paragraphs 8 and 9);

(b) the ratio of 60:40 for quota allocation between GF and WF applicants, the flexibility to switch the unused GF quota to WF applicants and vice versa; and the priority of 3:2 for flat selection by ordinary GF and WF applicants subject to first priority for the 14 affected households transferred out of TLH (paragraphs 12 and 13);

(c) the residence requirement for WF applicants i.e. the applicant himself/herself must have lived in Hong Kong for at least seven years on or before the closing date of the application, and his/her stay in Hong Kong is not subject to any condition of stay (except the condition on limit of stay), for the sale of flats under this sale exercise and in future HOS sale (paragraph 14);

(d) to continue the arrangement of a one-off application fee for the sale of flats under this sale exercise and in future HOS sale and to charge a one-off application fee of $200 on application under this sale exercise (paragraph 15);

(e) the provision of DLP and SSG (paragraphs 22 to 24); and

(f) to declassify this paper after the meeting (paragraph 34).

Ms Cindy CHAN Secretary, Subsidsed Housing Committee Tel. No.: 2761 5033 Fax No.: 2761 0019

File Ref. : HD4-1/EST/1-55/1 (Strategy Division) Date of Issue : 19 March 2014

Annex B

Proposed Average Selling Prices for the Sale of Home Ownership Scheme Flats in Tin Lee Court and one Rescinded Flat in Tin Chung Court

District Development Block No. of Saleable Assessed Average Proposed Average Range of Proposed Type Flats Areas Market Values Selling Prices Selling Prices (m2) ($/m2 Saleable Area) @ 30% discount ($/flat) ($/m2 Saleable Area)

Tai O, Tin Lee Court Rural 85 44.4 – 45.1 26,500 18,550 641,100 – 897,300 Lantau Island

Rescinded Flat

Tin Shui Wai Tin Chung Court Concord 1 60.4 45,750 32,025 1,934,300