A revised Budget for 2003-04 shows the Housing Authority will have a consolidated operating deficit of around $1.1 billion, up $500 million from the approved budget.

The deficit is mainly due to a loss of income upon the suspension of sales of unsold and returned Home Ownership Scheme flats before the end of 2006, the rescheduled launch of Tenants Purchase Scheme Phase 6A to 2004-05, and rent concessions for commercial tenants during last year's SARS outbreak.

The Housing Authority's Finance Committee endorsed the Revised Budget today. The committee also noted the financial forecasts between 2005-06 and 2007-08.

The authority said its budget is expected to turn back to a marginal surplus of $129 million in 2004-05 with anticipated income from the sales of Tenants Purchase Scheme Phase 6A, savings from cost containment measures, and net proceeds from divestment of the authority's retail and carparking facilities. However, operating deficits are still envisaged up to 2007-08.

Financial situation stable

Describing the authority's financial situation in the coming five years as "stable but subject to external factors", Finance Committee Chairman Ng Leung-sing said the authority's financial forecasts remained positive with an estimated cash balance of $13.5 billion by March and $12.8 billion by March 2008.

"Despite the projected deficits in the Rental and Home Ownership Assistance accounts, and based on the assumptions adopted in the budget, the authority should be able to tide over its financial difficulties over the forecast period with sale proceeds from the divestment," he said.

He conceded the authority's forecast balances could be greatly impacted by external factors, in particular the timing and quantum of proceeds from the divestment, and the outcome of the appeal on rent.

Rent reductions will hurt finances

For budget purposes, forecasts are made on the assumption there will be no rent variation for the concerned period, he said. However, any substantial rent reduction will definitely affect its financial position seriously.

In the face of these challenges, he said the authority is taking steps to ensure there will be sufficient funds to finance its operations, including conducting a comprehensive review of financial arrangements with the Government and actively exploring ways to dispose of surplus HOS flats.

"The authority will keep in view the need for external financing as a contingency measure to cater for the needs of a short-term shortfall of cash flow," Mr Ng said.