THE HONG KONG HOUSING AUTHORITY. Memorandum for the Housing Authority and Home Ownership Committee. Motion Debate on the Tenants Purchase Scheme

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1 PAPER NO. HA 43/2001 HOC 59/2001 THE HONG KONG HOUSING AUTHORITY Memorandum for the Housing Authority and Home Ownership Committee Motion Debate on the Tenants Purchase Scheme PURPOSE To inform Members of the motion debate on the Tenants Purchase Scheme (TPS) at the Legislative Council (LegCo) meeting held on 13 June BACKGROUND 2. A LegCo Member moved a motion on the TPS, which was carried at the sitting of the LegCo on 13 June He raised the following requests to the Housing Authority (HA) in the motion (Annex A) - (a) to announce the TPS programme beyond 2003 as soon as possible; (b) to extend the selection to block types other than Trident for sale under TPS; (c) to ensure the completion of all necessary repair and maintenance works prior to sale of estates under TPS; and (d) not less than 3 months prior to sale, to consult residents on the Deeds of Mutual Covenant (DMCs) for TPS estates. 3. Apart from consulting residents on DMCs, the current arrangements or targets of the HA/Housing Department (HD) for TPS are largely in line with the requests made in the motion. The Acting Secretary for Housing (Ag. S for H) therefore indicated the Administration s support to the motion in her concluding speech at the LegCo meeting (Annex B), while stating reservations on the request for DMC consultation. MAIN AREAS OF CONCERN

2 LegCo Members concerns on the TPS were of three main areas - (a) expansion of the programme ; (b) timely completion and quality of pre-sale repair and maintenance works; and (c) consultation of DMCs. DEPARTMENT S VIEWS 5. The views of the Department on the concerns of LegCo Members on TPS are indicated in the ensuing paragraphs. Expansion of the TPS Programme 6. There should be no doubt about the expansion of the TPS programme beyond 2003 as we have made a commitment in 1998 to provide not less than 250,000 public rental housing tenants the opportunity to buy their own flats at affordable prices in ten years. However, to maintain the flexibility to suit market conditions and needs, we have adopted an arrangement of announcement under a 3-year rolling programme. We have already announced up to Phase 6 of the programme for sale of about 184,000 flats in Furthermore, as one of the key initiatives under the Home Ownership Business in the HA Corporate Plan 2001/02, we have committed to reviewing the pace of the TPS programme, with a view to announcing the post-2003 programme later this year. 8. While we shall continue to take account of age, geographical spread, maintenance condition and financial capability of the tenants in the selection of estates for sale, expansion to include estates with block types other than predominantly Trident will be inevitable. Harmony blocks will certainly be considered.

3 - 3 - Timely Completion and Quality of Pre-sale Repair and Maintenance Works 9. We have always striven to complete all necessary repair and maintenance works prior to sale as far as possible, although it may not be practically possible to do so in some cases due to bunching of requests, inaccessibility or other problems. Starting from Phase 2 onwards, pre-sale repair and maintenance works are carried out nine months prior to the date of sale. 10. Besides, we have provided a 7-year structural guarantee for all buildings put up for sale under TPS. A maintenance fund amounting to $14,000 per flat for Phases 1 to 4, estimated to be adequate to cover major repair and maintenance works of common areas/facilities of the estates within ten years after sale, is also injected into the Owners Corporation s accounts. 11. Furthermore, to enhance quality assurance, a Maintenance Period of 12 months are provided for all repair works carried out during the presale period. Consultation of DMCs 12. In line with the DMCs for all developments both in the private and public sectors, DMCs for TPS estates are prepared with reference to the boundaries and responsibilities under the Government leases and in accordance with the Guidelines issued by the Legal Advisory and Conveyancing Office (LACO) of the Lands Department. The draft DMCs are also required to be approved by the LACO, whose role is to ensure fairness of the terms in the DMCs and balance the interests of all parties. 13. The lot boundaries of TPS estates largely follow those of the original Vesting Order boundaries, under which the estates have been managed by the HA. The Government lease boundaries and conditions comprise and include the responsibilities to manage and maintain areas and facilities built in connection with or mainly serving the estates, such as estate roads, open spaces, recreational facilities, slopes, footbridges, etc. While the HD will liaise with relevant Government departments to delineate the lot boundaries and related responsibilities, the final decision rests with the District Lands Conferences chaired by the Lands Department as the Land Authority. 14. To enable prospective purchasers to be well-informed buyers, the major rights and obligations under the Government leases and DMCs are

4 - 4 - indicated in the sales brochures. Copies of the approved DMCs are also deposited at the estate offices prior to sale, for inspection by prospective purchasers. 15. With such mechanism in place to ensure fairness, we do consider it inappropriate to launch an extensive consultation exercise with the residents on the DMC, which is a complex and lengthy legal document. It will also be very difficult if not impossible to reconcile the diverse interests and views of different parties. Furthermore, agreeing to consult may only give the residents a false impression or expectation that the HA can determine the final terms of the Government leases and DMCs, which is not the case. 16. However, to enhance communication and facilitate residents better understanding of their likely rights and obligations upon becoming an owner, we shall provide to the Estate Management Advisory Committee (EMAC) of each concerned estate six months prior to sale starting from TPS Phase 5 the following documents (a) a copy of the Vesting Order indicating the management boundary of the estate; (b) a set of typical DMC clauses; and (c) the DMC Guidelines issued by LACO. INFORMATION 17. This paper is issued for Members information. File Ref. : HD(AM)TPS 4/7/7 Date : 23 July Paul WAN Secretary, Home Ownership Committee Tel No. : Fax No. :

5 Annex A (Translation) Hon LAU Kong-wah s motion on Tenants Purchase Scheme to be moved at the Legislative Council meeting on Wednesday, 13 June 2001 That, in order to improve the Hong Kong Housing Authority's Tenants Purchase Scheme ("TPS") and satisfy th e needs of public housing residents, this Council urges the Housing Authority to: (a) expeditiously announce its plan for the sale of public housing flats after 2003; (b) extend the TPS to cover other types of public housing blocks apart from Trident blocks; (c) ensure that, before the sale of housing estates under the TPS, all the necessary repair and maintenance works are completed; and (d) consult the residents concerned on the contents of the deeds of mutual covenant for TPS estates not later than three months prior to the receipt of their letters of intent to buy the flats. Hoc59-01AnnA.doc

6 Annex B (Translation) Speech by Acting Secretary for Housing Ms Elaine CHUNG on the motion "Tenants Purchase Scheme" by Honourable LAU Kong-wah in the Legislative Council on 13 June, 2001 Madam President, Home ownership is the aspiration of many families. In 1998, the Housing Authority (HA) introduced the Tenants Purchase Scheme (TPS) which has been well received. Since its introduction, tenants living in public rental housing (PRH) have become owners of their flats. In the first three phases, about 70% of the tenants bought their flats within the first year of sale, reflecting its popularity among tenants. 2. Some Members queried whether the TPS was introduced to alleviate the deficit HA has incurred in operating public rental housing, or to increase HA s revenue. I would now like to explain the rationale behind TPS. The Government believes that home ownership is beneficial to individual as well as the whole society through promoting social stability and fostering a sense of belonging. Although the Government and the HA have already provided different ways for PRH residents to buy their own homes including the Home Ownership Scheme (the HOS), the Buy or Rent Option, and the Home Purchase Loan Scheme, some tenants may find mortgage payments, which can be as much as five times of their current rent, unaffordable. On the other hand, for purchase of flats under the TPS, the resultant increase in housing expenditure will only double their current rent. Therefore, the TPS is a midway option between PRH and the HOS on the housing ladder. 3. It is the target of the Government and the HA to offer their tenants not less than PRH flats for sale in the year 1998 to Extensive involvement is needed in implementing such a massive and unique scheme. There are also not many overseas examples that we can draw reference to. It is therefore natural for Members to have different opinions on this scheme. Now, I would like to respond to the four suggestions made by Hon LAU Kong-wah. After that, I hope both Members and the public would have a better understanding on the principles and operation of the TPS. Hoc59-01AnnB(Revised).doc Page 1 of 7

7 (I) Hon LAU Kong-wah suggested that the HA should expeditiously announce its plan for the sale of public housing flats after In fact, this is the current arrangement of the HA. Until now, the HA has already announced the list of estates for sale up to 2003 in six phases. We will announce the list of those estates that will be put up for sale under the post-2003 TPS programme later this year. 5. One of the Members has suggested that the HA should extend the rolling programme to announce the estates for sale beyond 3 years. I appreciate that this aims to give PRH residents more time to decide whether to take other subsidized home ownership opportunities or to join the TPS. However, the HA needs to maintain sufficient flexibility to plan and adjust the programme according to the market conditions and the need and demand of the PRH residents. In view of this, the current arrangement of a three-year rolling programme is considered appropriate. (II) Hon LAU Kong-wah suggested that the HA should extend the TPS to cover other types of public housing blocks apart from Trident Blocks 6. In selecting estates for sale under the TPS, the HA will consider the age of the estates, geographical spread, maintenance conditions and the interest and financial capability of the sitting tenants. With the rolling forward of the TPS, consideration will be given to include non-trident Block estates. In comparison with Trident blocks, non-trident blocks may or may not be better received. The popularity will largely depend on its location, flat size and other factors. (III) Hon LAU Kong-wah suggested that the HA should ensure that, before the sale of housing estates under the TPS, all the necessary repair and maintenance works are completed 7. This suggestion is exactly the target on which the HA and the Housing Department (HD) are working. According to the existing arrangement, the HD will invite concerned tenants to submit a request for repair of items inside their flats approximately 9 months prior to the launch of TPS sale, and the HD will complete all the necessary repair and maintenance works as early as possible. At the time when the estate is put up for sale, the HD will invite the prospective purchasers to submit a final request for repair again together with their offer to purchase. The HD will try its best to complete the outstanding repair works within three months. This is a very considerate mechanism through which the needs of the prospective purchasers are taken care of. Hoc59-01AnnB(Revised).doc Page 2 of 7

8 8. According to the record of the HD, for TPS Phase 4 introduced in February this year, more than 80% of the requests for repair submitted before the launch of the sale had already been finished. Since the repair works of the common areas were much more complicated, they required a longer time to complete but were nearing completion when these estates were put up for sale. The costs of these works were borne by the HA. 9. As for the Tai Wo Estate incident, the concerned tenant has been living in the flat in question for 11 years. The resident was given two chances to report on the damaged windows to the HD before the sale last year but did not do so. According to the legal advice of the HD, the liabilities do not rest upon the HD or the HA. 10. As Hon NG Leung-sing has pointed out, the HA will offer a 7-year structural guarantee to each TPS estate at the time of sale. It will also make a contribution of $14,000 per flat to the Maintenance Fund for future maintenance and repair of the estate. According to the HD s estimate, other than the routine repair works, there should be enough money in the Fund to pay for the necessary major repair works in the estate concerned for the coming 10 years. 11. In view of the large number of flats for sale and the repair requests received (for TPS Phase 3 alone, the HD has received and repair requests respectively before and after the sale), it may be impracticable for the HD to finish all repair and maintenance works before the completion of sale and purchase. Nonetheless, the HA and the HD are determined to strive for the best and try to finish all such works before the sale so that quality accommodation can be provided. 12. Even though housing estates built by the HA are exempted from the Buildings Ordinance, their design and building specifications are in compliance with the current building regulations and they are safe. When these estates are sold under the TPS, they will be subject to the regulation of the Buildings Ordinance. The Director of Housing is under the delegated authority of the Director of Buildings to manage these buildings until 1 July During this period, the HD will inspect the flats and common areas of TPS estates prior to sale and see to it that they comply with the Buildings Ordinance. Modifications will be carried out, if necessary, the cost of which will be borne by the HA. Hoc59-01AnnB(Revised).doc Page 3 of 7

9 (IV) Hon LAU Kong-wah suggested that the HA should consult the residents concerned on the contents of the Deeds of Mutual Covenant for TPS estates not later than three months prior to the receipt of their letters of intent to buy the flats 13. At present, the HD would explain the details of the TPS to the tenants through the Estate Management Advisory Committees (EMACs) before launching the Scheme. This enables the potential owners to fully understand their rights and obligations before making a decision. 14. Starting from next phase of the TPS, the HD will provide the EMAC with a set of typical DMC clauses and the Vesting Order of the estate concerned 6 months before the launch for sale. This will enable the tenants to better understand the details of the TPS, such as the estate boundary and the common facilities within the estate boundary. 15. At present, the HA controls and manages its rental housing estates in accordance with the Vesting Order issued by Government. The lot boundary stated in the Vesting Order includes largely the estate itself, estate roads, recreational areas and slopes. In some cases, it involves also related responsibilities of repair and maintenance, such as the footbridge(s) linking up the estate with its neighbourhood. Therefore, for flats sold under the TPS, the lot boundary stated in the Government Lease largely follows that of the Vesting Order. 16. The formulation of the DMC for TPS estates follows a well-established mechanism. This instrument ensures the proper management of TPS buildings and balances the interests of all parties concerned. Before and during the period when a TPS estate is put up for sale, an approved version of the DMC of that particular estate is available for prospective purchasers perusal at the Estate Office. Those who are interested may get a copy after paying a reasonable charge. When the estate is put up for sale, the salient points of the DMC will also be provided in the sales brochure. When the deed of assignment is executed, it is the responsibility of the purchaser s lawyer to explain in full the content of the DMC to his client. These arrangements are in line with that of the sale of uncompleted residential properties in both the private and public sectors. For the Han Garden in Li Cheng Uk Estate mentioned by Hon Frederick Fung Kin-kee, the HA has already agreed not to include it in the lot boundary of Li Cheng Uk Estate. 17. The HD will liaise with the Lands Department and the departments concerned in drawing up the Government Lease and the DMC. Upon agreement by the government departments concerned, the Government lease will be submitted to the District Lands Conference chaired by the Lands Department for approval. Hoc59-01AnnB(Revised).doc Page 4 of 7

10 18. In fact, in preparing the DMC of TPS estates, the HA follows the guidelines issued by the Legal Advisory and Conveyancing Office (LACO) of the Lands Department. These guidelines embody the requirements set under the Building Management Ordinance. The LACO will ensure that the DMC is fair and reasonable to all parties concerned, and will strike a balance among their interests. 19. Some Members have mentioned the management of TPS estates. To tie in with the contracting out of TPS estate management, the HD has set up an independent Property and Tenancy Service Section to supervise the work of private management companies. Since 20% of the employees of these private management companies must be former staff of the HD, their experience in public housing management is beyond question. (V) Response to the amendment raised by Hon Frederick FUNG Kin-kee and Hon Albert HO Chun-yan 20. Madam President, I have responded to the motion raised by Hon LAU Kong-wah and now I would like to turn to the amendments raised by Hon Frederick FUNG Kin-kee and Hon Albert HO Chun-yan. (VI) Hon Frederick FUNG Kin-kee suggested that the HA should offer choices of flexible discounts 21. The suggestion of Hon Frederick FUNG Kin-kee has indeed been adopted by the HA in the first two phases of the TPS. As expected, 99.8% of the purchasers at that time chose the option that offered them with the lowest price. In view of this, the HA has decided to offer a single discount on the market value of the flat in order not to increase the administrative workload arising from offering too many options. (VII) Hon Frederick FUNG Kin-kee and Hon Albert HO Chun-yan suggested that HA should take up the responsibility of repair and maintenance for a period of time even after the flats were sold under the TPS 22. After becoming a flat owner, a purchaser should enjoy the rights as well as the obligations of the flat and that of the common area of the estate. It is an important and long-established principle that has to be followed in the property market both in the private and public sectors. The transaction of a second-hand Hoc59-01AnnB(Revised).doc Page 5 of 7

11 property is based on the as-is condition. It is unreasonable to ask for a guarantee on unified standard of quality or demand the seller to provide a maintenance guarantee. It is already the current practice of the HA to carry out repair works for individual flat according to the request of the residents, to offer a structural guarantee for seven years and to contribute $14,000 per domestic flat into a Maintenance Fund. It is however not practical at all to ask for a guarantee on a unified standard of quality because the flats sold under TPS by the HA are not new flats and the facilities inside each flat may vary according to the use of residents in individual cases. It is impossible for the HA to offer a guarantee on a unified standard of quality. (VIII) Hon Albert HO Chun-yan suggested that HA should assist in the operation of the Owners Corporations (OC) of the TPS estates so as to safeguard the rights of the owners and tenants who are living in the same estate 23. In accordance with the DMC, the HA shall be responsible for the management of the TPS estate for the first two years after it has been sold. HA will also assist in the formation of the OC. Just like the OCs of the private housing estates, the OCs of the TPS estates are independent statutory bodies and they are fully responsible for and autonomous in carrying out the management duty of their estate. OCs are governed by the Building Management Ordinance under which a balanced mechanism is provided to look after the interests of the owners as well as the tenants. Tenants are allowed to form an association of their own and elect among themselves a representative to the OC Management Committee. Conclusion 24. The TPS has been achieving effective results since its implementation in In planning future TPS programme, the HA and HD would take into consideration the need of the market, the types of blocks put up for sale, flat prices and maintenance matters. The Government would also take into consideration the invaluable opinions of Members to improve the Scheme to better meet the aspiration of home ownership of public rental housing tenants. 25. On the whole, the Government is in support of the motion raised by Hon Lau Kong-wah. However, I must point out that while Government Lease has to be agreed by the relevant government departments and approved by the District Lands Conference of the Lands Department, DMC needs the approval of the Legal Advisory and Conveyancing Office. In order to be fair and reasonable in dealing with the DMC and the interests of all parties, the Government may not be able to cater for all Hoc59-01AnnB(Revised).doc Page 6 of 7

12 the needs of every single party. Since the amendments of Hon Frederick FUNG Kin-kee and Hon Albert HO Chun-yan are in violation of some important principles in property transactions, I urge Members to oppose to their amendments. 26. Thank you, Madam President. Hoc59-01AnnB(Revised).doc Page 7 of 7