Clue to a fickle housing market

A government land site for residential units in Fan Ling goes on the block today and it will be intriguing to see how the market responds - less than two weeks after a Tung Chung lot auction got hammered.

The sale comes just days after the Housing Society's relaunch of its remaining stock of Sandwich Class Housing Scheme units drew a lackluster response from potential buyers. At its Tai Hang sales office on Friday, more than 40 percent of potential buyers invited failed to show up.

While the phenomenon is baffling, it is also alarming.

Sandwich class housing is a subsidized program similar to the Home Ownership Scheme. It was introduced in the mid-1990s to sell flats to middle- class families - the sandwich class - at concessionary prices. Buyers were subject to income limits and a five-year resale restriction. But it was shelved by the former Tung Chee-hwa administration in a desperate bid to restore stability to the housing market after the Asian financial crisis.

Under pressure, the Housing Society reintroduced 838 units to the market to increase housing supply. Given the fact that the stock was oversubscribed by more than 40 times, few people would possibly expect the no-shows to be so serious, though it would be normal to see a few absentees.

All of a sudden, what has dampened the IPO fever seems to be happening in the housing market too. It is legitimate to ask why so many people opted out at the last minute.

Some are saying the buyers are waiting for the 4,000 HOS units that are due to be sold soon. But I think the lackluster response has more to do with the correction taking place in the private housing market, where prices have fallen by about 10 percent in a number of estates.

As I have often said, customers are clever. They know what they want most, and do not need the government to tell them if it is a wise purchase or not.

It is clear that, seeing a narrowing of price differences following the correction in private housing, many buyers have decided to adopt a wait-and-see attitude. For example, flats at sandwich class housing project The Pinnacle are being sold for some HK$3,000 per square foot. But Metro City, just right next to it, is being sold for about HK$4,200 psf in the secondary market.

Doesn't this, along with past experiences, confirm that buyers prefer private housing to subsidized home ownership flats?

The government is right now consulting the public on whether or not it is necessary for it to subsidize home ownership. While housing minister Eva Cheng Yu-wah and others want a resumption of HOS building, the poor response on the first day of the sandwich class housing relaunch provides a timely reminder there are more factors that need to be considered in forward planning.

Market situations can change swiftly. If the market trend has prompted so many to ignore sandwich class housing now, will it still be necessary to reintroduce a subsidized home ownership scheme?

The government has to tread carefully. The situation is murky nowadays and it is difficult to say which way the market is heading. The Tung Chung site failed to excite buying interest, but a week later a site on The Peak was sold for a record price. What will be the outcome of the Fan Ling site auction today?

While it is anybody's guess, the market is already lowering its expectations. Surveyors are predicting the site - which offers a floor space of 575,000 sq ft - will be sold for up to HK$1.4 billion, about 10 percent down from earlier projections.

Let's see if the outcome will provide another clue to the way forward.

英文虎報 Central Station | By Mary Ma