Hong Kong Public Housing

According to the government there are 11,000 older privately-owned apartment blocks in Hong Kong that don't have an owners' corporation or management company to look after the building. This means that the individual apartment owners have to agree on any expenditure, and if they can't agree then nothing will be done. Unsurprisingly, many of these building are in poor condition. The Housing, Planning and Lands Bureau has produced a consultation paper on the subject. According to The Standard:

In a Legislative Council session yesterday, lawmakers said the consultation paper lacked concrete content. "It was the most hollow public consultation paper I have even seen in the past 10 years. The paper has depicted the problems but not provided solutions,'' said democrat lawmaker James To.

Many of the owners seem to think that it is the government's responsibility to maintain the common areas and so are unwilling to pay for the work themselves. The government in turn shows no sign of being willing to explain to people that it is the responsibility of the owners to maintain their property, or do anything else about it.

One complication is that many of these buildings are likely to be pulled down at some stage, possibly by the government's Urban Renewal Authority. Owners of these properties know that if this happens they will be compensated very well (regardless of the condition of the property), and the irony is that the more dilapidated the area the more likely it is that the government will want to re-develop. So for some of the owners, the reluctance to pay for repairs may actually be a cynical ploy. Not much consolation to those who have to live there, though.

When I lived in the UK, I owned a leasehold flat (as we call apartments). The owners of the freehold and the head lease had both disappeared, leaving the flat owners somewhat in limbo. A group of us managed to set up a company, buy the freehold and head lease and issue new longer leases for the apartments for those who wanted them. It was hard work and took a couple of years, but fortunately the majority of owners supported the initiative and we were able to ignore the small minority who didn't want to do it. Around the same time, there were some horror stories of similar blocks where the owner of the head lease (or freehold) had decided on a massive renovation program and sent bills to the leaseholders for £20,000 or more. If the leaseholders didn't pay they could lose their property, and there were suggestions that the contracts for the work were being given to associated companies without a public tender.

In Hong Kong, newer and larger developments have an owners' corportation that decides on the work to be done and appoints a management company. This is better than what happens for older blocks in the UK (which may well be owned by a third party), and not radically different to what happens with newer blocks.

The problem comes with older blocks where such arrangements were not made when they were developed, with the complication that there is no freeholder and no head lease. All Hong Kong property (apart from St John's Cathedral) is leasehold, and the freeholder is the government. So the term of the lease is fixed, and there is no possibility of acquiring the freehold (as I was able to do in the UK). Worse, if you want to re-develop the property you have to pay a substantial premium to the government.

As usual in Hong Kong, the problem is that the government interferes too much and yet seems reluctant to take responsibility for the difficulties this creates.

If the government didn't interfere, it's reasonable to assume that the price of these properties should fall to a level where someone would buy them in order to re-develop the site. However, prices are maintained at an artificially high level because of the prospect of the Urban Renewal Authority stepping in (and paying owners enough to buy a similar seven year-old unit in the same area). In addition, the developer would also have to negotiate with the government and then pay a Land Premium before re-building.

On the other hand, the overblown public housing system seems to make people believe that the government has an obligation to sort out the problem (which they don't in this case). So people stay put, expecting either that the government will carry out renovations or that the Urban Renewal Authority will buy their property.

What a mess! Unfortunately the government doesn't seem to have any idea how to sort it out.

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