PAPER NO. SHC 21/2014 Memorandum for the Subsidised Housing Committee of the Hong Kong Housing Authority Sale of Home Ownership Scheme 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approval for the average selling prices and sales arrangements for the sale of flats in Tin Lee Court (TLC), and one rescinded flat in Tin Chung Court (TCC).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 - 2 - consultation with relevant Government Departments Note 1, we have renamed the converted HOS block as TLC, and have informed the Islands District 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. - 3 - 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 Tin Shui Wai 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. - 4 - 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 - 5 - 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.