The Housing Authority's revised 2005-06 budget shows a consolidated operating surplus of $16.3 billion and cash balance at $50.2 billion, the authority's Finance Committee Chairman Chung Shui-ming says.

Unveiling the revised budget and financial forecasts today, Mr Chung said the authority's finance has become more healthy and sustainable in the short to medium term with the listing of the Link REIT and the conclusion of the public rental housing judicial review.

The consolidated operating surplus is $1.3 billion higher than the approved budget, mainly due to a higher divestment surplus and an alienation premium partly offset by a lower commercial operating surplus upon divestment in November, earlier than March as assumed in the approved budget.

2006-07 surplus at $970m

The consolidated operating surplus fell to $970 million in 2006-07 mainly due to full recognition of divestment income in 2005-06 and a fall in operating surplus from the commercial business.

"Before a decision on the actual disposal programme is made, for budget purposes, we assume sale of 2,000 surplus Home Ownership Scheme flats in each year from 2007-08 onwards. The operating surpluses of more than $1 billion each year are envisaged throughout the three-year forecast period up to 2009-10."

Mr Chung said no domestic rent adjustment is assumed for the budget as the rent review is not yet completed and there is no basis for making any adjustment at this stage.

$5.7b a year for new flats

In the next five years there will be an average construction expenditure of $5.7 billion a year for producing adequate public rental housing flats, with an average annual production at 16,000 flats, to maintain the three-year average waiting time.

"The authority has to maintain a sufficient level of working capital to meet its recurrent and capital expenditure in fulfilling its policy pledge," Mr Chung said.

"However, external factors such as inflation rate and investment return could also impact the authority's long term finance condition."

Although the cash balance is anticipated to be $50.2 billion by end of March and $58.8 billion at the end of March 2010, Mr Chung said proceeds from the divestment are one-off only and the surplus Home Ownership Scheme flats will be sold out ultimately.

Prudence needed

The authority has to exercise prudence in handling its surplus to maintain the average waiting time for public rental housing at the three-year level.

"The spending of public funds should be well justified and focused on those who are in genuine need for public housing. The authority will continue review how to utilise its available resources to maintain the sustainability of the public housing programmes in the longer term," he said.

The budgets will be tabled January 20.