Clouded future: The Housing Authority's Finance Committee Chairman Chung Shui-ming (centre) says the authority's financial position faces many uncertainties in future.

The Housing Authority's cash balance would drop below the prudent level of around $9 billion by early 2006, if it loses the judicial review of its rent-level review and the re-launch of the Link Real Estate Investment Trust is further delayed.

This was the message from the authority's Finance Committee Chairman Chung Shui-ming after the committee's meeting today.

The committee today endorsed the revised budget for 2004/05 and proposed budget for 2005/06 and noted the financial forecasts between 2006/07 and 2008/09.

Mr Chung said the authority's financial position faces many uncertainties in future.

"In the first place, it is not possible to ascertain the timing for the listing of the Link REIT and secondly, the court's hearing on the authority's decisions to defer the public housing rent review will have a far-reaching effect on our budget," he said.

Divestment important to the budget

Stressing that the divestment of the authority's retail and car-parking facilities remains an important factor in its budget, Mr Chung said planning a five-year public housing production programme is crucial to maintaining the average waiting time at three years.

Explaining details of the budget, Mr Chung said that no domestic rent adjustment was assumed for the purpose of this budget because of the uncertainty of the outcome of the judicial review case on the rent-level review.

The revised budget for 2004/05 shows a consolidated operating surplus of around $500 million, an increase of $400 million from the approved budget, mainly due to lower personal emoluments as a result of downsizing as well as lower maintenance and improvements spending brought about by a lower tender price index.

Other factors include lower interest payments, as well as higher alienation premium income for Home Ownership, Private Sector Participation, and Tenants Purchase Schemes.

The consolidated operating surplus increases to $15 billion in the 2005/06 proposed budget mainly due to the recognition of the estimated net divestment surplus.

With the continued sale of Tenants Purchase Scheme 6B in 2006/07 and the sale of 2,000 unsold and repurchased Home Ownership Scheme flats in the form of subsidised housing in each year from 2007/08 onwards, operating surpluses of around $1 billion each year are envisaged in the following years up to 2008/09.

Financial situation subject to external factors

Describing the authority's financial situation in the coming five years as 'stable but subject to external factors', Mr Chung said that if the Link REIT can be re-launched by end of the fiscal year of 2005/06, the authority's financial forecasts will remain positive with an estimated cash balance of $13.2 billion by March this year and $44.5 billion by March 2009.

The authority will re-launch the Link REIT as soon as possible taking into account the practical situation.

"In the face of these challenges, the authority is taking necessary steps to ensure a steady and smooth availability of funds to meet the authority's programmes and operations in the medium and longer term, including a review of the financial arrangements between the Government and the authority," Mr Chung said.

Meanwhile, the authority will continue making the best use of its funds and strive to obtain better value for money in respect of services provided.