Henderson Land likely first to settle land premium under pilot arbitration scheme

Henderson Land Development, which holds the biggest land reserve in the New Territories among Hong Kong developers, is likely to be the first to reach a land premium settlement under the pilot arbitration scheme proposed by Chief Executive Leung Chun-ying early last year to unlock more land for housing projects.

The result is expected to be released in November, according to the firm's management as quoted by the head of research at BNP Paribas Lee Wee Liat, who attended Henderson Land's analyst briefing after the announcement of its first-half results on Thursday.

"The land premium settlement will involve a small amount of money. The developer will probably use a small-scale farmland conversion to test how the arbitration scheme works," he said.

Henderson Land said it held 44.5 million square feet of land in the New Territories, the largest holding among all property developers in Hong Kong.

It said the group had 2.8 million sq ft located in the outline zoning plans for both Kwu Tung North and Fanling North, which were already approved by the Chief Executive in Council.

Of the 2.8 million sq ft, it said about 800,000 sq ft was assessed to be eligible for in-situ land exchange and the government may resume the other parts of its lands for public use by payment or cash compensation.

"The group has previously applied for in-situ land exchange for two land lots in Fanling North and Kwu Tung, which have just been accepted by the government for further review," according to Henderson Land's result announcement.

The two sites are expected to yield a total gross floor area of 610,000 sq ft and 340,000 sq ft respectively.

"Developable area for both sites is subject to finalisation of land premium," it said.

The arbitration scheme was announced by the chief executive in his policy address in January last year, with the aim of shortening land premium negotiations - during which a developer can sit on land set aside for redevelopment for years.

The scheme was officially launched in July last year and is being introduced to increase the supply of flats by speeding up land rezoning and redevelopment. Currently, many potential residential projects are delayed by negotiations over the land premium - the amount the developer pays the government to change use of the land.

Lee said negotiations between the Lands Department and developers could take up to three to four years but the pilot scheme would help to cut short prolonged discussions.

Under the new scheme, when the parties fail to reach agreement and the developer has already made two appeals, the decision can be passed to the arbitration panel. However, the Director of Lands will have "unfettered discretion" in deciding whether to resort to arbitration.

But Vincent Cheung Kiu-cho, national director at property consultant Cushman & Wakefield said negotiations between the government and private developers over the land premiums payable for farmland conversion were more complicated, and frequently led to debate over the revaluation process.

"In this case, the arbitration scheme could accelerate the process of farmland conversion," he said.

In the first half, the Lands Department said it had generated HK$18.2 billion in land premiums through lease modification, land exchange and private treaty, about 95 per cent higher than the HK$9.34 billion for the whole of last year. The hefty increase in land premium income in the first half was mainly driven by the sale of two large sites in Tseung Kwan O and Tin Shui Wai through MTR Corp and the Ma Tau Kok residential development via the Urban Renewal Authority.

"This (case) might trigger more applications under the (arbitration) scheme to speed up farmland conversion," said Lee.