On the selling and reselling of public rental housing under the tenants purchase scheme : an institutional economics approach

Abstract

The Tenants Purchase Scheme (TPS) in Hong Kong was enacted from early 1998 to late 2005, to sell the public rental housing (PRH) flats to sitting tenants. It aims to enliven the PRH stock and rotate it within Green Form certificate holders. 183,700 RPH flats at favorable locations were offered at prices as low as 15% of the market level by 2005. After 2005, sitting tenants’ rights to buy their flats are retained. As of March 2014, 70% of the TPS stock was sold to sitting tenants. Despite low purchase prices, preferred locations, and sound resale opportunities, the resale cases were surprisingly exiguous, only 2% of all alienated TPS flats were resold after 15 years.

Two research questions are immediate, first, what are the determining factors for sitting tenants to buy their flats; and second, why were the resale cases so scarce in spite of the legislative intentions.

Most previous related studies either were normative or failed in theory generalization. This thesis provides an alternative analysis by developing four hypotheses of property rights and transaction costs: (1) sitting tenants would buy TPS flats only if the implicit values of their lifelong tenure rights could be recaptured; (2) prospective TPS resellers would perceive values of their former tenure rights as the reserved returns, implying that resale cases only happen when discerned biddings are higher than reserved returns; (3) the land premium polices, in terms of the noncompetitive land premium ratio, and the coexistence of Green Form bidders and normal bidders, increase the information cost and hence decrease both the TPS resale cases and the land premium settlements substantially; and (4) the specified land premium policies implicate increased rent dissipations, therefore, resale returns derived from trading with Green Form buyers would NOT be significantly higher than trading with normal buyers.

Monthly data on sitting tenants’ buying pattern in seven TPS estates, from January 1999 to March 2014, and all 3,607 resale records from January 2001 to June 2014, including 565 second resale cases, have been accessed and tested to confirm the hypotheses. International comparisons are suggested for future studies.