The Hong Kong government must break its habit of relying on property developers
- Hong Kong has a long history of public-private partnerships to speed up development, with land premiums and stamp duty major sources of government revenue
- But the government must rethink the balance or it will never break the property hegemony nor free Hongkongers from the yoke of high land prices
The government stuck to its guns despite ratcheting up a cumulative financial deficit of HK$183.2 billion (US$23 billion) at the end of last year. Since 2019, the government, Urban Renewal Authority and MTR Corporation have withdrawn at least eight plots of land from public sale.
The government can be forgiven for shoring up land prices while sparing no effort to produce developed land. Land is Hong Kong’s most valuable commodity and land revenue a major source of revenue. But can the government wean itself off its reliance on land revenue and collaboration with the property sector to speed up development?
Also, premiums from public land sales and lease modifications, land exchanges and extensions have buoyed government receipts significantly. In 2018, when the government registered a record fiscal surplus of HK$148.9 billion, land premiums of HK$164.8 billion accounted for 26.6 per cent of total revenue. Even in the 2022-23 financial year, in which a hefty deficit is expected, land premiums are estimated to constitute 16.7 per cent of total revenue.
With limited reserves to spend on new town development at that time, the construction of City One, still the largest private residential development in Sha Tin, was agreed between the government and four leading developers practically on the back of an envelope. The developers agreed to pay for the costs of reclaiming 56 hectares of land at the mouth of the Shing Mun River in exchange for development rights for private residential development.
With help from the private sector, the cash-strapped government was able to pay for the construction of subsidised public housing accommodating about 400,000 residents from public revenue. The government also managed to build factories in the Fo Tan area to provide space for manufacturing.
To help balance the budget, in 2017, the government granted the authority the development rights of the hotel, office and residential portion of the district in conjunction with private-sector partners – in other words, back to private partnership.
As President Xi Jinping urged in his July 1 speech in Hong Kong, there is much to be said for a proactive government to leverage efficient markets to produce better outcomes.
Given what are likely to be the high costs of residential and commercial facilities on the islands, the developed land would probably not be cheap.
Is the HK$580 billion cost of creating artificial islands worth it?
If a public-private partnership is adopted, cash-rich developers with large land holdings in the northwest New Territories could end up being rewarded with sizeable residential-commercial developmental rights in the Northern Metropolis, further entrenching their hold on development in Hong Kong.
These are early days for the government to work out financing plans for the two mega projects. Officials are well-advised to harness the mighty market power of the private sector to minimise costs, but risks and rewards must be carefully balanced. Otherwise, Hong Kong people will never be able to break free of the yoke of high land prices, nor will the government have any chance of ending the property hegemony.
Regina Ip Lau Suk-yee is convenor of the Executive Council, a lawmaker and chairwoman of the New People’s Party