Hong Kong housing

Why Hong Kong’s wealthy private clubs will have to pay a lot more for land leases

After years of paying little to no land costs and cheap rent, elite clubs will have to cough up one-third of the market value of each site to renew their leases – but only from 2027

PUBLISHED : Thursday, 29 March, 2018, 7:34am
UPDATED : Thursday, 05 April, 2018, 10:05am

Hong Kong’s elite and exclusive sports clubs, which operate 27 facilities on public land, will have to pay one-third of the market value of each site if their leases are renewed, after years of cushy rental deals and little to no land costs.

In the face of a dire housing shortage and criticisms that such clubs are not widely accessible to the public, the government in 2014 launched a review of its policy of leasing out public land for private recreational purposes to sports clubs and non-governmental organisations.

Under a new policy announced last week, clubs will have to pay this sum every 15 years upon lease renewal, and will also have to pledge to increase their opening hours for the public.

But the rule will only kick in from 2027 when most existing leases are due to expire.

What are private recreational leases?

There was an acute shortage of public sports and recreational facilities in Hong Kong in years gone by.

The government granted land to sports associations, social and welfare organisations and other uniformed groups to develop such facilities.

Since 1979, the government decided to continue leasing the land to the groups, but they paid little to no land costs and cheap rent due to their contribution to sports development in the city and to help them promote sports in the community.

Currently, there are 66 sites comprising some 400 hectares under private recreational leases.

Twenty-seven are held by private sports clubs, such as a 170-hectare golf course in Fanling run by the Hong Kong Golf Club.

The remaining 39 sites are granted to national sports associations and non-profit-making organisations for facilities such as youth hostels and camp sites.

Why was there a need for a review?

The city’s official auditor issued a report in 2013 criticising the private clubs for rarely opening their sports facilities for public use while some ran commercial activities.

It also criticised the Home Affairs Bureau, which is in charge of granting the leases, for not having a clear definition of “recreation”. Some clubs, which charge hefty amounts for exclusive memberships, are known to have mahjong rooms, massage rooms and restaurants.

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Hong Kong’s housing and land shortage in many ways added fuel to the fire in the debate, as there has been an increasing demand from the public and lawmakers calling on the government to take back the sites and to use the land to build much-needed homes.

Many also questioned why taxpayers had to subsidise the rich by allowing operators to benefit from below-market rents and no costs to renew their leases.

In Hong Kong, land premiums are often paid by owners or lessees to reflect the current value of the site when the leases are renewed or if there are any modifications to the land use of the site.

What changes does this policy review bring about?

Under the landmark policy change, the 27 facilities held by private sports clubs will be required to pay one-third of the land premium – the valuation of how much the site is worth. The sum, to be paid every 15 years upon lease renewal, could amount to hundreds of millions of dollars.

Clubs currently do not pay such a fee and those that do pay only a small amount.

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The 27 facilities would also need to commit 30 per cent of their operating hours for eligible groups, as well as 240 hours of public activities a month instead of the current 50-hour requirement.

In contrast to the 27 privately run sites, another 39 sports and recreational facilities operated by NGOs, national sports associations and religious groups will not be subject to the new rule as they come under a different type of lease.

Which private clubs are affected and how much would they have to pay?

The 27 facilities provide training grounds and competition venues for sports ranging from golf, hockey and cricket to lawn bowls.

Operators will only be charged one-third of a site’s market value as they contribute to sports development in the city, while some will not be able to afford the full amount.

Government estimates show that for urban sites of between one and two hectares, the one-off sum would amount to HK$100 million (US$12.7 million) to HK$200 million.

Edward Yiu Chung-yim, former surveying and planning sector lawmaker, estimated that clubs will have to fork out between HK$1.8 million and HK$370 million under the plan, based on government rating and valuation figures.

Why wait until 2027?

Of the 27 sites, most the leases do not expire until 2026 and 2027.

There are five leases that will expire between 2020 and 2024, including the exclusive Fanling golf course and another for the Aberdeen Boat Club.

The government will examine every lease and assess the contribution to sports development before agreeing to the lease renewal, but it will not charge the fee until 2027.

Why are some sites so controversial?
The proposed policy change comes at a time when Hong Kong is facing an acute housing shortage and skyrocketing property prices have also forced thousands of people to live in cramped, squalid conditions.

The government-appointed Task Force on Land Supply has also been reviewing the option of using land under private recreational land leases, as part of a larger exercise to examine ways of boosting land supply. One of the most controversial sites includes the Fanling golf course, which has a history dating back more than 100 years.

An earlier study by the Planning Department found that 5,000 flats could be built by partially developing the site. If the whole course was developed, it could provide 13,000 homes.

The site was often brought into a debate in recent years when the government proposed developing two new areas in the Northeast New Territories, next to where the golf course is situated.

Many asked why the government was afraid of touching the golf course when the redevelopment plans would displace some 1,500 villagers.