Residential housing developments in the New Territories. Mike Clarke / AFP

The Hong Kong Housing Authority has failed to address the problem of under-utilized commercial properties in its portfolio, while continuing to provide insufficient scrutiny of leased properties, Director of Audit Tang Kwok-bun charged Wednesday.

Report No 56 of the Director of Audit enumerated a string of poor management practices by the Housing Authority, including continuous low vacancy rates for retail premises, parking spaces and wet markets.

The report notes that of the 349 vacant retail premises encompassing 18,689 square meters, 91 have been vacant for more than five years. Almost a third of the vacant premises have been empty for more than three years.

The biannual report was critical of the authority for appearing to move slowly regarding public invitations for tender and re-tender of the vacant properties.

The authority conducted bids six times in 2010, each period extending over two months.

However, the authority took no immediate action to remedy an apparent lack of interest in the offerings from the public, the report said.

The authority had specified preferred fields for prospective tenants.

The report, however, said information related to the offerings had not been amply publicized, which contributed to the inefficiency.

The audit report also noted that the authority had neglected to include some 9,490 square meters when calculating it's vacancy rates, "like it always did," the report went on to say.

The report concluded that the authority had failed to meet the requirement imposed by the Audit Commission in 2009 to lower its vacancy rates.

The commission suggested that the vacancy rates be factored in - aside from the commercial potential of the properties - when setting priorities for major improvement projects.

The report also revealed cases of abuse of leased properties by tenants, and called on the authority to improve its day-to-day management of premises.

The report found unauthorized use of storerooms, including some that were being used as offices, or as rooms for playing mahjong and poker.

A couple of cases of gambling were discovered and the operators penalized. Members of Triad Societies were found to be involved in some cases.

The authority was criticized for lack of efficiency in its supervision over illicit activities and failure to coordinate with police.

The report noted that the authority had failed to report cases of abuse the of properties even after attention was drawn to them.

The audit report scored the authority for its failure to issue notices-to-quit for offending tenants two months after wrongdoing was assessed and penalties meted out.

In one case, a tenant found hosting mahjong in 2005 is still in operation now.

In response to the auditor's censure, the Housing Authority has issued a number of notices-of-quit to the offending tenants.

"We welcome and generally agree with the views and comments made by the Audit Commission. Most of the recommendations have either been implemented or will be taken on board," said Grace Fung, a spokeswoman for the authority.

The authority has also responded to the charge that it repeatedly failed to follow up on improper use of premises, saying irregularities will be monitored "on a quarterly basis".

The authority also pledged to "report all suspected gambling activities to the police promptly".

It came amid criticism that the Application List System has failed after home prices in the city jumped more than 65 percent since the beginning of 2009 due to historically low mortgage rates, tight home supply and an influx of mainland buyers.

Under the Application List System implemented in January 2004, a public auction is triggered by a successful application from a developer.

However, Secretary for Development Carrie Lam emphasized on Wednesday that more government-initiated land sales does not mean that the Application List System is now totally defunct.

"The government has not changed its land sales policy. We will launch land sales based on our own initiative and the Application List System simultaneously. This is a more proactive approach to respond to market demand so that home supply can be made more stable," Lam told legislators.

Meanwhile, the government is considering making announcements every three months about its scheduled land sales for the coming quarter starting from the new fiscal year to help developers and home buyers better gauge the land supply situation, Lam said on Wednesday.

This could be tantamount to regular land sales, which the government had previously refused to implement. Regular land sales will help stabilize home prices and prevent a property bubble from forming, some analysts said.

Spokeswomen for Cheung Kong (Holdings) and Sun Hung Kai Properties, the two largest property developers in the city, did not respond to China Daily's enquiry seeking comment on the government's decision to initiate more land sales and whether they will bid for any sites included in the newly announced land sales program for May and June.

"Launching more flexible government-initiated land sales program can help stabilize market sentiment so that potential home buyers will not rush to buy properties, thus depressing soaring home prices a little bit," said Centaline Property Agency Research Director Wong Leung-sing, commenting on the news.

"More government-initiated land sales can help stabilize home prices. However, the actual effect will depend on the result of each land auction or tender," Buggle Lau, a property analyst at Midland Realty told China Daily.

The financial secretary pledged in his budget speech in February that the government will sell as many as 52 plots of land this year. The land could yield up to 16,000 units, almost 80 percent higher than last year.

However, many in the market doubt that the government will ultimately sell all the sites if it continues to rely on the Application List System.

Aside from boosting land supply, the government has also unveiled measures to curb speculative demand for property, including implementing a punitive stamp duty of as high as 15 percent on short-term property transactions late last year. Meanwhile, the Hong Kong Monetary Authority, the city's de facto central bank, has introduced several rounds of macro-prudential measures, including higher down payment requirements and stricter affordability criteria to restrict mortgage loans to multi-home buyers.

China Daily

(HK Edition 04/14/2011 page1)