The Home Ownership Scheme (HOS) was the right one for the past but not the present. The Hong Kong government recently decided to suspend, not scrap, the program and this has angered those political parties, which believe advocating entitlement can bring them votes, whatever happens to the economy. Those of us who agree with the policy change do so because a moratorium on HOS may rescue our property sector and prevent an economic meltdown.

The Housing Authority in 1978 introduced HOS and in the following year the Private Sector Participation Scheme as well. The decision taken 23 years ago was sensible because HOS enabled lower middle class people to move up from public tenant housing or out of private rentals. The government thought it was important that not only more people owned their own homes but derived a feeling of pride and security from it.

HOS subsequently sheltered tens of thousands of families not only in the sense of having roofs over their heads but also from the volatile private property market, whose prices soared partly because of a limited supply and also because of speculation. The program worked like a charm until the late 1997 Asian financial crisis, which devastated the private property market, reducing prices by up to 45 per cent.

Suddenly the gap in private sector and HOS pricing narrowed. Flats that had been oversubscribed ten times were oversubscribed only 2.5 times. Some successful HOS candidates even forfeited their deposits to buy private sector flats, which they thought were better built or furbished (though that is not always the case) and which did not have the stigma of having been subsidized.

Once HOS complemented rather than competed against private housing. This is no longer so. HOS is now a serious factor in the stagnation of the private market, from which the treasury derives so much of its income and in which more than hundreds of thousands of people have investments. For 300,000 owners of flats, what was their most significant material possession has become their most burdensome liability, which they call "negative asset".
Those who think the people so severely affected are only the rich are deluding themselves. Most of those who own the 1.02 million private flats are ordinary, middle class individuals. Some of them have mortgages that now exceed the value of their properties. Many cannot afford the monthly payments even with reduced interest rates. Their plight is worsened by bleak economic climate. Some are sacrificing their standard of living and the education of their children to hold on to their flats. Hong Kong should have sympathy for these people because what hurts them inevitably hurts the rest of the economy and others, including public housing tenants whose interest some parties claim to represent.

Just exactly what does a HOS-ruined private market mean in terms of money? The situation means that, if the 30,000 new flats being built every year should depreciate another $500,000 each, it would cost developers $15 billion. The ripple effect of that is bound to hurt the hundreds of thousands who earn their living directly and indirectly from those investors. The same scenario of rapidly declining housing value would cost those already "negative asset" victims a total of $150 billion, which would surely undermine battered consumer confidence - confidence that is reeling from the recession and the impact of the terrorist attacks on New York and Washington DC.

What is holding the economy up today is private sector consumer spending rather than public programs. Financial Secretary Antony Leung said during his visit to the mainland recently the government could not or would not go deeper into deficit to create many more jobs. Given these constraints, Hong Kong has but one option, which is to defend the private housing market and to refrain from further interference. The next move is for the government to raise the bank mortgage ceiling from 70 to 90 per cent so that many more can afford to borrow for the purchase of private flats that are the pillars of the economy. The alternative would be too grim to bear.

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