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Speech on Land Management in Hong Kong (English only)

The following is a speech delivered by the Secretary for Planning and Lands, Mr John C Tsang, at the Royal Institution of Chartered Surveyors's Land Management seminar on "The Market-led Approach to Land Management in Hong Kong" today (June 6):

Mr Faulkner, Nick, Ladies and Gentlemen,

I am delighted to have the opportunity today to say a few words about the market-led approach to land management in Hong Kong.

Hong Kong is a metropolitan city that is well known for its high population density and compact development. The scarcity of flat land underlines the importance of an effective and efficient land management system. The successful maintenance of such a system is not just the work of us bureaucrats. It requires the active partnership of both the public and private sectors. In this respect, professional surveyors in Hong Kong, many of whom are present here today, play an extremely important role in contributing to the success of this system.

The property market is a key pillar of our economy. The way we manage the use and disposal of our land carries a significant impact on the property market, which, in turn, affects the economy as a whole. We employ market forces as our principal strategy in administering our land policy, and responsiveness to market situation lies at the heart of our land management regime. This afternoon, I would like to elaborate on the market-led approach and how it operates in practice.

Supply of New Land

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Land in Hong Kong is state property under the management of the Government of the Hong Kong Special Administrative Region. New land parcels are sold, at market premium, for specified developments. For normal land leases, the term is for 50 years subject to the payment of an annual Government rent of 3% of the rateable value.

In administering our land policy, we are committed to achieving our policy objective of providing sufficient land to meet market demand and to facilitate infrastructural developments. To this end, we operate an open and transparent system of making land available to the market.

Before the commencement of each financial year, we would announce a one-year Land Sale Programme and a four-year Land Development Programme. The one-year Land Sale Programme provides details of sites to be put up for sale by auctions, tenders or applications in the new financial year. The four-year Land Development Programme sets out the total quantity of land which will be available in the following four financial years. The combined 5-year Land Sale and Development Programme is made known to all market participants and the community at large.

The Land Sale and Development Programme is well received by the property sector. The transparency facilitates property companies in their project planning. With the potential supply of new land in the coming five years clearly known to the property sector and the community, the Programme also provides certainty.

To better serve market needs, we have, since April 1999, installed a market-led Application List system to supplement the regular land auction and tender programme. We would announce each year, as part of the Land Sale Programme, an Application List which comprises sites available for sale through application. Any developer interested in any of the sites on the Application List may submit an application to the Lands Department by offering a price for the site. If the offer price is considered reasonable and is accepted by Government, the site would be put up for sale by auction or tender.

The Application List system allows the market to decide on the timing, amount and type of additional land required to meet demand. With the Application List system, Government will not be able to over-load the market intentionally or unintentionally with excess land supply, particularly those large and expensive sites.

The Land Sale and Development System has helped us achieve our policy objective of maintaining stability in the property market. Under the system, land is supplied at the right time and at the right price reflecting the prevailing market conditions.

Government's land sales are subject to competitive bidding. The sale price is determined entirely by market demand and reflect what property developers are prepared to pay under prevailing market conditions. Following this principle, we do not sell land at below-market prices in order to meet budgetary targets, nor do we maintain a high land price policy to secure high income for the general revenue. We sell land at a price determined by the market.

Since the introduction of the Application List system in April 1999, nine residential sites totalling about 13 hectares and four non-housing sites totalling about 3 hectares have been sold by application. We have also sold 41 private housing sites totalling some 34 hectares by regular land auctions or tenders. On the whole, response of our community, particularly the property sector, to Government's Land Sale Programme has been positive.

Supply of Land for Development : Other Avenues

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Another source of land supply rests with the private sector. This takes the form of the private sector's initiative to change existing land use or to redevelop sites under their ownership. In this arena, Government acts as the market facilitator who creates the suitable environment for the transformation to take place.

I will use the example of the way we are dealing with surplus industrial land to illustrate how we are nurturing the transformation. You will be aware that as a result of economic restructuring in Hong Kong in the last two decades, a large number of industrial premises, which were built to meet the demands of the manufacturing boom in the past, have now become redundant. There are at present some 1700 private industrial buildings throughout Hong Kong, and many of them are under-utilized.

We have adopted a two-pronged approach in facilitating the transformation of our industrial land. First of all, the Town Planning Board has over the last two years rezoned a total of 165 hectares of surplus industrial land to business use, and 47 hectares to other non-industrial uses, such as residential development and community facilities. The "Business" zone provides much more flexibility in land use in that three economic activities, i.e. clean industrial, general office and commercial uses, can co-locate in the same building without the need for planning application. The total amount of rezoned industrial land now represents about 40 per cent of the original stock, and we intend to rezone more in future.

Secondly, we encourage better utilization of existing industrial buildings by allowing more flexibility in their use. In September last year, the Town Planning Board agreed to permit as of right the use of IT and telecommunications industries in industrial buildings. The Board has also introduced other new uses for industrial buildings, such as public entertainment and educational institution, which are permissible on application to the Board. We are also exploring the possibility of developing old industrial buildings into loft-type developments. The rest is now up to the private sector.

We also facilitate redevelopments by modifying land leases. Developers who want to pursue developments other than those allowed under the land lease may apply for lease modifications or land exchanges after obtaining the necessary planning permissions. Developers will need to pay a lease modification premium to reflect the increase in land value resulting from the change of land use.

Again, lease modification is market-led. The initiative to modify any land lease rests entirely with the private sector in accordance with market demand. The results achieved under this system are substantial. For instance, in the last financial year, more than 200 lease modification and land exchange cases involving residential developments with some 12 300 flats were completed.

Conclusion

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In all the measures that I have just mentioned, we have one repeating theme. That is we allow the market to find its own way and to determine the pace and timing of the transformation. The Government's role is to facilitate, and not to dictate, that process.

The market-led approach in our land management regime has served Hong Kong well in the past, and I have every confidence that it will continue to do so in the years ahead. I have no doubt also that surveyors in Hong Kong will continue to contribute to the development of Hong Kong in this market-driven process.

Thank you.

End/Thursday, June 6, 2002

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