Rising risk of Hong Kong property market

Pokfulam Gardens whose 75-year land lease expired in mid-2006 and has since been granted a 50-year extension with no additional premium charged in the last minute before the lease expiry.

The uncertainty of Hong Kong’s post-2047 political system that the year when Bejing’s pledge of keeping Hong Kong’s system unchanged for 50 years after Hong Kong sovereignty was handed from British to the Chinese government in 1997 is due.

Fresh worries about land leases which its majority will be expired on 30 June 2047 are clouding not only the local property market but also the city’s future.

Lately, Secretary for Development Paul Chan Mo-po verbally comforted the public that nobody should worry about their land lease expiry in 2047 in his official blog post, and urged property owners not to sell their property under a misunderstanding that Hong Kong government will make major shift in land lease policy.

In this post, Chan pointed that Article 123 of the Basic Law, Hong Kong’s mini-constitution, states:

“where leases of land without a right of renewal expire after the establishment of the Hong Kong Special Administrative Region, they shall be dealt with in accordance with laws and policies formulated by the Region on its own.”

Chan continued that SAR government can handle the land leases extension as he referred to a policy announcement made by the government on 15th July 1997, states:

that all non-renewable land leases may be extended for 50 years. However, they are subject to an annual rent from the date of extension at 3 percent of the building’s value, and the extension of such leases are at the discretion of the SAR government.

Hong Kong’s property market is not merely an economic issue, but also highly related to social and political stability. Given that the officer’s verbal assurance, such worries are not unfounded among Hong Kong property owners, lawmakers, and developers unless the land lease renewal is put on the agenda by Chief Executive.

Land leases after 2047: nothing to be alarmed about?

5th Oct 2016

You wouldn’t buy food that’s reaching the end of its shelf life, right?

By the same token, would you buy a Hong Kong home as a long-term investment?

June 30, 2047, the date when Beijing’s promise of 50 years of no changes to Hong Kong’s status quo ends, may seem too distant still, yet the “doomsday” scenario of land leases expiring that year matters to almost everyone, from investors, owners and mortgagors to prospective homebuyers.

Having put your savings, and very likely your future income as well, into the biggest investment of your life, you don’t expect your property to be forfeited overnight, do you?

Hong Kong is less than 31 years away from 2047, a time frame that is not considered too long when it comes to property transactions.

Alarmist notions?

We are not spreading misconceptions here.

Before his retirement in 2010, Chief Justice Andrew Li Kwok-nang had already given Hongkongers a warm reminder: the city’s political future beyond 2047 needs to be settled in the next 15 to 20 years since “a 25-year mortgage taken out in 2022 will expire in 2047”.

Among the city’s 10 largest private housing estates, more than half of them lie in areas north of Boundary Street, a border between the ceded area of Hong Kong and the borrowed part from China.

Laguna City in Lam Tin, City One in Sha Tin, Metro City Plaza in Tseung Kwan O, Caribbean Coast in Tung Chung and Kingswood Villas in Tin Shui Wai are among the sizable developments whose land tenures will all end in 2047.

Leases of land north of the road – areas in the New Territories and New Kowloon – were made for the residue of a term of 99 years less three days since 1 July 1898, after London signed a treaty with the Qing Dynasty to lease the areas for 99 years.

All such leases that would have already expired in 1997, as noted in the colonial government gazettes, were given a uniform extension with additional premium waived expiring not later than 2047 in Annex III of the Sino-British Joint Declaration, subject to an annual rent at 3 percent ratable value of the property and adjustment in step with changes in the value thereafter.

New Territories and New Kowloon are now home to more than 60 percent of Hong Kong’s population.

Leases of new plots territory-wide sold by the colonial authorities after the Joint Declaration came into effect, or throughout the “transitional period” (1985-1997), will also expire in 2047.

All the unease and concern can be boiled down to one simple question: Will these leases be given another extension before 2047, similar to the precedent in the Joint Declaration, so that people won’t be turfed out from their own properties or have to pay a hefty premium?

Deliberate confusion

No one will think such worries are unfounded, except government officials.

Secretary for Development Paul Chan Mo-po has called such concerns “alarmist” in nature, adding only that the government has the capacity and experience to deal with the significant caseload of lease extension “at a suitable juncture”.

The Lands Department also said in a short statement that lease extensions or new 50-year leases currently being granted “obviously go beyond 2047” and thus in the realm of land administration, the year of 2047 is not a “time limit”.

The government may be confusing two different concepts here: having the right to grant new leases that go beyond 2047 does not mean all expiring leases will be automatically extended without premium payment.

Legislator-elect Edward Yiu Chung-yim, a land rights activist and a Chinese University professor who unseated the pro-establishment incumbent in Legco’s architectural and surveying functional constituency, said the colonial government, in a dire need to tide over tight finances after World War II, once requested occupants to pay 100 percent premium for expiring leases.

“Whether or not the premium must be paid depends on the government’s fiscal standing,” Yiu said.

In trying to allay such fears, Chan cited Pokfulam Gardens in Southern District, whose 75-year land lease expired in mid-2006 and has since been granted a 50-year extension with no additional premium charged.

But what Chan did not mention is that the Lands Department failed to act on the case of Pokfulam Gardens until the last minute before the lease expiry, and as such, for years the prices and transactions in this otherwise upmarket estate remained far below those in neighboring properties and it was reported that only one bank accepted related mortgage applications.

Furthermore, it must be pointed out that though lease extension for residential properties is a normal practice across many jurisdictions, precedents for a second extension are comparatively fewer.

The Pokfulam Gardens case represents a first-time renewal but we are talking about whether leases already granted a 50-year extension in 1997 will be given a further 50 years to 2097.

Dubious inaction

Centaline Property Agency chief Shih Wing-ching told the Hong Kong Economic Journal Monthly that a blanket approval of another “one-off, 50-year extension or even longer, like a 75-year one” shall be the best and most feasible solution, and the government should make it clear that next time – 75 years after 2047 – occupants of the land will have to pay the full premium.

If the lease expiry issue is easy to resolve and there is no hidden agenda, why is it that the government, aside from making verbal assurances, has been reluctant to delineate a clear policy through legislation?

The economic consequences are obvious: expiring leases will discourage redevelopment or urban renewal.

For instance, land tenures of many of Sun Hung Kai Properties’ residential and commercial developments in the New Territories, including the two million square foot New Town Plaza in Sha Tin, one of the city’s largest malls, will expire in 2047, according to its annual report.

Will people be allowed to live in their homes for which they have spent decades serving mortgages or will there be a new set of land premiums that comes along with lease renewal?

No one has made a solid, unequivocal answer yet.

Would it be dependent on the continuation of the “one country, two systems” policy beyond 2047? But that by itself is a bigger uncertainty.

Source: EJinsight

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