Green Paper on Housing Policy

The Government of Hong Kong Special Administrative Region

Kyle Bryce-Borthwick REAL/BEPP 236
The Wharton School
7 May 2014


Executive Summary
The Hong Kong property market faces a critical imbalance between demand
and supply whilst affordability worsens to critical levels;
As of yet, existing measures have been inadequate:
To combat this, the Government has introduced extensive cooling measures on the
demand-side (Further Measures), and such measures have been successful in curbing
further price growth. However such measures, including substantial hikes in ad
valorem stamp duty targeting specific market actions, are inadequate as a sustainable
long-term solution. Volumes of sales have plummeted and affordability has worsened
as transaction costs have increased substantially and access to credit has weakened.
A supply-led strategy should be adopted:
The response to the imbalance should instead be supply-led, with new unit construction
increasing the balance of public assisted housing over market produced outcomes. To
further this, the Home Ownership Scheme should be reinstated in tandem with
increased deliverance of Public Rental Housing to achieve a target ratio of 60:40 in
government assisted to private market units. On a material level, such would include
the introduction of 250,000 assisted-ownership new units over the next decade, or an
addition of 0.89% annually to total housing stock. Around 200,000, or around 0.7%
additional stock annually, should be added to PRH stock over the next decade. In the
private sector, steady supply of new land as well as the easing of restrictive zoning
policies, should be implemented to add on another 300,000 to 400,000 over the next
decade. In total, present government estimates should be revised from an inadequate
1.77% annualized increase in stock to around 3% in additional stock annually until
2025.

Severe market inelasticity is a long-term concern:
To this end, the Government should expand increased infrastructure development in a
tailored, specific manner that will meaningfully lead to multi-primate outcomes
addressing issues of severe market inelasticity. Long-term demand for property,
although difficult to predict, is healthy whilst present issues of critical unaffordability
harm Hong Kongs development as a financial, technological, and educational
powerhouse. Given Hong Kongs unique regulatory and governance framework, its
institutional strengths and strategic location embedded into Chinas economic
heartland, regional competition remains limited and demand for property development
will continue to increase substantially.
The Governments multifaceted role is rare and conflicting;
The Governments role as a de facto monopolist in the real estate industry is unique
both across sectors and by international standards. Resultantly, the government faces a
tradeoff between keeping prices high as a means of extracting revenue (resultantly,
keeping other forms of taxation low) and ensuring the general public has access to
affordable housing. Existing policy provides for the lowest 30% of households through
Public Rental Housing and another 20% through previous assisted ownership schemes,
while the private market caters for around 30% of households. Consequently,
suggested government policy should address the remaining 20% who are not catered
for by either mechanism, the sandwich class, as well as future generations who may
not be grandfathered into existing units.

Government Priorities
In developing a comprehensive housing policy, the Government has explicitly
focused on two primary objectives (i) housing affordability and (ii) maintaining a
healthy and financially stable real estate market that may lean against cycles and
withstand heavy external shocks. The existence of a third objective, however, is much
accounted for in public policy but seldom unexplained in official discourse. The Hong
Kong property market is unique in its role a key pillar in the territorys economy.
Stamp duty and auction proceeds additionally comprise a substantial proportion of
around 25 30% of total Government revenues (Appendix I). Measures that may
destabilize long-term transaction volumes and price levels could eradicate a significant
source of government revenue that would otherwise have to be compensated by
increased taxation on personal income and profits.
The real-estate market structure is highly concentrated with a small number of
developers controlling the market, a situation comparably unique in an international
perspective. The territorys density, high prices and size of developments, however,
require substantial economies of scale that present challenges to more traditional,
localized structures present in other markets. With this in mind, the small number of
market participants and high market concentration make the market particularly
vulnerable to anticompetitive practices. Developers may choose to withhold stock and
act in a visible, coordinated manner whilst narrowly skirting regulations against such
practices. The recent sizeable fall in transaction volume accompanied oddly with
modest rises in price levels indicates a situation where such practices may have had
adverse effects on affordability despite the imposition of cooling measures.

The State of the Market
Housing prices in Hong Kong are by all measures, one of, if not the highest in
the world. Prices per square meter in the residential sector are estimated to be $20,660,
second only to Monaco and first among world cities. In the 2012 edition of the Knight
Frank Global Index measuring house price change, Hong Kong not only topped 55
housing markets but also accounted for the fastest pace of price growth since Q3 2008
(Knight Frank 2012). By 2013, however, Government instituted cooling measures had
led to a drop to 17
th
place only a 7.7% rise compared to previous years 23.6%
(Knight Frank 2013). This does tell the whole story. Transactions in the next quarter
following the imposition of the measures dropped 67%, falling below even 2008
levels. Annualized figures account for the highest drop in 10 years, surpassing
recorded drops for even the Eurozone, Banking and SARS Crises. Despite the 48.6%
drop in transactions, price levels still increased by a substantial 7.7% and occupancy
costs remain the worlds highest. In a 2013 Survey by Savills, relocation costs
(measuring residential and office costs) for 14 employees were the highest in Hong
Kong for the fourth consecutive year, topping other world-cities such as New York and
London (Savills). Retail and office rents are similarly world beating, with two Hong
Kong districts accounting for positions 1 and 4 in the office market respectively as well
as Hong Kong holding a substantial lead over New York as the most expensive retail
property market overall (Appendixes III and IV ). Across all market segments, there is
a severe market imbalance between demand and supply. This is not simply a problem
specific to housing or housing finance, but an imbalance present across all sectors of
the industry.
Prices in the private market, however, do not carry across to all segments of
society. Former Chief Executive Donald Tsang noted that around 50% live in
government subsidized housingthe housing issue is not one that is [endemic] to the
disadvantaged groups (Long Term Housing Strategy). The sandwich class, those
who earn more than that allowed by government housing but not enough to withstand
high prices within the housing sector, constitute the most affected segment of society
by persistently high prices. Government priorities in housing have been driven by a
desire to minimize intervention within the market as well as promote the fair and stable
development of the private market. Nonetheless, affordability is still a critical issue for
first-time buyers. House prices remain the worlds most unaffordable at almost 15
times higher than the Median Annual Income, more than three times higher than the
multiple given for Singapore a regime with similar supply characteristics
(Demographia). The territory, however, does have a relatively high owner-occupancy
rate at 52% but below government targets of 70%. This figure is particularly
interesting given that around 30% of housing units are Public Rental Units, leaving
around 20% potentially comprising the sandwich-class who are not catered for by
the market and government policy.
Access to housing is not the only concern of policy makers and the general
public; the investment characteristics of property are of particular significant to
methods of wealth transfer and accumulation in a territory characterized by high
private savings rates
1
. The question of fairness applies more in the mind of equal
treatment across society by the government than of equal outcomes enjoyed by Hong
Kong residents. The Government has consistently maintained its policy of positive
non-interventionism espousing minimum intervention in the private sector whilst
materially safeguarding only the needs of the most needy.

Government Assisted Housing Policy
Public rental housing (PRH) constitutes the lionshare of government assisted
housing- comprising some 30% of total supply of housing units. The provision of
assistance to those with genuine housing needs has always been the heart of the
Governments housing policy. As at 31 March 2013, about 2.09 million people (about
30% of the population) lived in PRH flats. The PRH stock was about 766,300 units.

1
Gross savings (% of GDP) 28% in 2012, 30% - 32% in the years prior. Source: The World Bank
The Government intends to continue to assist low-income families who cannot
afford private rental accommodation through PRH. The target is to keep the average
waiting time for Waiting List general applicants at around three years. As of March
2013, there were about 116,900 general applications and 111,500 non-elderly one-
person applicants under the Quota and Points System on the Waiting List for PRH. The
average waiting time for PRH general applicants is around 2.7 years.
The Government has implemented the following requirements when assessing
the genuine need of PRH recipients:
- A Waiting List is operated for the allocation of new or refurbished PRH flats to eligible
applicants in accordance with the order of registration;
- Non-elderly one-person applicants are subject to the Quota and Points System, under which
points will be assigned to them based on their age when the applications are registered,
whether they are PRH tenants and their waiting time. The more points the applicant scores, the
earlier the applicant will be offered a flat, subject to the fulfilment of all the PRH eligibility
criteria;
- To be eligible, applicants and their family members must undergo comprehensive means tests
covering both income and assets, and must not own or co-own or have an interest in any
domestic property in Hong Kong or have entered into any agreement ot purchase any domestic
property in Hong Kong or hold more than 50% of shares in a company which owns, directly or
through its subsidiaries, any domestic property in Hong Kong. At the time of allocation, at least
half of the family members included in the application must have lived in Hong Kong for seven
years and all family members must be still living in Hong Kong;
- Public rental tenancies cannot be passed on automatically from one generation to the next.
When a tenant passes away, a new authorised person (other than the surviving spouse) is
subject to a comprehensive means test; and
- Long-term tenants (i.e. those who have stayed in public rental housing for 10 or more years)
with income and assets exceeding prescribed limits are required to pay additional rent or
vacate their flats.
(Housing Factsheet)
It is a long-established policy of the Housing Authority to set PRH rents at
relatively affordable levels. As per the Housing Ordinance, the Housing Authority
conducts reviews of rents biannually and adjusts all-inclusive PRH rents according to
the changes in the overall household income of PRH. As of March 2013, PRH rent
ranged from $290 to HK$3,880, whilst the average rent was about HK$1,540 per
month a relatively small percentage of income earned by qualifying classes.
The Housing Authority originally implemented the policy as a relief measure from
the effects of the 1953 Shek Kip Mei fire which had left 50,000 squatter-dwelling
residents homeless. At the time, the territory had been facing massive waves of
immigration from the then newly established Peoples Republic of China, and
resultantly, settlement by these refugees-turned-residents was haphazard informal.
Government policy stemmed from a need to replace inadequate housing with
formalized forms in a way that did not increase the burden of housing on this low-
income sector of society significantly.
Today, whilst still maintaining the objective to target inadequate housing, the
rationale of the Housing Authority has developed as a means to also target specific,
disadvantaged groups (i.e. the elderly, families) whilst maintaining incentive structures
for working population to continue to better themselves. Contributions are capped vary
with means but are capped at 15%, limiting wage pressures on the lower end of the
income spectrum in the territory. Strangely enough, the Government has maintained its
longstanding free-market policies by intervening in the market to safeguard the interest
of the grassroots mitigating the impact it has as a monopolist.


Overview of Subsidized Home Ownership
Whilst issues of informality and inadequate housing had largely been addressed
with the imposition of PRH, the sandwich class of those who did not qualify for
PRH and also are not adequately catered for by the private market comprise a second
area necessitating government policy. Government targets were set to increase
homeownership from relatively low levels of around 30% in the late 1970s to an
optimistic 70%. To meet this demand, the Government pursued a policy of acting as
the developer for this segment of the market.
Since 1978, about 467 800 (as at March 2013) subsidized flats have been sold
to low- to-middle income households at discounted prices under the various subsidized
home ownership schemes, including the Home Ownership Scheme (HOS), the Private
Sector Participation Scheme (PSPS) and the Tenants Purchase Scheme (TPS)
introduced by the Housing Authority, as well as the Flat-For-Sale Scheme and
Sandwich Class Housing Scheme of the HKHS. Such schemes provided relatively
affordable housing with discounts set at around 30 40% under market conditions.
Owner-occupancy ratios increased substantially since policy implementation,
reaching 53% by the policys sunset period in 2002. However, substantial debate had
centered on the relevance and fairness of such a policy considering some households
only temporarily qualified for such benefits and was able to resell their properties for
substantial profit. Additionally, price shocks following the 1998 and 2001 crashes
depressed property values to a state where affordability was no longer a prime issue in
the minds of the general public. Subsequently in 2002, the Government decided to end
assisted ownership policies and a permanent moratorium on the Home Ownership
Scheme was instituted:
Under the repositioned subsidised housing policy in 2002, the objectives of the
Governments housing policy are to provide public rental housing (PRH) to low-
income families who cannot afford private rental housing, withdraw from playing
the role of a property developer, cease the production and sale of subsidised sale
flats, and minimise intervening in the market. Encouraging the public to purchase
homes is no longer an objective of the Governments housing policy
(Relaunching of Home Ownership Scheme)
The Government held the view that increasing homeownership rates to the
target of 70% was no longer paramount if the public sector had to play as the
developer and intervene substantially in the market where prices and profits of
property developer had become substantially depressed compared to previous periods.
Yet in 2012, in response to substantial increases in price levels partnered with
severely deteriorating levels of affordability, the incoming government led by CY
Leung reexamined subsidized home ownership policies. Planning objectives were set
to provide some 17 000 new HOS flats over the four years from 2016/17 onwards, and
thereafter an annual average of 5 000 HOS flats. It is expected that the first batch of
about 2 100 new HOS units will be completed in 2016/17, and the pre- sale will take
place in end-2014.
Demand continues to increase;
Population growth in Hong Kong has largely been stable over the past ten
years, remaining below 1%. Recent data indicates growth in population to be 1.17%, a
much lower figure than in Singapore but higher than that in China as a whole.
Immigration can be broken down into (1) One-way entry permits issued to Mainland
Chinese (2) Targeted immigration available through the General Employment Scheme,
Capital Investment Scheme and other initiatives.
The volume of One-way entry permits has remained constant since 1997
capped at 150 daily or 54,750 annually. At 62% of total migration, one-way permits
comprise the majority of immigration flows into Hong Kong. Such inflows usually
represent family reunions or cases of marriage in a way that does not alter natural
household formation substantially, particularly as such inflows act as a substitute for
the territorys birthrate of 0.9 per woman the lowest such figure worldwide.
Consequently, the stability and substitutability this source of immigration exerts does
not pose extraneous consequences for demand levels within the market sector.
Immigration under schemes intended to attract talent has risen substantially, the
large bulk from the General Employment Scheme (28,625 admitted in 2012, or 0.4%
of total population). Net outflows remain small, generating a net gain of around 0.3%.
It is not only the volume of migration entering into the territory that may affect demand
in the private market, but the quality and specific demands characteristic of it. Foreign
professionals who comprise the bulk of net migration into Hong Kong tend to have
smaller households (1-2 persons) and demand larger spaces than that is commonplace
for Hong Kong locals. Such will have an outsized footprint in expansions of demand in
the territory.
Non-local buyers account for a third source of demand for properties. In 2011,
19.5% of transactions for new properties and 6.8% in the second-hand market were
from foreign (primarily Mainland Chinese) buyers.
The effect of Mainland Chinese buyers has had an outsized impact on the Hong
Kong real estate market. In Q3 2011, PRC buyers made up 53.9% of all new sales by
value. However, after the suspension of eligibility for residency status by property
acquisition, this figure declined to 31.2% by Q3 2012. Further measures, including the
imposition of a special stamp duty on non-permanent Hong Kong residents, led to a
decline in this proportion to around 6% by the second quarter of 2013. However, the
special stamp duty and other recent cooling measures are only temporary. Speculative
and second-home demand in the territory will continue to persist in the long-run. Such
demand has only been diverted to second-choice markets other than Hong Kong and
Singapore, leading to substantial rises in property prices in Sydney and London due to
substantial increases in transactions from Mainland buyers following the imposition of
cooling measures.

Supply is severely restrained;
The natural geography has severely limited the extent which supply can
operate. The city has a mountainous terrain with most of the land remaining free from
development. Subsequently, Over 40% of the territory is protected under the Country
Parks Ordinance whilst a further 20% remains undeveloped. The land that is developed
has taken to extreme rates of density, with Hong Kong home to 2,354 buildings over
100 meters more than triple the next highest, New York at 725 (CBTUH).
Nonetheless, Hong Kong can become increasingly innovative at looking at
constructing even taller buildings and rezoning areas where buildings are capped at
certain heights. Substantial maneuvering exists on this end of the spectrum, as zoning
has been uneven across the territory and building regulations overly strict considering
the critical imbalance between demand and supply. Prices in the territory are incredibly
high and nonetheless, could support the financial health of increasingly innovative
solutions to the supply problem.
As of present, the Government allocates the bulk of its land by which it offers
to the housing market through auctions. In the long term, however, this method will not
appropriately address the housing crisis. Land auction phase out small developers and
encourage high prices as means of distributing costs of the land back to the
Government. With this strategy, the government has curtailed the proliferation of
smaller developers stimying competition in a sector that requires much greater
oversight. Hong Kong developers are disproportionately represented amongst the
worlds largest, with players Sun Hung Kai, Henderson Land, New World
Development, Hang Lung Group and Wheelock all possessing a market capitalization
over $5 billion (Forbes). This situation raises questions as to whether developers are
abnormally large and enjoy an oligopolistic market structure in a sector that is
traditionally more localized and more competitive.
Anticompetitive practices have proliferated with regards to the real estate
market. The territory has been target of a slew of scandals, including the 2011 39
Conduit Road in which Henderson Land lied about sales in order to push up prices.
However the most jarring of scandals has been one involving the co-chairmen of Sun
Hung Kai properties who are currently undergoing trial for indirect payments made to
high profile government figures with regards to land auctions (Yung). Such actions
suggest market malpractice and that further competition and regulation in this sector is
needed in order to best accommodate and fair and healthy real estate sector. The
government should perhaps look into expanding the use of tenders and involving non-
price considerations in land allocation policies moving away from traditional land
auctions.
The Government has entered the market insofar that it has operated the Urban
Renewal Authority. Such measures, however, need to be expanded and targeted at
regions with particularly exacerbated issues of affordability. Older areas across Eastern
and Central Kowloon still require substantial redevelopment, with removal of
substandard tenement housing an issue that requires substantial government
intervention. The Government, in this case, can take the role as market leader in
adopting innovative practices that may lead to better prices. For example, split-market
developments where buildings are divided amongst affordable, market and luxury
portions has yet to proliferate in the Hong Kong market despite its popularity in other
regions, notably in the United States.
The largest such measure the Government should intervene is the further
expansion of infrastructure networks as well as proper use of existing infrastructure
developments that will lead to multi-primate outcomes within the city ultimately
increasing sorely-needed elasticity. The development of North Lantau, in tandem with
the construction of the HK-Zhuhai-Macau link and improvement of existing the
Airport link, is capable of providing 200,000 -300,000 new units that may relieve
pressure from the city center. These road and rail connections, however, need to be
carefully completed with an explicit emphasis on time reduction. The Government
should nto be afraid of using through-train or express services to outer regions, cutting
commute time, even if it does cannibalize price growth in more centrally located
precincts.
A last suggestion targeting increased supply is to build up retail centers across
the edge of Hong Kongs northern land border with the Mainland. Developments at
Lok Ma Chau and Lo Wu could act to absorb demand specific to the substantial
number of day-trippers, a source of some 28 million users of Hong Kong malls
annually. These measures would not only cater to demand, but also reduce congestion
and undue pressure on primarily residential areas of the city (Wong)

Financing is largely adequate in the private market;
Presently, the current system of mortgage financing is largely robust and
affordable. Interest rates are low and the small number of banks competes heavily by
lowering lending rates further. In addition, Hong Kong has one of the most developed
mortage markets in the region with a participation rate of 47% (Hofinet?).
However, the Governments recent use of financing as method to curb demand
(see Appendix II) has been ineffective and unfair in addressing price growth. One of
the most significant sources of demand has been the purchase of second-homes
through cash only instruments. Reducing access to credit most severely affects first-
time buyers and members of the sandwich class. As such, it is recommended that the
Government restore LTV ratios from 70 to 80% - whilst maintaining existing
restrictions on properties valued over HK$10 million. The territorys present low
delinquency ratios partnered with small number of robust banks may lend the market
well to restore 90% LTV specifically targeting first time buyers with good credit
scores. However such measures must be compliant Basel III Capital Rules, and the
feasibility of such a policy should be examined.
The interest spread is also relatively high (see Appendix VII) considering low
delinquency rates encountered by mortgage banks. Recent competition through the
underpricing of lending rates is perhaps a natural development to the sector. Bank
profitability is not a concern in the territory, however anti-competitive strategies are.
The market has been supported by a rigorous regulatory framework learned lessons
learned from 1998 Asian Financial Crisis. The territory has a proven track record
showing that is able to sustain future shocks. However, caution should be given
considering how dependent Hong Kong is on the international economic environment.
Specifically, the US Dollar peg makes the territory particularly dependent to actions
undertaken by the Federal Reserve.

Real estate plays an outsized role in the territory;
Hong Kong is unique in that the real Estate industry comprises a substantial
pillar in the territorys economy. Although the sector has traditionally seen as a
cronyist sector, helping secure Hong Kongs 1
st
place in The Economists Crony
Capitalism Index, this does not do the industry justice in terms of the role and
innovation the industry has played in territorys economy. Notably, the Value Capture
Model by which the Hong Kong Metro uses increased property prices as means of
subsidizing itself has gained international praise ( ). The use of mixed-use
developments is also notable, particularly as cities in Mainland Chinese embrace the
same strategies Hong Kong has in improving accessibility and dealing with severe
shortages of space. The real estate market also benefits from being highly liquid with
good accounting and legal practices inherited from the UK jurisdiction
Yet with all that being said, the sector is prone to anti-competitive practices that
may have reduced efficiency in the market. In addition, around 25 35% of public
finances is dependent on revenue from the real estate market. It is clear that the
government is dependent on the property markets ability to maintain its health in order
to keep taxation through forms low. As a result, Hong Kong has maintained
competiveness through low profits and income taxation supported by high property
prices.
On the flip side, this precise dynamic also threatens Hong Kong development
as an international hub of innovation and commerce. Occupancy costs have become
exorbitantly high, exceeding even London and New York. Figures show that costs to
locate to Hong Kong are 60% higher than they are in Singapore, a territory which has
been able to have more elastic stock benefiting its development in sectors ancillary to
finance. Hong Kong (As well as Singapore) face difficulty in that industries cannot
simply move to the suburbs or to nearby centers but still enjoy similar benefits in
which businesses located in the center may achieve. The regulatory framework and tax
regime that have made Hong Kong so successful extend only to its borders and cannot
be compensated in quite the same way as is the case in other centers should
development on the Mainland occur. This phenomenon threatens attempts to diversity
the regions economy, and thus skews development unnaturally in favour of industries
that can withstand Hong Kongs high costs, notably finance. Creative industries will
find it particularly difficult to survive in a market where costs are so high. Similarly,
the Governments interest in positioning Hong Kong as a hub for innovation and tech-
based start-ups may only surmount to token gestures with no real opportunity for
natural development.
Ultimately, however, the greatest concern is the role in which high prices
continue to lead to tremendous issues of unaffordability. Similarly, Hong Kong
residents cannot be expected to move out to the suburbs or to another city. This
market is simply not just another city in China or Asia for that matter, and cannot be
easily replaced by another location for Hong Kongs residents. Housing provision in
Hong Kong particularly necessitates a social function. While government has been
successful in catering for the lower end of the market, ensuring the development of a
robust and fair mortgage sector, and developing effective infrastructure in promoting
multi-primate centers, affordability in the private sector is severely limited. As the
most unaffordable market in the world by some margin (see Appendix V), the
Government needs to cater for the sandwich class as well as future generations who
are not grandfathered into existing units.

Concluding Remarks and Policy Recommendations
Hong Kong is an exceedingly fascinating case of a world city, akin to New
York and London, but one that encounters definite, regulatory limits to its territory
rendering its market as severely supply inelastic. Despite the territorys small size,
population and domestic market, this inelasticity has led to the highest property prices
across all sectors in the world.
This situation is particularly problematic, as Hong Kongs permanent residents
cannot merely relocate to areas that suit their budgets, they themselves comprise a
relatively static market that cannot be compared to the populations in other world cities
save for Singapore. Resultantly, Hong Kong faces an affordability crisis, and in
particular, a demographic gap that is left unaccounted for both in the private and public
markets. Nonetheless, the affordability question is not entirely understood. Home
ownership rates in territory are at 52% whilst those catered by public housing comprise
a second 30% of the market. Resultantly, further studies should focus on establishing
the needs of the remaining 18% . Are they indeed struggling young families with little
hope of attaining home ownership? Or does this remainder comprise of temporary
members whose lack of home-ownership is transitory and a natural development?
These questions deserve further analysis.
These questions, however, should delay efforts to combat the evident demand
and supply imbalance. The Hong Kong Government is in a rare situation producing
consistent budget surpluses, and thus capable of implementing substantial policy
initiatives. Ultimately, elasticity needs to be improved substantially. Tung Chee Wahs
administration saw a reversal in levels of unaffordability caused dramatic increases in
housing stock, with around 80,000 made available annually. More than ten years later,
the situation today only sees around half of such stock made available. Similarly,
Singapore, a city with broadly similar characteristics, has annual stock generation at
around 3%. Hong Kong currently operates at a measly 1%.
Resultantly, the following policy actions are strongly recommended:

The construction of 250,000 government-assisted ownership units over the next
decade, an annual addition of 0.89% to total housing stock.
Around 200,000, or around 0.7% additional stock annually, should be added to
Public Rental Housing stock over the next decade.
Supply to the private sector should be increased, leading to 300,000 to 400,000
over the next decade.
In sum, present government estimates of future stock generation should be revised
from an inadequate 1.77% annualized increase to 3% until 2024.


























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Appendixes
Appendix I: Overview of Sources of Government Revenue


2008-
2009
2009-
2010
2010-
2011
2011-
2012
2012-
2013
Operating
revenue
Direct
taxes
Earnings and
profits tax
Interest tax
- - - - -
Profits tax
104,1
51
76,60
5
93,18
3
118,6
00
125,6
38
Personal assessment 2,151 3,656 3,922 4,512 4,078
Property tax 833 1,678 1,647 1,949 2,259
Salaries tax
39,00
8
41,24
5
44,25
5
51,76
1
50,46
7
Indirect
taxes
Bets and sweeps tax 12,62
0
12,76
7
14,75
9
15,76
1
16,56
5
Entertainments tax - - - - -
Hotel accommodation tax (1) 223 - - - -
Stamp duties 32,16
2
42,38
3
51,00
5
44,35
6
42,88
0
Air passenger departure tax 1,626 1,617 1,813 1,947 2,029
Cross Harbour Tunnel passage tax - - - - -
Duties 6,047 6,465 7,551 7,725 8,977
General rates
7,175 9,957 8,956 9,722
11,20
4
Motor vehicle taxes 4,981 4,816 6,657 7,070 7,466
Royalties and concessions 2,389 1,596 2,452 4,849 2,736
Fees and charges (tax-loaded fees) (2) 4,870 4,895 5,113 6,769 5,127
Other
revenue
Fines, forfeitures and penalties 1,006 1,183 1,159 2,660 1,208
Properties and investments 12,48
3
12,60
1
15,80
6
16,97
1
19,26
8
Loans, reimbursements, contributions and
other receipts 3,305 3,277 2,887 3,425 3,404
Utilities 3,320 3,438 3,483 3,573 3,687
Fees and charges (excluding tax-loaded
fees) (2) 5,600 5,592 6,250 6,450 6,463
Investment
income
General revenue
account
23,35
2
17,89
3
17,82
4
20,10
5
20,02
4
Land Fund
14,18
3
11,19
6
11,07
8
11,21
6
11,12
6
Total operating revenue 281,4
85
262,8
60
299,8
00
339,4
21
344,6
06
Capital
revenue
Indirect
taxes
Estate duty
176 185 213 94 137
Taxi concessions - - - - -
Other
revenue
Land transactions - - - - -
Recovery from Housing Authority 471 864 142 163 230
Others
3,488 5,946 1,212 2,359
15,85
3
Funds Capital Works
Reserve Fund
Land premium (3)
16,93
6
39,63
2
65,54
5
84,64
4
69,56
3
Others 6,219 2,245 2,797 3,822 4,675
Capital Investment Fund 1,917 1,232 1,357 1,386 1,482
Disaster Relief Fund 5 12 4 9 1
Loan Fund 2,101 2,276 2,238 2,389 2,240
Civil Service Pension Reserve Fund 1,745 1,377 1,363 1,379 1,369
Innovation and Technology Fund 416 323 272 240 214
Lotteries Fund (3) 1,603 1,490 1,538 1,817 1,780
Total capital revenue 35,07
7
55,58
2
76,68
1
98,30
2
97,54
4
Total Government revenue 316,5
62
318,4
42
376,4
81
437,7
23
442,1
50

Appendix II: History of LTV Policy


















Source: HOFINET
Appendix III: Global Office Indices Marketview



December 2013



Appendix IV:




















June 2013

Source: CBRE




























Appendix V: Annual International Housing Affordability Survey
















































Source: Demographia
Appendix VI: Global Retail Indices Marketview





















Appendix VII: Hong Kong Interest Rate Policy




























Index Hong
Kong
Singapore
Square Meter
Prices
$20,660 $17,709
Rental Yields 3.00 2.41%
Rents $6,198 $4,276
Price/Rent Ratio 33 yrs 41 yrs
Price/GDP per
Cap
60.07 34.92
Roundtrip Cost 2.77% 4.67%
Rental Income
Tax (Effective)
12.16% 15.13%
Capital Gains Tax
(Effective)
0.00 0.00
House Price
Change 1 year
6.3% 3.47
House Price
Change 5 years
94.89% 50.92%
House Price
Change 10 years
160.30% 77.74
Landlord and
Tenant Law
Pro
Landlord
Pro
Landlord
Economic
Freedom Rating
89.68 87.18
Economic
Freedom 5 years
10.82% -8.19%
Competitiveness
Rating
5.36 5.63
Property Rights
Index
90 90


Currency +/-
value
$0.70 $0.85
Taxes on
Residents (Av.)
n.a. n.a.