As Chief Executive Donald Tsang is winding up his consultation on what housing policies he should unveil in his policy address in October, information leaked by those who were consulted on the matter indicates that the defunct Home Ownership Scheme (HOS) will be revived.

The government hopes to quell the outcry for affordable housing with the re-launch of the scheme after a series of measures since the second half of 2010 failed to bring down sky-high home prices, driven up and supported by short supply and strong demand.

The scheme allows eligible buyers, specifically the so-called "sandwich group" - those who are not qualified for a public rental flat but can't afford housing in the private market- to buy a government-subsidized flat at a discount of 30-40 percent to the market price.

However, it is more of a hope than actual help for those who really need to buy an affordable flat in the short term. Take young people who wish to marry within the next few years for example. The first batch of new HOS flats won't be available for five to seven years from now, as suggested by top housing officials earlier, because it needs time to scout and prepare the necessary land parcels before flats can be built.

A more practical way of providing ready and affordable homes to the market is to "truly" revitalize the secondary market for HOS flats. This can be done by allowing HOS flat owners to sell their units also at a 30-40 percent discount to the market price to sandwich-group buyers while exempting them from paying the land premium.

As one of the restrictions on HOS ownership, owners are currently required to pay the government the land premium (equivalent to the 30-40 percent discount they have received from the government), before they can re-sell their flats in the free market at market price, which will include the land premium portion. Without paying the land premium, they can only re-sell their units to low-income families who are occupying (or are eligible and waiting for) a public rental flat, and who find little incentive to give up their cheap public rental flat to buy a HOS flat.

Assuming 10 percent of the approximately 300,000 existing HOS flat owners, who have saved a good amount of money by owning and living in a subsidized flat for years, want to re-sell their HOS flats and upgrade to the private housing market, there will be around 30,000 affordable flats immediately available in the market for the "sandwich class".

The government actually tried to revitalize the HOS secondary market by introducing the Premium Loan Guarantee Scheme (PLGS) last September, which allows HOS owners to pay the land premium by installments.

The government's intention with the PLGS is to encourage some HOS flat owners to re-sell their flats in the free market, in the hopes of revitalizing the dormant HOS secondary market by facilitating the turnover of HOS flats and therefore increasing the supply of flats in the market at a time when supply can't meet demand.

However, this initiative has proven to be a failure as there has been barely any applicants since its introduction and the HOS secondary market remains dormant. This was so because the real cause for the liquidity of the HOS secondary market is due to the requirement of the land premium payment.

Would-be buyers find the HOS flats available in the secondary market totally unattractive at market price in comparison with first-hand HOS flats which were sold at a 30-40 percent discount to the market price - or without the land premium payment.

For those who can afford a HOS flat at the market price, they would rather buy a flat in the private housing market, which enjoys much higher liquidity and a stronger potential of appreciation than the HOS market. Meanwhile, for those who can't afford the market price, the PLGS scheme is meaningless.

As a result, this initiative failed to achieve the government's target of increasing the supply of affordable flats in the market at a time when home prices have soared to levels beyond the affordability of ordinary employees.

So if the government really wants to provide more affordable flats in the market in the short term as it has claimed, waiving the land premium requirement seems to be the only practical way right now.

The author is a staff writer at China Daily. The opinions here are his own.

george@chinadailyhk.com

(HK Edition 09/06/2011 page2)