Can developer land banks be unlocked?

Land premium struggle

The government derives a fifth of its annual revenues from land premiums to convert agricultural land to residential or commercial use. The "agricultural" classification is simply a restriction on building; it does not imply farming activity. The negotiations on lease modification are complex, time-consuming, and can take years, even half a decade, for approval.

The premium is levied on the projected increase in land value after lease modification. Depending on the property cycle, the developer may choose not to commit construction. Lau calls attention to the 100 million sq ft (929 hectares) in the New Territories locked up between four major developers: Henderson (over 40 million), Sun Hung Kai (over 20 million), New World (over 20 million) and Cheung Kong (10 million).

About 2,400 hectares of ancestral or Tso/Tong land comprise fragmented plots with irregular borders as "land assembly" is not completed, Lau said. "That's why the government is stepping up land assembly for more complete and sizeable land redevelopment. Without consolidation, they can only build very low-density residences. The land isn't best utilized," he added.

Pushback from special interest groups further delays the housing development process. Groups and individuals can lodge objections to the Town Planning Board. Residents may not want a particular facility relocated near them, or green groups may object to removal of a green belt. The consultation procedure is inefficient and duplicated, says Lau. "Everyone comes into the hearing session voicing their opinions, but many objections pertain to the same issue."

Qiao Shitong, a professor of law at Duke Law School, who specializes in property law, said that developers would acquire expensive new leases when "the cost of developing the existing leased land through lease modification can be more expensive than purchasing new land leases from the government."