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Hong Kong Government To Net Record US$6.4 Billion In Land Premium Amid Rising Demand And Prices Of Homes

The government had already generated HK$40 billion - the current full-year record - in the first 10 months of 2021, Paul Chan says Developers and landowners to increase land banks and undertake redevelopment after the roll-out of the Northern Metropolis plan, Knight Frank executive says

Hong Kong Government To Net Record US$6.4 Billion In Land Premium Amid Rising Demand And Prices Of Homes

The Hong Kong government is set receive a record HK$50 billion (US$6.4 billion) in land premium this year, as developers rush to build flats to capitalise on a housing shortage that is fuelling prices and demand.

Land premium is the fee that developers pay to the government when a modification or change in land use results in a higher land value. The government had already generated HK$40 billion in land premium in the first 10 months of the year, Financial Secretary Paul Chan Mo-po said this month. This matches the current record for the whole year reported in 2017, according to property consultancy Knight Frank. Last year, the government earned HK$12.7 billion.

"It is likely that developers and some existing landowners will feel that they have the incentive to increase their land banks, or undertake redevelopment through land premium settlements with the government in the coming one to two years - especially after the roll-out of the Northern Metropolis framework," said Martin Wong, director and head of research and consultancy for Greater China at Knight Frank, which said the government could earn between HK$45 billion and HK$50 billion in land premium this year.

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Demand remains strong in Hong Kong, the world's most expensive property market, and developers looking to tap it are looking for ways to increase their land holdings amid limited supply. The Northern Metropolis proposal has, for instance, encouraged them to convert farmland for residential use.

"More non-residential use plots in urban areas will be converted for residential use as a result of the supply shortage," Wong said.

There are various ways for developers to step up in the residential market, such as land sales, the redevelopment of older tenement buildings in urban areas, the conversion of agricultural land for development and participation in land share schemes, according to Colliers.

"Given the government's strong vision on housing supply and the Northern Metropolis development, the policies are supportive and, therefore, more local developers [will] look for residential development opportunities in different ways. Based on the residential market's resilient performance during Covid-19, developers are confident about Hong Kong's near future," said Hannah Jeong, head of valuation and advisory services at Colliers in Hong Kong.

The big jump in land premium comes amid strong demand, which has led to strong sales even at projects launched at high prices. This month, for instance, Li Ka-shing's CK Asset Holdings sold 200 units at its #Lyos development in Hung Shui Kiu at an average HK$15,503 per square foot, the highest per square foot price in that district.

Kowloon Development, a mid-sized builder, sold about 500 flats at Manor Hill in Lohas Park, which it launched at an average price of HK$20,921 per square foot last month, setting a record for the area. To capitalise on such strong demand, Kowloon Development agreed to pay HK$9.7 billion in land premium for a 240,733 sq ft plot in Clear Water Bay, on which it will construct 5,000 units, the same month through a land exchange deal.

The developer surrendered St Joseph's Home for the Aged, a Grade 2 historic building, to the government. In return, it received a plot next to St Joseph's that will yield a total gross floor area of 2.6 million sq ft next to the heritage building. The land premium it paid translates into HK$4,464 per square foot.

The amount Kowloon Development paid was the largest since Sun Hung Kai Properties agreed to pay HK$15.9 billion in 2017 to build more than 4,700 villas and medium rise flats on converted farmland in Sai Kung.

"More land premium settlements will be reached with the government over the next six months," said Ricky Wong, managing director of Wheelock Properties. He said the government's annual land supply could only provide about 10,000 new homes, compared with the annual sale of 18,000 new homes.

"It still has a shortfall of 7,000 to 8,000 new flats. When developers receive a reasonable or close to market price land premium offer from the government, they will accept it. It will speed up the settlements," he said.

Read the original article on South China Morning Post. For the latest news from the South China Morning Post download our mobile app. Copyright 2021.