LCQ5: Impact of Mainland-funded consortia buying commercial and residential sites and properties in Hong Kong
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Question:
In recent years, cases of Mainland-funded consortia investing huge sums of money to buy commercial and residential sites and properties in Hong Kong have been on the rise. Over the past several months, two thirds of Grade A commercial buildings were gobbled by Mainland-funded consortia, involving an amount as high as some $20 billion, which far exceeded the total amount in the past decade. In addition, in the past two years, among the 50-odd residential sites sold by the Government, 20% of which were bought by Mainland-funded consortia. Like a rising tide that lifts all boats, the price of the units of the first residential project built under the "Hong Kong property for Hong Kong residents" policy (i.e. with land lease conditions restricting the resale of such units to Hong Kong people only) and developed by a Mainland-funded consortium is as high as $18,000 per square foot (ft2). Meanwhile, local developers also offer high prices in land auctions in order to compete for development sites, resulting in many small flats with an area of 200 to 300 ft2 fetching $20,000 per ft2, which is far beyond the affordability of the general public. In this connection, will the Government inform this Council:
(1) whether it has assessed if the continuous buying of commercial and residential sites and properties in Hong Kong by Mainland-funded consortia has any impact on the abilities of the general public to buy homes and conduct business; if it has assessed, of the details; if not, whether it will expeditiously do so; whether the so-called "influx of capital from the Mainland into Hong Kong" will offset the effect of the Chief Executive's policy initiative of increasing land supply in the hope of cooling down the overheated property market; if so, of the details;
(2) whether it will, in view of the incessant rise in property prices, put forward and implement a more effective housing policy to assist first-time home buying families and relieve the youth housing problem; and
(3) as the Government has adopted the approach of "working on the easier tasks first and the more difficult ones later" (i.e. to proceed with the removal and relocation of non-indigenous villages before developing brownfield sites) in taking forward the public housing development at Wang Chau, whether the Government will adjust the approach and resume illegally occupied Government land for the development of large brownfield sites first, so as to increase the supply of residential sites more quickly?
Reply:
President,
Having consolidated information from the Development Bureau (DevB) and relevant departments, my reply to the various parts of the question raised by the Hon Paul Tse is as follows:
(1) For the past two years or so (from the financial year of 2014-15 to November 2, 2016), the Government sold a total of 68 residential, commercial / business / hotel and industrial sites. Analysis based on the information provided by the tenderers in their tender forms (Note 1) indicates that 11 sites were awarded to developers of Mainland enterprises (including those associated with Mainland enterprises or joint venture companies).
The Government has actively increased the supply of land and housing and has endeavoured to manage demand. The current term of Government introduced the Buyer's Stamp Duty (BSD) in 2012 and the doubled ad valorem stamp duty in 2013 to curb external and investment demand. The property prices dropped by 11.3% between the fourth quarter of 2015 and the first quarter of 2016. In the third quarter of 2016, the monthly average number of residential property transactions involving non-local individuals and non-local company buyers was 105 (or 1.5% of the total transactions of residential property), markedly below the average figure of 365 cases (or 4.5%) for the ten months before the introduction of BSD.
Nevertheless, the property market showed renewed signs of exuberance since April 2016, with accelerated rise in property prices, which are now close to the historical peak in September 2015. In fact, under the global context of ultra-low interest rates and abundant liquidity, high property price is not a phenomenon unique to Hong Kong. Some other major cities (Note 2) also face the same challenge.
Although the supply of residential properties has been steadily increasing, the demand-supply imbalance remains tight in the short run. In order to stabilise the property market, to guard against further increase in the risks of a housing bubble, and to accord priority to the home ownership needs of those Hong Kong permanent residents (HKPR) who do not own any other residential property in Hong Kong, the Government decided to raise the ad valorem stamp duty (AVD) rates chargeable on transactions for residential property to 15% across different value bands on November 4, 2016 (last Friday). The exemption arrangements under the existing regime remain unchanged (Note 3).
(2) The prevailing housing demand is keen irrespective of age group. The only way to concretely address the long term housing needs of first-time home buyers and younger generation is to increase the overall supply as quickly as possible and to build an effective housing ladder. Therefore, the Government has set the total supply target for the ten-year period from 2016-17 to 2025-26 at 460 000 units, among which 280 000 units are public housing units.
Subsidised sale flats, such as the Home Ownership Scheme (HOS) flats, serve as the first step for many families to achieve home ownership. The Hong Kong Housing Authority (HA) has resumed the HOS and pre-sold newly-built HOS flats at the end of 2014 and this year respectively. HA has also commenced the pre-sale of flats under the Green Form Subsidised Home Ownership Pilot Scheme last month. Besides, HA has introduced two rounds of Interim Scheme to Extend the Home Ownership Scheme Secondary Market to White Form Buyers (the Interim Scheme) in 2013 and 2015 respectively to allow eligible White Form applicants to purchase flats with premium not yet paid in the HOS Secondary Market.
As at end September 2016, the projected supply from the first-hand private residential property market for the coming three to four years is approximately 93 000 units. Experiences from major cities around the world show that tight supply and cheap credit are the main reasons of rising property prices and rents. If the Government and the community do not bite the bullet and make determined efforts in searching land for housing, the problem is not going to be resolved easily. At the end of the day, it will be the low-income group and the younger generation who suffer.
(3) Regarding the development of public housing at Wang Chau, the Government decided in early 2014 to develop the site in phases by proceeding first with Phase 1 with a view to providing 4 000 units as early as possible and including these units in the Ten-year Housing Construction Programme. Phases 2 and 3 will be deferred, but the target of developing a total of 17 000 units remained unchanged. This decision was based on the considerations that developing Phases 1, 2 and 3 concurrently would involve more complicated problems in terms of the provision of infrastructure, including traffic and transport, sewerage and power supply. Furthermore, the sites of Phases 2 and 3 involved more brownfield operations and environmental problems than that of Phase 1. This would lead to more complicated development works and required a longer lead time to formulate an implementation plan and for the construction process. The Government has explained the relevant analyses, details are at Annex.
There are views that we should only develop Phases 2 and 3; or develop Phases 2 and 3 first and postpone Phase 1. People holding these views may think that there was more government land in the sites of Phases 2 and 3 than that of Phase 1 and hence the resumption of such land would be easier. Some may also think that most land on the sites of Phases 2 and 3 is "brownfield" site and no "Green Belt" site is involved; or developing Phases 2 and 3 does not require relocating people residing in the area. The case is not that simple.
Firstly, the ratio of government land in Phases 2 and 3 is smaller than that in Phase 1. While 38% of the Phase 1 site is government land, only a total of 30% of the Phases 2 and 3 sites is government land.
Regarding "Green Belt", the entire Phase 1 site was "Green Belt" under the outline zoning plan before re-zoning in June 2015. For Phases 2 and 3, although the ratio of "Green Belt", at 55% of the total area under the outline zoning plan, is lower, the actual size is larger at 7.3 hectares.
As regards people residing in the area, at present we do not have official data on the number of households and population for the Phases 2 and 3 sites. However, according to the observations in the Planning and Engineering Study, it is believed that there are people living in the sites of all three Phases.
Therefore, when the Government proceeds with the development of Phases 2 and 3, similar to Phase 1, application for rezoning the "Green Belt" site therein and relocation of local residents are also required.
Another reason for the obviously shorter development time for Phase 1 than that of Phases 2 and 3 is that there is almost no "brownfield operations" in Phase 1 site. On the other hand, it is estimated that there is an area of seven hectares of "brownfield operations" in Phases 2 and 3. Hence, develop Phase 1 first, followed by development of Phase 2 and 3 in stages is a progressive approach to tackle relatively easier tasks first in terms of overall planning and relevant strategic arrangements.
Note 1: Without examination of the shareholding information therein.
Note 2: The residential property prices in Vancouver increased by 19% last year, followed by another 22% increase in the first seven months of this year. The residential property prices in Sydney increased by 14% last year, followed by another 2.2 % increase in the first half of this year. The residential property prices in London increased by about 12% last year, followed by another 7.7% increase in the first seven months of this year.
Note 3: The major exemption is where the buyer is a HKPR acting on his/her own behalf and is not a beneficial owner of any other residential property in Hong Kong at the time of acquisition of a residential property. Under such circumstances, the new AVD rate will not apply and the relevant transaction is only subject to the lower AVD rates at Scale 2.
Ends/Wednesday, November 9, 2016
Issued at HKT 17:51
Issued at HKT 17:51
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