LCQ21: "Pay for What You Build" Pilot Scheme
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Question:
In the 2025 Policy Address, the Chief Executive introduced a "Pay for What You Build" mechanism, with the aim of refining the existing arrangements for land grant and land premium payment to ease the upfront capital pressure on developers, encourage phased development, and accelerate the development of the Northern Metropolis as well as commercial and industrial projects across the territory. In this connection, will the Government inform this Council:
(1) given that the Government plans to implement a three-year pilot scheme on "Pay for What You Build" (Pilot Scheme) in the first quarter of 2026, of the current progress of its consultation with the industry, including the major views collected, its preliminary responses to such views, and the specific implementation details of the Pilot Scheme (such as eligibility criteria for application, assessment criteria, the method and transparency of land premium calculation, as well as how to ensure that the initial payment of 60 per cent of the land premium can reasonably reflect the market value);
(2) as it is learnt that the "Pay for What You Build" mechanism can complement policies such as the phased development approach, the diverse land grant modes, and the revitalisation scheme for industrial buildings, how the authorities will ensure that these policies can work in tandem to create maximum synergy, thereby encouraging developers to adopt more flexible approaches to project planning and development, particularly in the development of the Northern Metropolis, to attract a more diversified range of industries and investment; and
(3) as it is learnt that certain conditions are imposed under the Pilot Scheme (for example, the relevant land must not be subdivided for sale and, if no decision is made within 10 years on whether to proceed with the development of the remaining 40 per cent of the gross floor area (GFA), the Government may reallocate such GFA to other developers), how the authorities will establish a clear and effective regulatory mechanism to ensure developers' compliance with these conditions, thereby preventing land idling or speculative behaviour; in cases where unforeseeable factors, such as market changes, render developers unable to develop the land as scheduled or decide whether to proceed with the development of the remaining 40 per cent of GFA, how the authorities will manage the associated risks to safeguard public interest and maintain market stability?
Reply:
President,
To take forward the Northern Metropolis (NM) and overall industry development in Hong Kong, the 2025 Policy Address proposed various diverse land development models to promote active market participation in investment. Among these, the Development Bureau (DEVB) proposed to launch a three-year "Pay for What You Build" Pilot Scheme, which is applicable to all lease modification applications for non-residential use developments (Note 1) throughout the territory. This means that in the process of lease modification (including land exchange), lot owners are allowed to carry out phased development and pay the required land premium as determined according to the actual gross floor area (GFA) and the "preferred use" as proposed by the lot owners, with details as follows:
(a) the GFA under the initial phase of the development must amount to at least 60 per cent of the total permissible maximum GFA (Note 2), and to be completed in time in accordance with the Building Covenant, with the land premium assessed based on the full market value of the GFA under the initial phase of the development (i.e. at least 60 per cent of the total permissible maximum GFA of the whole development) and the "preferred use" of the land proposed by the lot owners. In other words, the Lands Department (LandsD) will determine the land premium based on the full market value to ensure that the land premium reflects the market value and protect the government revenue; and
(b) After the completion of the initial phase of the development, a developer can decide whether to proceed with realising and paying the land premium for the remaining development (i.e. 40 per cent or less of the total permissible maximum GFA) through another lease modification application based on the then prevailing full market value and conditions stipulated in the modified lease within 10 years. If the developer does not apply for lease modification within the 10-year period, depending on whether there are applications from other lot owners in the district, the Government may redeploy the remaining development intensity and infrastructure capacity to other lots in the district. In other words, although the land owner will retain ownership of the relevant land at that time, there is no guarantee that the developer can develop the remaining portion beyond the 10-year period.
Our reply to the Hon Chen's question is as follows:
(1) After the 2025 Policy Address proposed the "Pay for What You Build" initiative, the DEVB consulted various industry representatives and stakeholders from September to November last year, including the Advisory Committee on the NM, the Land and Development Advisory Committee, the Real Estate Developers Association of Hong Kong, the Hong Kong Institute of Surveyors, the Royal Institution of Chartered Surveyors and the Heung Yee Kuk. The DEVB then briefed the new-term Panel on Development of the Legislative Council (LegCo) in January this year on various measures to enhance land development including "Pay for What You Build" initiative.
LegCo Members and the industry generally supported the "Pay for What You Build" initiative. They considered that it was an effective means to reduce developers' cash flow pressure, increase investment incentive and promote diverse industry development, when the Government no longer pursued maximum land premium in lease modification for land for industry development and allowed phased development as well as assessed the land premium based on the industry use selected by the market. The industry generally accepted the proposed implementation details (see first paragraph above), including that the development under the initial phase must amount to at least 60 per cent of the GFA, such that the land could be put to better use and there was flexibility in the development pace. The industry also suggested that the details of the alienation restrictions should be clearly specified, so as not to affect the long-term development potential of the land parcels. The DEVB and the LandsD are formulating the implementation details in accordance with the industry views, and planning to publish a practice note to set out the details of the Pilot Scheme next month.
(2) According to our policy design, if circumstances warrant, "Pay for What You Build" can be used in combination with other land development tools, forming a "combination punch" for better outcomes in industry development. For example, whether it is an application for in-situ land exchange in the NM or in other areas of Hong Kong, if an industry site does not involve residential development, "Pay for What you Build" can be considered to be adopted. Another example is the redevelopment of industrial buildings. The DEVB is reviewing the implementation of the Revitalisation Scheme for Industrial Buildings to put forth recommendations within this year, during which “Pay for What You Build” will be considered to further encourage the redevelopment of aged industrial buildings.
As for the "phased development" (or "1.5-level development") mentioned in the question, it covers land designated by the Government. It allows pilot low-density facilities to be developed and operated by enterprises initially to attract businesses, bringing income and footfall to the area to create momentum before long-term development is rolled out. This measure is different from "Pay for What You Build" in that the policy objective of the latter is to encourage the market to implement long-term industry uses. Therefore, we have no plans at this stage to combine the two measures.
(3) A Practice Note will be issued next month to set out the implementation details of the Pilot Scheme, providing the industry with a clear set of rules to follow. These include, among others, the applicable scope, the requirement to develop at least 60 per cent of the GFA initially, the handling of the remaining 40 per cent of the GFA, the assessment of land premium based on market value, and restrictions on alienation, etc. The key arrangements of the Pilot Scheme will be incorporated into land leases to enable regulation by the LandsD.
For example, to ensure completion of the initial phase of the development by a developer in time to prevent the land parcel from being left idle, the Building Covenant will be imposed in the land lease requiring the developer to complete the development project and obtain an occupation permit from the Building Authority within a period. Otherwise, the developer has to make an application to the LandsD for an extension of the Building Covenant period and pay the premium. Similarly, the land lease will stipulate that the whole piece of land will be subject to non-alienation restriction except as a whole during the said 10-year period (save for a decision already made to proceed with the remaining development), so as to allow the developer to retain the development right of the whole piece of land within the 10-year period, facilitating consideration by the developer in continuing to take forward the remaining development.
Note 1: The land parcel concerned should have been zoned for "non-residential" development use on the relevant Outline Zoning Plans, such as "commercial", "industrial", "other specified uses (annotation)", etc.
Note 2: This means the total permissible maximum GFA of the whole development in accordance with the relevant Outline Zoning Plans or the Buildings Ordinance (Cap. 123), whichever is the lesser, and as stipulated in the lease modification documents.
Ends/Wednesday, April 29, 2026
Issued at HKT 16:40
Issued at HKT 16:40
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