For discussion FCR(96-97)50
on 19 July 1996

ITEM FOR FINANCE COMMITTEE

CAPITAL WORKS RESERVE FUND
HEAD 701 - LAND ACQUISITION
Home Purchase Allowance

Members are invited to approve revisions to the eligibility for Home Purchase Allowance payable to owners of domestic premises affected by resumption.



PROBLEM

The Home Purchase Allowance (HPA) currently payable to owners of domestic premises affected by resumption is over generous.

PROPOSAL

2. We propose to restrict payment of HPA normally to owners who occupy domestic premises affected by resumption (i.e., owner-occupier) and to one residential property per owner, based on the revised eligibility as set out in paragraph 11 below.

JUSTIFICATION

3. HPA is an ex-gratia payment, made as a simple cash addition to the statutory compensation payable under a number of Ordinances related to land resumption and clearances. The intention of paying HPA is to enable individual home owners to purchase a replacement flat of a similar size in the neighbourhood of the resumed flat. The amount of HPA payable is the difference between the cost of a replacement flat and the statutory compensation of the resumed premises to which claimants are entitled. This is to ensure that we do not force affected owners out of home ownership as a result of resumption.

4. Under present practice, we pay HPA to all owners of resumed domestic premises, irrespective of whether the premises are vacant, tenanted or occupied by the owners. Furthermore, there are no restrictions to payment regarding the duration of ownership prior to resumption, nor is there a limit on the number of payments to a single owner who owns more than one flat affected in the same resumption exercise.

Non owner-occupier

5. At present, we pay statutory compensation on the basis of the full open market value of the premises resumed. The amount is generally lower for premises with tenants than for premises free from tenancy. Given the lower amount of statutory compensation for tenanted property, the amount of HPA payable is correspondingly higher. This results in the anomaly that owners who have leased their property receive a higher HPA than that payable to owner-occupiers. This is unfair given the original intention of paying HPA.

6. Unlike owner-occupiers, investment owners (whether their flats are tenanted or left vacant) will not need a replacement flat for occupation upon resumption. The likely impact of resumption on them is probably no more than the need to re-invest their funds elsewhere. In practice, upon resumption, landlords will pass any responsibility to accommodate the existing tenants to Government; rarely do they need to purchase a replacement flat to accommodate the affected tenants. There is, therefore, no reason why owners who do not occupy their flat (absentee landlords) should get HPA, which we provide for protecting home ownership only.

Abuse by speculators

7. Speculators have taken advantage of the current rules by acquiring property with the aim of profiteering from payment of HPA. In a recent resumption exercise involving a Comprehensive Development Area at Ma Tau Kok, we found that five premises were purchased after the gazetting of the resumption notice. Typical figures for HPA paid in this clearance were as follows -

(a)

Cost of replacement flat

$43,000/m2

(b)

Statutory compensation

(market value of resumed flat)

$11,000/m2

(c)

HPA payable [(a) - (b)]

$32,000/m2

By acquiring a "slum" property in areas such as Ma Tau Kok, speculators are able to make substantial profits. We consider that we should limit beneficiaries of HPA to those having a genuine need to purchase a replacement flat for occupation.

Multiple payments

8. Current rules of paying HPA to all owners have resulted in multiple payments to single owners who own more than one property1 . We consider that we should restrict payment of HPA to one residential property per owner-occupier, except in special circumstances mentioned in paragraph 11(f) below.

9. To discourage abuse by speculators, HPA should only be payable in general to owner-occupiers already in occupation of the premises prior to gazetting of the resumption. This restriction would also help to discourage unscrupulous landlords from circumventing the owner-occupier criterion by terminating tenancies and moving in themselves, however briefly, after receiving notice of the resumption, in order to claim HPA.

Basis for estimating the cost of a replacement flat

10. At present, we estimate the cost of a replacement flat on the basis of a brand new one of a size similar to the one being resumed and in the same locality. However, as the premises resumed are very often older type premises in poor conditions, it is quite sufficient to base HPA on a reasonably modern, but not necessarily brand new, replacement flat of comparable size in the locality.

Criteria for the payment of HPA

11. To safeguard the use of public funds, we consider it necessary to tighten the eligibility for HPA as follows -

  1. HPA should normally be payable only to an owner who is an owner-occupier;
  2. we should adopt the guidelines set out in the Enclosure to determine whether a claimant for HPA is an owner-occupier;
  3. a person who is not an owner-occupier before the date of gazetting of resumption should not be eligible for HPA, notwithstanding the fact that the owner has acquired the ownership and has also moved into the premises after the gazetting of resumption. However, a person who has executed a sale and purchase agreement before the gazetting of resumption, and has completed the purchase and obtained vacant possession of, or occupied, the property as his sole residence, should be treated as the owner-occupier eligible for HPA;
  4. a person, who owns a property but is not occupying it at the time the resumption notice is gazetted, may be regarded as an owner-occupier provided that -
    1. the property resumed is the only property owned by that person in Hong Kong when the notice of resumption is gazetted; and
    2. he is currently living elsewhere because of his occupation (e.g. he has been posted abroad) or is occupying a quarter provided by his employer or renting one, using a tenancy allowance provided by his employer2;
  5. we should normally restrict HPA to one residential property per owner;
  6. multiple payments may be made to an owner who can show that his immediate family, i.e. children, parents or dependent siblings are occupying his other properties being resumed, prior to the gazetting of the resumption;
  7. we should assess HPA on the basis of a replacement flat in the same locality and of a size similar to that under resumption rather than a brand new flat; and
  8. we should pay HPA to an owner-occupier if his domestic premises are resumed under any of the legislation referred to in paragraph 14 below or any other legislation, including those which may be enacted in the future, under which statutory compensation is payable on the basis of the assessment described in paragraph 14.

Appeal channel

12. The Commissioner for Administrative Complaints (COMAC) recently investigated a complaint relating to the resumption of properties at Ma Tau Kok. He strongly recommended the setting up of an appeal channel. We propose that any owner who disagrees with a decision by the Director of Lands (D of L) that he is not eligible for HPA may, within three months of such a decision, appeal to the Secretary for Planning, Environment and Lands (SPEL). Upon receiving notice of the appeal, SPEL will hear or consider representations from parties to the appeal and make a final decision on the appellant's eligibility for HPA. An owner, who claims to have suffered injustice in consequence of maladministration in connection with the decision of D of L or SPEL, will also be able to lodge a complaint with COMAC as at present.

FINANCIAL IMPLICATIONS

13. The proposed changes to the eligibility for HPA will reduce the acquisition costs on resumption and clearance projects. We are unable to estimate precisely the amount of reduced expenditure as a result of adopting the proposed rules because we do not know the number of owners and owner-occupiers in future resumption exercises at this stage. As an indication, we estimate that we could have saved about $230 million, out of the $370 million of HPA payments incurred in the past three financial years, had we adopted the proposals.

BACKGROUND INFORMATION

14. Statutory compensation is payable when Government resumes domestic premises under a number of Ordinances, including the Crown Lands Resumption Ordinance, the Mass Transit Railway (Land Resumption and Related Provisions) Ordinance, the Roads (Works, Use and Compensation) Ordinance, and the Water Pollution Control (Sewerage) Regulation. We assess the amount at the full market value of the property having regard to its existing use and existing conditions, including whether it is tenanted or not. The need for HPA was first identified in 1979 as a result of clearance at Sai Lau Kok in Tsuen Wan for the Mass Transit Railway.

15. On 28 October 1981, Members approved an ex-gratia compensation package in respect of all resumptions and clearances. The compensation package includes four ex-gratia payments, namely HPA, capitalised interest allowance, setting-up allowance and rental allowance. Regarding HPA, the Finance Committee noted that HPA would be payable to all owners of domestic premises, and proof of purchase of new premises would be necessary. On 1 May 1990, the Governor in Council discussed the anomalies that had arisen in the application of the HPA policy. Amongst proposals to improve the HPA system, the Governor in Council decided that HPA should be payable to all eligible claimants; it should no longer be necessary for the owner to actually purchase a replacement flat in order to be eligible to claim HPA. This was intended to address the grievances associated with the practical difficulty experienced by some affected owners in purchasing a replacement flat in the same locality before being eligible for HPA and the delay in payment arising from the need for reassessment of the actual amount of HPA payable in each and every case. We informed the Legislative Council of these changes to the HPA system in a Legislative Council brief issued on 9 May 1990.

16. On 4 June 1996, the Governor in Council endorsed the proposed eligibility criteria for payment of HPA in paragraph 11 above.

17. We briefed the Legislative Council Panel on Planning, Lands and Works on our proposals on 25 June 1996.

Planning, Environment and Lands Branch

July 1996

1 -- In the Ma Tau Kok resumption exerciese, there were 23 cases of multiple HPA payments.
2 -- This is to take account of cases where owners have legitimate reasons for not occupying their primary residence for a particular period or have purchased a property for later use (e.g. on retirement), while occupying premises provided by an employer, and would therefore suffer hardship if denied HPA.


Enclosure to FCR(96-97)50

Criteria for payment of Home Purchase Allowance (HPA) upon resumption of domestic premises

HPA is normally payable to an owner of domestic property upon resumption if he is an owner-occupier. The following guidelines determine whether an owner is an owner-occupier -

  1. An owner-occupier is one who occupies the affected property as his sole residence.
  2. An owner who does not occupy the affected property may be treated as an owner-occupier provided that -
    1. the premises is occupied as sole residence by his immediate family (i.e. children, parents or dependent siblings);
    2. the immediate family does not occupy the property by virtue of any tenancy agreement in relation to the premises; and
    3. the occupier(s) does not own another property in Hong Kong.
  3. A corporate owner of a property may be treated as an owner-occupier provided that -
    1. the majority shareholder of the corporation or the immediate family of that majority shareholder occupies the property as sole residence;
    2. neither the above shareholder nor his immediate family occupies the property by virtue of any tenancy agreement in relation to the property; and
    3. the occupier(s) does not own another property in Hong Kong.
  4. A person, who owns a property being resumed, is not occupying it at the time the resumption notice is gazetted, may be regarded as an owner-occupier provided that -
    1. the property resumed is the only property owned by that person in Hong Kong when the notice of resumption is gazetted; and
    2. he is currently living elsewhere because of his occupation (e.g. he has been posted abroad) or is occupying a quarter provided by his employer or renting one using a tenancy allowance provided by his employer2
  5. Where a property is occupied partly by its owner as sole residence and partly by other persons as tenants, then the owner may be treated as an owner-occupier for such area of that premises as occupied by him for his own residential purposes.
  6. A person who has executed a sale and purchase agreement to purchase a property before the gazetting of resumption, and has completed the purchase and obtained vacant possession of, or occupied, the property as his sole residence, is treated as an owner-occupier.

2. HPA would normally be restricted to one residential property per owner. However, multiple payments may be payable, where an owner can show that additional properties are occupied by his immediate family.

2 -- This is to tqke account of cases where owners have legitimate reasons for not occupying their pirmary residence for a particular period or have purchased a property for later use (e.g. on retirement), while occupying premises provided by an employer, and would therefore suffer hardship if denied HPA.


Last Updated on 2 December 1998