For discussion
on 21 June 1996
FCR(96-97)26

ITEM FOR FINANCE COMMITTEE

LOAN FUND
HEAD 251 - HOUSING
Hong Kong Housing Society
Subhead 114 Sandwich class housing

Members are invited to approve an increase in the approved commitment from $7 billion by $6.9 billion to $13.9 billion under Head 251 Housing Subhead 114 Sandwich class housing to provide for a loan to the Hong Kong Housing Society for the payment of land premia for Sandwich Class Housing sites for the construction of 10,000 flats from 1997 to 2001.



PROBLEM

The Hong Kong Housing Society (HKHS) has insufficient funds to pay the land premia in respect of sites for the second batch of 10,000 Sandwich Class Housing (SCH) flats for completion by 2001.

PROPOSAL

2. We propose to increase the approved commitment under Head 251 Housing Subhead 114 Sandwich class housing of the Loan Fund from $7 billion by $6.9 billion to $13.9 billion in order to provide a further loan to the HKHS to assist it to pay the land premia.

3. The proposed terms of the loan are -

  1. Principal: $7.4 billion
  2. Drawdown of the principal:
    We will release the loan to the HKHS in tranches for payment of land premia for SCH sites.
  3. Interest:
    The interest rate is 5% per annum. Interest will accrue on a daily basis from the drawdown date. We will capitalise the interest yearly on the anniversary thereof until HKHS has fully repaid the loan. The capitalised interest shall form part of the outstanding loan1 and shall carry interest at 5% per annum.
  4. Repayment terms:
    1. The HKHS to repay an amount not less than 10% of the loan advanced in each tranche after the pre-sale of the flats on the relevant site. This percentage will be equivalent to the portion of the selling price receivable on pre-sale2.
    2. The HKHS to repay the balance of the loan in each tranche and the capitalised interest after the completion and sale of the flats of the relevant site.

Justification

4. On 8 July 1994, Members discussed FCR(94-95)47 and agreed to grant a $7 billion loan to the HKHS for payment of land premia for eight of the eleven SCH sites for building 10,000 SCH flats by 1997 (see Enclosure 1). At the meeting, Members noted that the HKHS would construct 10,000 more SCH flats between 1997 and 2001, and approach this Committee for another loan to the HKHS if necessary.

5. The first batch of 10,000 SCH flats would cost the HKHS about $15.6 billion to build. Land premia for the sites amounted to $7.9 billion. The HKHS financed this amount by a drawdown from the Loan Fund of $6.5 billion and internal funding of $1.4 billion. A sum of $0.5 billion remained undrawn. HKHS will finance the balance representing development costs of $7.7 billion by a mixture of internal and capital market funds. Encl.1

6. The Administration has now identified sites for the HKHS for the second batch of 10,000 SCH flats, scheduled for completion by 2001, as shown in Enclosure 2. Some of the sites are firm, while others are provisional pending clarification of outstanding planning issues. The HKHS estimates the land premia, and the construction and development costs at around $7.1 billion and $12.2 billion respectively.

Encl.2

7. With the proposed loan, HKHS would still need to raise $5.2 billion from the capital market (see Enclosure 3). This would be within HKHS's capacity to borrow.

8. We intend to grant four of the second batch of SCH sites to the HKHS in 1996-97. The Administration is taking vigorous action to resolve the planning issues affecting the remaining sites so as to make them available in time. If we cannot resolve these issues in time, we will find replacement sites. This may result in an increase in land premia. Therefore, we also propose to provide for a contingency of $0.3 billion in the loan limit. As the HKHS can only draw down the loan to pay for land premia, it cannot use this reserve for other purposes.

FINANCIAL IMPLICATIONS

9. With the $0.5 billion undrawn balance from the first loan, we need an additional one-off commitment of $6.9 billion for the proposed $7.4 billion loan. There are no additional recurrent implications.

BACKGROUND INFORMATION

10. The SCH Scheme is the Government's response to calls for providing home purchase assistance to middle income families who are neither eligible for assistance under the existing public housing development programme nor able to afford a private sector flat. The main scheme involves the granting of sites at concessionary premia to the HKHS for constructing flats for sale to eligible families at affordable prices. In 1993, the Administration pledged to build 10,000 SCH flats by 1997 and another 10,000 SCH flats by 2001.

11. Flat production under the SCH Scheme is on schedule. The HKHS completed the first 1,024 flats in Tsing Yi in December 1995 and received over 3,900 applications for the second project of 882 flats at Ma On Shan in December. The HKHS sold all these flats to eligible families in April l996 and will invite applications in July this year for a further 1,696 flats in Ap Lei Chau and Tseung Kwan O. The remaining seven projects are under construction, and HKHS will invite applications for these flats during 1997.

12. In 1995, in view of the favourable response to the SCH Scheme and the pressing need to relieve the housing demand of middle income families, the Administration further pledged to build a third batch of 10,000 SCH flats between 1995 to 2003. The Administration is identifying suitable sites and will consider the need for a further loan to the HKHS for the payment of land premia when we know the details.

Housing Branch

June 1996

1 -- This will not involve payment of cash from the Hong Kong Government and will not therefore count against the total loan commitment.

2 -- Should the HKHS be unable to receive 10% of the selling price of SCH flats in the pre-sale, we may adjust the minimum repayment amount accordingly.

Enclosure 1 to FCR(96-97)26

List of sites granted to the Hong Kong Housing Society
for construction of the first 10,000 Sandwich Class Housing flats

Site Premium
($ million)
Flat production

1. Tsing Yi Area 3

543.5

1,024

2. Ma On Shan Area 92(*)

815.0

882

3. Ap Lei Chau North(*)

790.4

992

4. Tseung Kwan O Area 13(*)

1,146.3

1,526

5. Tseung Kwan O Area 18(*)

571.0

704

6. Tseung Kwan O Area 24(*)

1,062.1

1,424

7. Chung Hau Street, Homantin(*)

582.6

712

8. Tak Yi Street, Area 14, Shatin(*)

487.2

508

9. Poon Street, Diamond Hill

600.0

798

10. Lai Kong Street, Kwai Chung(*)

1,061.2

1,456

11. Hing Shing Street, Kwai Chung

263.4

420

Total

7,922.7

10,446

(*) Land premia of $6,515.8 million were paid under the $7 billion loan granted by the Government in 1994, the balance of $1,406.9 million was paid by the Hong Kong Housing Society out of its internal reserve.


Enclosure 2 to FCR(96-97)26

List of potential sites to be granted to the
Hong Kong Housing Society for construction
of the second batch of 10,000 Sandwich Class Housing flats

Site Estimated premium
($ million)
Estimated
flat production

1. Ka Wai Man Road (*)

355.0

504

2. Area 77, Ma On Shan (*)

700.0

1,104

3. Area 20, West Kowloon Reclamation (*)

556.1

666

4. Area 86B, Ma On Shan (*)

800.0

1,086

5. Area 103, Tin Shui Wai Reserve Zone (+)

2,000.0

4,150

6. Woodside, Quarry Bay (+)

1,800.0

1,600

7. Welfare Road Temporary Housing Area site (+)

800.0

1,000

Total 7,011.1
Say $7.1 billion
10,110

(*) Sites expected to be granted in 1996-97.
(+) Sites being considered for granting to the HKHS after 1996-97.


Enclosure 3 to FCR(96-97)26
HONG KONG HOUSING SOCIETY
Cash flow forecast for the years 1996-97 to 1999-00 (HK$ million)
(with Government Loan for payment of land premium for Batch 2 Sandwich Class Housing sites)

1996-97

Year

1996

1997



month

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Total


Cash Balance b/f

2,095.8

2,290.9

2,283.4

1,739.6

1,527.5

1,296.4

990.3

880.7

758.4

(1,743.8)

(2,108.0)

(2,412.6)

2,095.8


Receipt

1,189.4

829.4

155.0

188.7

545.4

172.0

1,630.0

373.2

197.4

214.5

257.8

145.2

5,898.0


Payment

(994.3)

(836.9)

(698.8)

(400.8)

(776.5)

(478.1)

(1,739.6)

(495.5)

(2,699.6)

(578.7)

(562.4)

(552.0)

(10,813.2)


Cash Balance c/f

2,290.9

2,283.4

1,739.6

1,527.5

1,296.4

990.3

880.7

758.4

(1,743.8)

(2,108.0)

(2,412.6)

(2,819.4)

(2,819.4)

1997-98

Year

1997

1998


month

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Total


Cash Balance b/f

(2,819.4)

(2,949.7)

(4,756.5)

(5,170.9)

(2,149.0)

(1,227.4)

1,287.8

2,047.0

1,011.2

874.6

1,852.5

2,094.2

(2,819.4)


Receipt

428.6

1,001.4

1,013.9

3,498.4

1,356.0

5,079.8

1,189.4

227.3

244.1

1,340.2

605.8

2,489.1

18,474.0


Payment

(558.9)

(2,808.2)

(1,428.3)

(476.5)

(434.4)

(2,564.6)

(430.2)

(1,263.1)

(380.7)

(362.3)

(364.1)

(1,349.9)

(12,421.2)


Cash Balance c/f

(2,949.7)

(4,756.5)

(5,170.9)

(2,149.0)

(1,227.4)

1,287.8

2,047.0

1,011.2

874.6

1,852.5

2,094.2

3,233.4

3,233.4

1998-99

Year

1998

1999


month

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Total


Cash Balance b/f

3,233.4

3,838.2

3,339.7

4,670.8

4,880.5

9,227.0

10,839.8

7,862.1

8,913.2

9,230.3

9,074.8

8,981.3

3,233.4


Receipt

932.4

1,489.7

1,643.8

556.0

5,271.8

1,897.3

305.8

1,299.2

573.4

2,008.5

183.9

992.0

17,153.8


Payment

(327.6)

(1,988.2)

(312.7)

(346.3)

(925.3)

(284.5)

(3,283.5)

(248.1)

(256.3)

(2,164.0)

(277.4)

(306.5)

(10,720.4)


Cash Balance c/f

3,838.2

3,339.7

4,670.8

4,880.5

9,227.0

10,839.8

7,862.1

8,913.2

9,230.3

9,074.8

8,981.3

9,666.8

9,666.8

1999-00

Year

1999

2000


month

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Total


Cash Balance b/f

9,666.8

9,484.0

9,307.9

9,205.1

8,826.3

7,916.6

7,771.8

7,581.4

9,601.8

10,157.8

11,463.7

11,793.7

9,666.8


Receipt

186.2

185.3

184.6

154.0

184.5

148.3

172.3

2,314.2

870.5

1,636.9

650.0

165.3

6,852.1


Payment

(369.0)

(361.4)

(287.4)

(532.8)

(1,094.2)

(293.1)

(362.7)

(293.8)

(314.5)

(331.0)

(320.0)

(1,009.9)

(5,569.8)


Cash Balance c/f

9,484.0

9,307.9

9,205.1

8,826.3

7,916.6

7,771.8

7,581.4

9,601.8

10,157.8

11,463.7

11,793.7

10,949.1

10,949.1



Last Updated on 2 December 1998