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Hong Kong Housing Society deficit balloons to HK$1.8 billion as ‘challenging operating and investment environment’ takes toll

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“The primary reason for this increase was the writing-off of costs for several projects under the [subsidised sale flats] scheme due to a drop in property prices,” the society said in its annual report.

The body recorded an investment loss of HK$654.9 million. Photo: Xiaomei Chen

There was also an overall investment loss of HK$654.9 million, 9.6 per cent higher than in the previous year.

Chief executive officer James Chan Yum-min said in the report the deficit was due to “a challenging operating and investment environment”.

But he added that the body was in a “healthy financial position” with net assets valued at HK$46.9 billion as of March.

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The society, which has built more than 74,600 homes in the past seven decades, is working on 25 projects aiming to deliver 45,000 flats over the next 20 years.

Around 35,000 will be completed in the coming 10 years, including 6,500 public rental flats and 10,700 subsidised homes to be built by 2027-28.

Given the “unprecedented construction peak”, society chairman Walter Chan Kar-lok said the body was planning to borrow money from the private sector.

“[T]he capital commitment is very substantial … A financing plan is under way to map out funding options including fundraising through loans and consolidating investment portfolios,” Chan said in the report.

He added the body would execute all of the schemes with proper planning and manage resources with prudent risk management.

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The chairman in April said the body expected a cash flow deficit in the coming two years due to the lack of new flat sales in the short term. But he said the situation would be alleviated once new projects came in.

Economist Andy Kwan Cheuk-chiu, director of the ACE Centre for Business and Economic Research, said the society might not benefit much from loans in the high-interest rate environment. He also foresaw the deficit turning into a “structural financial problem”.

“Property prices were high back then. Sales of subsidised housing could still cover the building cost of public homes and other expenditures,” Kwan said.

“But construction costs have increased, property prices have dropped and subsidised housing has a higher discount, so their income will be lower.”

This year subsidised flats were sold for 62 per cent of the market price, while in 2022 the figure was 51 per cent.

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The society last month also took on a site in Tsuen Wan to develop nearly 2,000 starter homes following a failed public land tender, which Kwan said could further add pressure to the body’s finances.

He said the society would have to cut costs in the future and authorities could explore ways to help it, such as by reducing the discount on subsidised homes, as well as further lowering land premiums it paid to the government.

It currently only pays one-third of the market value of the land premium for the domestic portions of subsidised flat projects.

The Urban Renewal Authority, a statutory body focusing on redeveloping old urban districts, slipped to a deficit of HK$3.5 billion in the last financial year from a surplus of HK$6.6 billion 12 months earlier. The management attributed it to the property downturn.

Article was originally published from here

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