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LCQ15: Impacts of grant of commercial sites at low prices
     Following is a question by the Hon Paul Tse and a written reply by the Secretary for Financial Services and the Treasury, Mr Christopher Hui, in the Legislative Council today (March 29):
     It has been reported that earlier on, the Government granted a rare large-scale commercial site in Mong Kok at a price of some $3,000 per square foot, which is cheaper than industrial sites in the New Territories, and some veteran members of the real estate and surveying sectors have described the per-square-foot transaction price as "the low price of the century". The sale of the aforesaid site at a price below market expectations has immediately driven down the valuations of commercial sites and commercial buildings in the territory. Quite a number of commercial organisations holding sites or commercial buildings and obtaining working capital through mortgage loans from banks have coincidentally received notifications from banks to lower the mortgage valuations of their commercial properties secured with the banks, and the amount of working capital they can borrow has also been reduced as a result. Some businessmen are even worried about the emergence of "a wave of banks calling loans". In addition, there have recently been a number of sales of repossessed industrial and commercial properties at auction at low prices in Hong Kong, with the offered prices of many of them being less than half of the market prices, which has led to worries among many members of the public about a possible domino effect in the commercial buildings market. In this connection, will the Government inform this Council:
(1) whether it has set a reserve price when the aforesaid site was put up for tender; if so, of the reserve price and how it was set; if not, whether it can state in future tenders for commercial sites that the authorities have set a reserve price for the site and will withdraw the site from sale in the event of insufficient bids;
(2) whether it has assessed the impacts of the aforesaid case of low-‍priced land sale on Hong Kong's commercial sites, commercial buildings market, property secured lending and credit ratings of Hong Kong assigned by international credit rating agencies, as well as the desire to subscribe to bonds issued by the Government to finance land reclamation projects;
(3) whether it has foreseen the likelihood of "a wave of banks calling loans" being triggered by the Government granting sites at low prices, and of the measures in place to prevent such situation;
(4) whether it has anticipated if, in the event of a continuous decrease in the revenue from land sales in Hong Kong resulting in a drop in the Government's fiscal reserves, the authorities will be forced to introduce new taxes or further reduce the measures of "handing out candies" in the Budget (e.g. the amount of tax concessions); if so, of the details; and
(5) whether it will, in the light of the aforesaid market reaction, further adjust downward the forecast of revenue from land sales and stamp duties for the current financial year and subsequent financial years?
     In consultation with the Development Bureau and the Hong Kong Monetary Authority, my reply to different parts of the question is as follows:
(1) Every commercial site put up by the Government via open tender will be sold only if the tender price is above the reserve price. The reserve price of a land sale site is set by professional surveyors of the Lands Department in the morning of the tender closing date based on the development parameters and requirements set out in the tender document, as well as making reference to the prevailing land and property transactions and market situation. Such mechanism is effective and the market is familiar with it.
     Land value is affected by various factors. Developers put forward their tender bids having regard to their own situation and development strategy. As regards the commercial site at the junction of Sai Yee Street and Argyle Street in Mong Kok, the successful bidder is required to construct a public transport interchange, a community hall, a series of social welfare facilities, as well as pedestrian footbridges linking to the existing footbridge network. The reserve price set by the Lands Department has reasonably reflected these complicating factors.
(2) The global and local economic environment, market sentiments, as well as developers' own situation would affect the market for commercial sites. Tender result of individual sites will not pose a long-term impact on the overall market. The policy objective of Government land sale is to provide a stable and continuous land supply to respond to the needs of society. This objective will not be affected by short term market fluctuations.
     For property-secured lending, when companies apply for credit facilities secured by properties for the purpose of financing their working capital, banks will conduct comprehensive assessments in accordance with their credit underwriting standards, taking into account a host of factors such as the borrowers' financial condition, debt servicing ability, industry outlook and credit history. The collateral value is not the sole consideration for banks' credit approval.
     For credit ratings of Hong Kong, international credit rating agencies will consider a basket of factors in assessing Hong Kong's credit rating. Government revenue from land sales is just one of the factors to be considered.
     Regarding bonds issuance to finance land reclamation, the Kau Yi Chau Artificial Islands project is still at the preliminary planning stage. Only after we have proceeded to the more detailed engineering design stage when we would have a better basis for formulating the stages of implementation and estimating the cost. Apart from funding the project from the Capital Works Reserve Fund, we may also consider various financing options, including bond issuance and public-private partnership, to make appropriate use of market forces in implementing the project.
(3) For companies which have mortgage loans provided by banks, as long as they are able to continue to make payments of the mortgage loans according to schedule, banks will not request early repayments. As for companies that pledged their properties as collateral for credit lines, banks will review the credit limits periodically, taking into consideration the borrowers' credit condition and repayment ability. Bank will not adjust the credit limits simply because of changes in collateral value. In case banks need to adjust the credit limits after their reviews, they will notify the customers in advance and communicate with them effectively to provide the customers with enough time for preparation.
(4) Land premium is one of the major revenue sources of the Government. Revenue from land premium in 2023-24 is estimated to be $85 billion, accounting for about 13 per cent of the total revenue. Other major revenue sources include profits tax, salaries tax and stamp duty, the revenue of which in 2023-24 is estimated to be $170 billion, $83 billion and $85 billion respectively. These three revenue sources account for over 50 per cent of the total revenue.
     The Government will continue to drive up revenue through economic growth. To increase government revenue in the short term, the 2023-24 Budget proposed to impose an annual special football betting duty of $2.4 billion on the Hong Kong Jockey Club under the Betting Duty Ordinance for five years starting from 2023-24. Moreover, last year's Budget announced the introduction of a progressive rating system for domestic properties in 2024-25. Other than reflecting the "affordable users pay" principle, the new system will increase government revenue by about $760 million annually.
     As regards other proposals on the imposition of new taxes, the Government must first clearly consider the policy objectives, and allow thorough discussions in society before weighing the pros and cons of the proposals and making any decision on them. We will continue to take forward the relevant research and preparatory work. In addition, in formulating the one-off relief measures under the Budgets, the Government would take into consideration different factors, including the economic conditions, the needs of different sectors of society, and the financial burden on the Government.
(5) Revenue from land premium and stamp duty is estimated to be $85 billion each in 2023-24. In arriving at the two estimates, we have taken into account different factors, such as the land sale programme of the year, the land supply target, and the overall performance of the property and stock markets. We will continue to closely monitor the actual receipt of land premium and stamp duty, and publish the revised estimate for 2023-24 in February 2024.
Ends/Wednesday, March 29, 2023
Issued at HKT 12:35
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