Every year after the Budget Speech, the Government will announce the annual Land Sale Programme, which sets out the residential and commercial sites available for sale for the next financial year. Apart from that, the Government will announce the land sale programmes in advance on a quarterly basis in order to provide transparency and certainty for the market. Land is pivotal in meeting Hong Kong’s housing, social and economic development needs, and the proceeds from land sale form a substantial part of the government's revenue. We have the responsibility to ensure that land sale is conducted through a fair, just and competitive mechanism so as to achieve optimal use of our land resources. In this blog post, I have specially invited Mr Tony MOYUNG, Deputy Director of the Lands Department, to introduce to us the Government’s land sale mechanism and process.

Factors to make it fair, just and competitive

Established in April, 1982, the Lands Department (LandsD) is responsible for all land administration matters in Hong Kong, including land disposal, allocation, valuation and acquisition. Land auction and public tender are the two usually adopted means for government land sale. Despite the difference in operational details and procedures, they are both fair, just and competitive. In March this year, the LandsD put up for sale by tender the first residential site in the Kwu Tung North and Fanling North New Development Areas (KTN/FLN NDAs). The tender results were announced in April.

The highest bidder wins

Mr Tony MOYUNG says, the sale of government land by public tender is relatively simple. First, the LandsD will prepare the conditions of sale, stipulating the land use, development parameters, as well as other restrictions and requirements. Then the details about submission of tenders and the closing date will be published in the Gazette. Those who are interested may submit a tender, having regard to the conditions of sale and in accordance with the Tender Notice. After tender closing, all conforming tenders will be submitted to the Central Tender Board for consideration. If the bids are up to or above the reserve price, the tender will be awarded to the highest bidder, and the land will be granted as soon as possible. Tender results will normally be announced within a couple of days. When all the transaction procedures are completed, tender amounts of the other tender bids will be disclosed on an anonymous basis.

Reserve price set in the morning of the tender closing date

The Government always let the market determine the price in land sale. A reserve price will be set for each sale site, and sites are sold only when the reserve price is met. Under this mechanism, the Valuation Section of the LandsD is responsible to set the reserve price in the morning of the tender closing date based on the market value of the site, taking into account the prevailing market situation and other factors which may affect the market condition, such as the economic environment, and the market outlook, as well as the latest changes in development costs. The valuation is therefore well attuned to the market.

Land value derived from development profits

Mr Tony MOYUNG says that land value varies from site to site, because of the difference in the revenue to be generated from the development , which is to a great extend affected by the land uses and development scale permitted under the Town Planning Ordinance, the Buildings Ordinance and the land lease conditions. Other factors include the geographical and locational attributes of the site, availability of supporting facilities and infrastructure in the vicinity, as well as the supply and demand situation of the property market. Nothing comes without costs. Apart from the land price, a developer has to bear the construction cost, interest expense and the return on risk. It is not difficult to see that in the case of breakeven, the higher the projected income from the development, coupled with low construction cost, interest expense and return on risk, the higher the land price a developer can bear.

An objective, independent and effective land sale mechanism

I hope that after Mr Tony MOYUNG’s sharing, you will understand that the land sale mechanism set up and upheld by the Government is objective, independent and effective. We will continue to adopt a multi-pronged approach to create and find land on all fronts, in order to ensure a sustained and steady land supply. The successful sale of the first residential site in the KTN/FLN NDAs last month mentioned above has shown our efforts in taking forward NDA developments. Despite all the difficulties encountered during the course, we are confident that we will rise to the challenge admirably, and solve the long-standing problem of land shortage in Hong Kong.