The Housing Authority (HA) is a major government organization and the largest property developer in Hong Kong. Over 50% of the population is living in the public housing provided by the HA. Up to now, the HA has accumulated a huge cash reserve with a current total of HK$28 billion. This huge reserve has accumulated mainly from two sources. One main source is the profit from the disposal of HOS/ PSPS properties. The other source is the rental income from commercial facilities owned by the HA. Historically, the income from these two sources was used to subsidize the expenditures in public housing. Since these two sources provide a strong income stream, the government does not need to inject cash into the HA but only to grant lands for development. Basically, the HA can enjoy a high level of financial independence.

In terms of having a low amount of government cash subsidy, the HA was very successful in providing housing solutions to over half of Hong Kong’s citizens. However, the HA’s self-sustained financial ability is now facing a big challenge.

Last November, the Secretary for Housing, Planning and Lands announced the Statement on Housing Policy. The Statement clarified the role of the Government in the property market and confirmed that the thrust of the Government’s subsidized housing policy should be to assist low-income families that cannot afford private rental housing. On this basis, a number of other measures, directly related to the work of the HA were also announced, including the cessation of the production of HOS flats and the suspension of the sale of HOS and Tenants Purchase Scheme flats.

For this reason alone, the HA projected that in the absence of other replacement income sources to fund its capital expenditure on the production of public rental housing flats, the HA will incur an annual net cash flow deficit. The HA’s cash balance is forecast to decrease from HK$28 billion, at the moment, to minus $5.5 billion by march 2006.

In addition, the HA is embarrassed by the losing in the first lawsuit requesting the HA to bring the rent to a level whereby the Median Rent-to-Income Ratio (MRIR) of all public housing estates does not exceed 10%, as required by Section 16(1A) of the Housing Ordinance Cap 283. The HA has decided to appeal. However, to deal with the huge political pressure from the tenants, the HA undertook, in the event of an unsuccessful appeal, to refund to the applicants and all families affected by the Order of Mandamus, the difference between the rents at the existing levels and the rent that they should have been paying together with interest. Should the appeal be unsuccessful, it is possible that the HA will become a negative asset to the SAR government and require government direct funding thereafter. Under the current government’s current situation of having a huge fiscal deficit, this financial burden from the HA is a real problem.