Concrete Analysis | Hong Kong needs to speed up the land lease renewal process to help foster calm amid countdown to 2047

Surveyors are called in from time to time by different stakeholders to consult on land tenure in Hong Kong. The questions put to them stem largely from the fact that land parcels located to the north of Boundary Street will expire on June 30, 2047, while some leases on Kowloon Peninsula and Hong Kong Island will expire before that date without a right of renewal.

During the election campaign leading up to the 2016 Legislative Council election, some candidates ran with the doomsday argument that the Hong Kong government would have no constitutional authority to deal with those land leases expiring in 2047. This is indeed a misconception. Article 123 of the Basic Law states that “when leases of land are without a right of renewal after establishment of the Special Administrative Region, they shall be dealt with in accordance with laws and policies by the Region on its own”. The key phrase “on its own” confirms that the administration’s dealing with expiring leases is not subject to any justification: the administration has absolute statutory authority to deal with leases expiring in 2047. That said, it lies with the administration how best to deal with the matter.

On July 15, 1997, the Executive Council endorsed various provisions covering land leases and related matters. One of the policies promulgated on non-renewal leases dictates that expiring land leases may be extended for up to 50 years without payment of an additional premium but will be subject to a payment of annual rent from the date of extension at 3 per cent of the rateable value of the property, granted over the extension period. The most controversial issue, however, is that the extension would be entirely at the discretion of the government without any policy support. The authority on various occasions has stressed that the government will exercise its “sole discretion” prudently by following due process. To address public concern, the Lands Department set up a dedicated webpage listing all executed lease renewal cases, of which the renewal case of Pokfulam Gardens at “no additional premium” is often quoted to reassure the public that there is such precedent after 1997.

Some investors, especially from overseas, might still be baffled by the interpretation of “sole discretion”, in which case they should look at the case of Skycity. Following the aborted tender in 2014 due to lease term uncertainty, the Airport Authority promptly negotiated with the government to renew the lease governing a portion of the airport site where Skycity is situated, and obtained a new lease, namely Chek Lap Kok Lot 3, for 50 years commencing from September 21, 2016. This renewed lease attracted Regal Hotels and New World Development to enter into development agreements for construction of over 1,000 hotel rooms and 350,000 square metres of commercial area, with expected completion by 2021 and 2027, respectively. In addition, lease extensions of the Hong Kong Disneyland site for a term of 100 years and Sha Tin Racecourse for 50 years commencing from 2016 are other examples that can reassure foreign investors.

Nevertheless, these are special and individual cases. History tells us that the government is in no hurry to handle such matters, as evidenced by its delaying processing of 1997 lease extensions until 1987 and only accepting lease extension applications from the owners three years before expiry.

Given the recent social movements and the urgency to regain investor confidence, especially from overseas, it would be prudent for the government to look into the leases expiring between 2024 and 2030 and encourage owners, especially in buildings with multiple owners, to lodge the application in 2020. If the volume of leases expiring from now to 2030 warrants a legislative approach, the renewal process should be started sooner rather than later.