A ‘scheme of control’ for Hong Kong developers?
- By capping but guaranteeing profits, developers may be more motivated to develop select farmland from their land banks under an overhauled government scheme to boost the supply of flats
So, no takers. The government wants private developers to build on their land reserves to help boost housing supply. But it offers few carrots and no stick. No surprises then that the land bosses aren’t interested.
Officials estimate that Hong Kong will be short of at least 108 hectares for housing by 2026 and 230 hectares by 2046. Independent experts think those figures are underestimates.
Private developers are estimated to hold more than 1,000 hectares in their land banks, mostly located across the New Territories. Getting them to provide, for now, 150 hectares for housing in three years under the Land Sharing Pilot Scheme, is perfectly reasonable. That’s less than 15 per cent of their total land banks.
The scheme allows developers and landowners to increase the development density of the sites but they must reserve at least 70 per cent of the increased floor area for affordable public-sector housing.
Mandating a 70 per cent provision for public housing from the increased developed density just puts a cap on profits
The government offers to carry out infrastructural development to meet increased traffic demands and to expedite planning and development applications.
Not exactly a generous offer. The extreme profitability of local developers has always been about squeezing the last inch of development density from a site. Mandating a 70 per cent provision for public housing from the increased developed density just puts a cap on profits.
Officials should consider a complete overhaul of the scheme to provide developers with more carrots and some real sticks. Most of the land in question is farmland. This means owners will need to pay market-level premiums to be allowed to build on it.
Given the uncertain market outlook from political instability and the pandemic-hit economy, developers are taking their own sweet time. For carrots, officials should offer substantial discounts on land premiums to encourage development.
However, in turn, they would put a cap on how much developers can charge per gross floor area on each site, depending on whether the batches of flats are for private or subsidised homes.
01:39
Is converting industrial buildings a quick solution to Hong Kong’s housing shortage?
By capping but also practically guaranteeing profits with discounted land premiums, it would function somewhat like the scheme of control for the utilities, which controls the rates they can charge, but also guarantees their profit margins.
Meanwhile, the government should not tolerate idle land banks being left empty for years or even decades by their owners. A penalty levy needs to be imposed to pressure developers to start planning or scheduling their land banks for development.
Given the uncertain outlook for Hong Kong’s future, such a scheme, which after all, only targets about 15 per cent of land banks, may prove attractive or at least worth a gamble for the private sector; not to mention it would help improve its battered corporate image.
