Public attention has recently focused on the results of the two land sales, and diverse market forecasts about future supply of flats.

Today is a timely opportunity for me to share with you updated data on the private housing market, and my thoughts on how our repositioned housing policy should be brought into full play.

The repositioned housing policy

In November, 2002, the Government announced its revised Statement on Housing Policy, which spelt out very clearly the different roles played by the Government and the market in the housing sector.

It emphasised that the Government will in future confine itself to providing public rental housing for families who cannot afford the high rent in the private market.

The statement also underlined the importance of maintaining a free and stable environment that will enable the property market to develop in a sustained and healthy manner, and on a level playing field.

I believe most people have accepted the Government's position as enshrined in the statement.

It is, therefore, incumbent on the Government to fortify their belief that we will maintain this clear, comprehensive and consistent housing policy so that we can sustain the confidence of the public and investors in the property market.

We are now almost 20 months down the road. I am happy to say that all the announced measures have now been put in place.

They include the resumption of land sales through the Application List system, co-ordination of disposal of railway related property developments, termination of sale and production of home ownership flats, cessation of the Tenants Purchase Scheme after the previously announced Phase 6 and a review of the Home Assistance Loan Scheme.

We are about to remove the excessive protection of security of tenure under the regime of the existing Landlord and Tenants (Consolidation) Ordinance.

We introduced this measure as a way to revitalise the private rental market.

In fact, the Legislative Council Bills Committee has just completed its scrutiny of the Amendment Bill and I hope for a smooth passage in the Legislative Council by the end of this month.

As the figures for the past 12 months reveal, the property market has picked up, the number of negative equity cases has decreased sharply, and the public and investors have regained confidence in the property market.

These findings reassure us that our housing policy is heading in the right direction.

Supply of new flats falling

However, the public remains concerned about when the supply and demand situation in the property market will become more balanced.

In the past few weeks, there have been various forecasts about future supply of flats in the private market.

There are also expressions of different views on the Government assessments released in October last year and in April this year concerning the supply of flats in 2007.

As I have said many times before, we have to be very careful about the use of figures. All along, individual property agents and real estate analysts have prepared very different sets of data.

These are very different from ours and they are very different from one another because they use very different assumptions to cater for different target groups and for different purposes.

Any cursory comparison of these data and forecasts will inevitably distort the real situation and convey confusing messages to the public.

Put very simply, you cannot compare oranges with apples and pears.

Edith Sitwell, an English novelist in the 19th century, once said, " The public will believe anything, so long as it is not founded on truth."

I am not here today to convince everyone to believe what I have said before about housing supply. I think we should let the facts speak for themselves and let the public exercise their own judgment.

We in the Government produce regular figures on the number of project starts based on the approval given for commencement of foundation works as well as the number of approvals given for project starts based on the commencement of superstructure works.

The law as it stands requires developers to re-apply for the issue of Consent on Commencement of Building Works for every major revision of their projects.

Because of this, the numbers concerned would involve double or even multiple counting when one or more major project revisions are necessitated.

This therefore leaves the number of approvals given for project starts based on the commencement of foundation works as a logical measure to deduce the supply of flats by the private sector.

Using this as a yardstick, and allowing a normal lead time of about three years from commencement of foundation works to project completion, it gives us a fair basis to project future supply in any one point in time.

In order to demonstrate the above point, I will now show you a diagram depicting the real life situation in respect of the construction of private housing as at the end of May this year.

The red line you see shows the fluctuation between years of the number of flats for which construction commenced during that year while the pale blue boxes show the number of flats actually completed during the corresponding years.

Taking the three years from 1999 to 2001, the total number of commencement for the period is 79,700 flats and the total number of flats completed during the period 2002 to 2004 is 83,900.

You should be surprised by the similarity of the two figures on the screen. This lends support to our using a three-year gap between commencement and completion of private housing developments as a proposition in making our projections.

The next diagram shows our forecast for the next three years. You will see that on that diagram about 26,000 new flats will be completed this year, and around 21,000 next year.

Thereafter, the figure will be about 16,000 units in 2006 and 11,000 in 2007. Some might wonder why the estimate for 2007 is now higher than the figure I mentioned for that year in April.

The reason is simple, there are new foundation works which have commenced between April and the end of May.

This increase is now reflected in the updated figures.

By the same token, as we move on in time, the figure for 2007 which we will post by the end of this year will be different from the one you see there because we have to take account of the new work undertaken between now and the end of the year.

In other words, for the last year of any 3-year cycle commencing from a current year, our forecast will give the full year figure for that last year only at the end of the current year.

In practice, the flat supply for each year is also affected by a number of other factors.

Among them are the timing of construction and the quantity of unsold housing stock accumulated from previous years, as well as commercial decisions by private developers about when to commence construction of the superstructures.

It is also affected by how many new pre-sales or completed flats the developers want to offer for sale, which, in turn, is influenced by prevailing market circumstances.

Market resilience

The oversupply I referred to in my Statement of Housing Policy of November, 2002, is still in evidence.

However, the general consensus is that it is gradually easing.

In the absence of government intervention, the market is now better able to adjust to changes in supply and demand; and is doing so purely on the basis of its own internal dynamics.

Indeed, the market has demonstrated an ability to adjust itself in the last couple of months, following an upsurge in residential sales during the first quarter of this year.

Among the sales frenzy widely reported by the media, there were concerns earlier in the year that the property market and property speculation in the primary market was building up, and that it might overheat the market, particularly if prices of high-end properties continued to rise.

This excitement proved short-lived. Transactions began to slow down after hitting a high of more than 11,000 transactions in March.

The downward adjustment was most apparent in primary sales in April and May.

This turnaround was not surprising when you consider that the surge was not supported by a corresponding rise in demand.

However, it is interesting to note that despite the recent drop in primary sales, the total number of registered primary transactions in the first five months of this year was still 47% higher than that in the same period last year, mainly because of the large jump in primary sales during the first three months of this year.

The community learnt valuable lessons from the recent past. The euphoria created by skyrocketing sales figures within a short space of time can evaporate as quickly as it appears if there is no genuine increase in demand.

Bona fide homebuyers have become more aware of the pitfalls of a temporary market spur, and they are now more cautious when they decide whether to purchase properties.

I believe that the property market's behaviour has become more mature and rational than before. This is important to maintaining stability in our residential sector.

We also saw how cautiously the market reacted to the results of recent land sales.

Again, this was evidence of market forces at work, ensuring that it was guided by the interplay of supply and demand, and not by sudden swings in market sentiment.

Application List System market driven

Looking ahead, I believe it is important for us to have a residential market that grows steadily and healthily, without irrational fluctuations.

I also believe our residential market is very capable of charting such a course.

The Government will continue to meet the market's demand by making sufficient land with a balanced mix of sites available through the Application List system.

The system is market driven. It enables the market to determine flexibly the quantity and timing of land to put up for sale in a flexible way.

The Application List system is a transparent mechanism with well-publicised procedures that are well known in the market.

If developers are interested in any of the sites on the Application List, they may submit an application to the Government for consideration.

The applicant must offer a minimum price to purchase the site.

If the Government considers the price offered by the applicant is in line with the site's market value, and is therefore acceptable, the site will be put up for sale by auction or tender, which is open, competitive bidding process.

Through this process, Government will realise optimum land revenue reflecting the open market value of the sale sites.

We have sold three residential sites from the 2004-05 Application List.

The current List now includes 14 residential sites of different sizes and development densities. Nine of them have an area of less than one hectare.

This should meet the needs of different developers including the small and medium ones.

Seven sites on the list are also suitable for upper-end residential developments.

Of course, developers can also obtain sites by other means, such as lease modifications and Urban Renewal Authority projects.

The Government will carefully take prevailing market conditions and development needs into consideration when it draws up the 2005-06 Application List early next year.

We will also consider other relevant factors, such as the attractiveness, location and variety of sites, in order to meet the different interests of different developers.

The Government is steadfastly committed to a clear, consistent and transparent housing policy that benefits the long-term and stable development of the property market.

Looking from a macro-perspective, Hong Kong's economy is showing good signs of recovery.

Latest estimate is that the GDP will grow by as much as 6% in 2004, and many securities and investment associations are predicting a similar or even higher figure.

Deflation and unemployment rates have also been improving gradually. Hong Kong's future economic prospects are encouraging.

Coupled with the Government's commitment to a repositioned housing policy, we hope this will continue to boost the public's confidence in the property market.

Building management and maintenance

Turning now to the theme of sustainable development, I would like to mention that proper building management and maintenance is an important pillar for pursuing this goal.

Here in Hong Kong, we have recently held a public consultation exercise on this subject, which closed in mid-April this year.

I am especially grateful to the Hong Kong Institute of Housing for its detailed and useful contributions to this undertaking.

My colleagues and I in the Government are now analysing the ideas provided by you and also by other members of the public.

In the meantime, I am happy to take this opportunity to share with you some of our preliminary analysis of the views most commonly expressed during the consultation exercise.

They pointed towards a consensus within a community that we need to take timely action to address the problems that arise when buildings are neglected.

Many property owners and members of owners' corporations indicated their willingness to take responsibility for managing and maintaining their buildings.

At the same time, they expressed the hope that they would receive additional support to fulfil these duties.

There were also suggestions about imposing some mandatory requirements on property owners, as a longer-term measure to ensure they properly manage and maintain their premises.

One important conclusion we have already drawn from the public's views is that the problem of neglected older buildings is not purely a "structural" one .

In fact, it is closely intertwined with complex social issues. For instance, we have to find ways to help old and vulnerable owners pay their recurrent management and maintenance expenses.

It will not be sufficient to rely purely on a "commercial" approach to resolve this particular problem.

One of our initial ideas is to invite non-governmental organisations to provide appropriate support and assistance to old and vulnerable owners who live in dilapidated buildings, if there are public resources available to permit this.

Possible types of assistance we might give them include helping owners to form owners' corporations, assisting them in appointing contractors to undertake management and maintenance works, and giving owners technical support on building management and maintenance matters, in conjunction with relevant professionals.

NGOs may refer owners who are in genuine need to various government departments. In the long term, it would facilitate the building management and maintenance industry to provide their services direct to the owners who need them.

We will explore the feasibility of this approach with NGOs and the industry, and we will consider introducing a pilot scheme to test the outcome.

As part of its good work to promote proper building management, I understand that the institute has already launched two similar pilot schemes in Sham Shui Po: the Owner Assistance Composite Scheme and the Kim Shin Lane Building Management Sponsor Test Scheme.

I am sure the institute will be happy to share its experience of these two with us, in order to help shape and format what our pilot scheme takes.

Our goal for the coming months is to give thought to all the ideas raised during the consultation process; and to use them as the basis for establishing a clearer approach.

After this, we will once again consult the parties involved about various options; and we will likewise consult the public further before we finalise our proposals.

This is the speech delivered by Secretary for Housing, Planning & Lands Michael Suen at the Housing Conference 'New Thinking in New Era' organised by the Institute of Housing on June 19.