Change to land charges can fight urban blight

PUBLISHED : Wednesday, 24 September, 2003, 12:00am
UPDATED : Wednesday, 24 September, 2003, 12:00am

Institute says developers will rekindle interest in redevelopment of poorer areas if the profit is there

Hong Kong should overhaul its 'inflexible' system of charging for land since it discourages redevelopment of urban blight, according to an action plan proposed by the Hong Kong Institute of Surveyors.

The government should stop trying to capture the full rise in land values resulting from redevelopment and permit a greater share of potential profits to be earned by developers, it said.

This could be achieved by changing the method of assessing land premium which sees the government charge an up-front payment equal to the increase in value stemming from modification of lease terms. Such contracts stipulate the type of property and density of building which is permitted on individual parcels of land.

Hong Kong is unusual in having a public leasehold system due to the government's ownership of all land and critics say that seeking to capture the full increase in value generated by 'modification' to lease terms dissuades redevelopment of old premises.

Most property firms rely on 'greenfield' which avoids the costs and time involved in compensating former owners and tenants.

'The full land premium charged for lease modification is one of the key factors holding back developers and owners interested in redevelopment,' said Lau Chun-kong, convenor of the institute's government practice and local affairs panel.

He said the government should allow developers a bigger split of profits from redevelopment.

'In the private market, if there is a marriage value created through merging of the interests of a landlord and a tenant, the parties will share the marriage value. But this is not the case in urban redevelopment projects that involve lease modification as all the marriage value goes to the landlord - the government.'

Secretary for Housing, Planning and Lands Bureau Michael Suen Ming-yeung said he would consider the report prepared by University of Hong Kong researchers.

In setting land premium payments the government should broaden its view and account for the holding cost of land, stamp duty, legal costs, and payouts to former owners, Mr Lau said.

However, he said the weak economy was the dominant factor behind dwindling applications for urban renewal through lease modification applications.

He brushed aside allegations the premium discounts would lead to a drop in government revenue.

'Without any policy changes, all these redevelopment projects are impossible, and would not appear at all. Our proposal only hopes to boost government revenue and ease the Urban Redevelopment Authority's deficit, which was $500 million last year,' Mr Lau said.

He said the Sars outbreak had highlighted the need to address the urban decay problem.

Alexander Lam, chairman of the institute's general practice division, said it had suggested to Mr Suen that the application list system be resumed as the institute could foresee a shortage of housing in two years.

'There should also be a centralised timetable on the release of land reserve. This can reduce uncertainties and enable developers to get a better grasp of the land market,' Mr Lam said.