The industry has welcomed the government's plan to set up a pilot arbitration scheme on the calculation of premiums payable when land is rezoned, saying it could unlock more land for housing projects. The proposed arbitration scheme was announced by Chief Executive Leung Chun-ying when he delivered his second policy speech last Wednesday as part of the government drive to increase land supply. Leung also set out an ambitious plan to maintain a supply of 20,000 new homes a year. Between 2003 and 2012, he said, an average of 3,500 units per year were provided as a result of lease modifications and land exchanges, accounting for 17 per cent of the annual housing target. Charles Chan Chiu-kwok, managing director at Savills Valuation and Professional Services, said negotiations between the government and developers over land premiums payable for the rezoning of farm land were frequently deadlocked over the revaluation process. To pre-empt public criticism of collusion with the business sector, officials at the Lands Department often set premiums at a level that developers would not accept. "Having an independent third party to determine the land premium will mean the political pressure on government officials to maintain high valuations will be reduced," he said. Income from land premiums dropped 71 per cent to HK$5.71 billion last year from HK$19.7 billion in 2012, according to the government website. Chan Cheung-kit, a director at Lanbase Surveyors, supported the move to set up an arbitration scheme to calculate land premiums, saying it would accelerate the process of reaching an agreement. "Currently it takes four to five months to get a revised premium from the Lands Department if a developer disagrees with the initial premium," he said. "If the developer appeals a second or third time it may take longer to reach an agreement." Under the proposed scheme the Lands Department would have to accept the final decision, and this could speed up the process, said Chan. However, surveyor Albert So Chun-hin cautioned that developers may not agree to the arbitration system when property prices were in a downward cycle. "It will be risky. It will still take some time for the third party under the new system to decide the final amount of the land premium. In the meantime property prices may drop further and by the time a premium has been decided, developers may not be able to afford a higher land cost," he said. But Vincent Cheung Kiu-cho, national director at real estate firm Cushman & Wakefield, said the arbitration process would result in a decision that was legally binding for both sides and enforceable. "It will help to enhance the transparency of the land premium negotiation as both sides have to submit their valuation reports for reviewing," he said. Stewart Leung Chi-kin, chairman of the Real Estate Developers Association's executive committee, said an optimal valuation process would be to base a final land premium on an average of the valuations submitted by the government, the developer, and an independent valuer. "Under such a scheme the chanc0es of agreeing on a land premium will be increased," he said. Thomas Kwok Ping- kwong, co-chairman of Sun Hung Kai Properties, said an extra 4,000 to 5,000 flats a year could be provided under the scheme.