Today's newspapers report a very strange story that is a direct result of what passes for housing policy in Hong Kong.
The government appears ready to forgo nearly HK$800 million in lost revenue to get out of a controversial subsidised housing project in Hung Hom that the developers could either tear down and replace with a more lucrative development, or refurbish and sell at far higher prices. The agreement, announced yesterday, appears to give New World Development and its new partner, Sun Hung Kai Properties, the potential for a profit margin as high as 40 per cent, market analysts say
This is not a one-off. The government has been left with several housing developments which had been built under the "private sector participation scheme" (PSPS). Although the scheme has been abolished, the government still had to buy the apartments from the developer and find something to do with them. In this case they decided that the apartments were "too good" to be used for public rental, and that the simplest solution was to sell them back to the developers.
Just to complete the madness, the developers are planning to pull down the newly-built apartments and replace them with something more upmarket. Local residents seem to be happy about this, having never wanted "cheap housing" in their neighborhood, and resenting the fact that full harbour views would be available at such a low price.
The first question is indeed why these apartments were built in the first place (or at least why they were built under this scheme). The government appears to be in favour of high property prices because it enables it to generate revenue from property developers, but is also concerned about the effect this has on the less affluent members of society.
You may recall that back in 1997 Mr Tung was trying increase home ownership and even had a target of 85,000 new homes each year. The PSPS scheme was part of this initiative, attempting to provide better quality accomodation at a reasonable price. Property developers share the government's fondness for high prices, but blamed Tung's policies for the fall in property prices that followed the Asian financial crisis and lobbied for the special schemes to be abolished. The government duly obliged, apparently hoping that this would lead to an increase in property prices. You may spot a small flaw in this argument: if prices did rise (as was hoped) then the same group of people for whom this scheme was designed would find themselves unable to afford to find somewhere to live.
The second question is why some better use cannot be made of these apartments, and the only logical explanation is that the government is unwilling to do anything that will upset the property developers. They claim that the properties couldn't be sold to the public because the developer owns the commercial and car-parking space, but I have no idea why that should be an obstacle. Isn't the Hong Kong Housing Authority (i.e. the government) planning to sell the commercial and car-parking space in existing public housing developments?
The third question is about the role of the developers. This scheme has been dropped because of the pressure they put on the government, and yet they are not willing to absorb any of the cost of that decision. Quite the opposite - they are expecting to make a substantial profit at the government's expense!
It's madness, I tell you!