(5 September 2018, Hong Kong) The government’s public consultations to gather views on the Private Recreational Lease policy and the public private partnerships (PPP) will soon come to an end. Alnwick Chan, Executive Director and Head of Valuation & Professional Services at Knight Frank has shared the following views regarding to these two topics.
Review of the Policy of Private Recreational Leases
The government’s six-month public consultation to gather views on the recommendations of reviewing the Private Recreational Lease policy will soon come to an end. The review report proposed changes to the current Private Recreational Lease arrangements and lease conditions, which includes granting a concessionary premium, equivalent to one-third of the full market land premium, to private recreational clubs who are eligible to the renewal conditions. Alnwick Chan said that since most, if not all, private sports clubs are non-profit oriented or budgeted to break even, or even making operating loss, their sites would only command nominal premium from a land valuation perspective. Therefore, Knight Frank recommend a nominal land premium to be charged for private recreational clubs. The land usage, lease terms and the restrictions in land leases governing these private sports clubs cannot be objectively compared or benchmarked against transactions of commercial properties in the open market, and there is also no market comparable for assessing the full market value of these sites.
In case of the government’s objection on granting a nominal premium, Knight Frank recommends an annual levy based on a particular percentage of the rateable value. Similar to the government rent calculation, the rateable value could be revised on annual basis of in line with the market sentiment. If the private clubs are required to pay the premium or levy annually, they should have sufficient time to raise funding. Regardless of the level of the land premium, the government should recognise the private recreational clubs’ operating and financial constraints, the restrictions imposed under the lease conditions and their contribution to the society.
In order to encourage private clubs to invest into the future, promote sports and provide quality facilities to both members and non-members, the government should offer a longer lease term. Knight Frank recommends those private recreational leases expiring in or leases being extended at nominal premium to 2027 should be granted a lease renewal for 21 years + 15 years, subject to the annual levy or premium and Home Affairs Bureau’s policies.
In addition, Knight Frank pointed out that the proposed instalment option to existing private recreational leases, similar to that under the industrial revitalisation scheme, might not be attractive to private clubs. Such instalment option has yet been taken up by industrial building owners due to high interest rates. Knight Frank also opposes the proposal to restrict and regulate the issuing and trading of debentures as this is against the principle of free market and interfere with private clubs’ operation.
Public Private Partnerships (PPP)
The Task Force on Land Supply is actively looking into various ways to boost land supply. Currently it has proposed 18 short-, medium- to long-term options to increase land supply, of which three of them involve private land, including developing brownfield sites, tapping into private agricultural reserves in the New Territories of private developers and developing new towns in the New Territories.
Since it is currently a lengthy process for the Hong Kong government to resume private land under the “Lands Resumption Ordinance” and also because of the inflexibility in the existing mechanism in terms of issues such as compensation and rehousing, it is a challenge for development projects to be completed on time, especially for subsidised flats. In additional, the government can hardly allocate resources to resume multiple sites to launch development at the same time. Therefore, it should look into other methods to shorten the process and one of the options is public private partnerships.
By adopting PPP model, private developers can enhance the cost effectiveness of the development based on their individual project experience, lowering the inputs required and risks borne by the Government. Considering the existing compensation mechanism of Government land resumption is rather inflexible, the application of PPP can avoid Government resuming private land and confronting associated social issues. Alnwick Chan expected that the development timeline of subsidised flats could be fast-tracked by 3-5 years through PPP compared with using “Land Resumption Ordinance”. As Hong Kong is currently facing the issue of land shortage to develop subsidised flats, the Government should create private incentives to draw private participation from those developers who own land reserve. Alnwick Chan also suggested the ratio of subsidised flats to total housing provision in the PPP proposals could be 20-40% in general and capped at 50% to create sufficient private incentives in participating the development of subsidised flats.
Alnwick advocated the Government to establish an independent committee for approving PPP projects. By maintaining high transparency, it could eliminate the public concern on collusion. The committee should be chaired by the Chief Executive, with its role confined to the approval of PPP proposals and to confirm the ratio of subsidised flats in different projects. Once the ratio has been confirmed, the development proposal should be passed on to Town Planning Board and Lands Department to manage the planning process and to resolve technical issues, avoiding duplication of responsibilities among the organisations. Alnwick also suggested to adopt a scoring system based on certain criteria, which not only consider the ratio of subsidised flats in PPP proposals but also factor in elements which serve public interests. In addition, land with high ecological value should be conserved. By adopting criteria which are fair, justice and open, it should eliminate public’s suspicion on the Government’s preference in engaging major developers.
In conclusion, in regard to the Task Force’s proposal to increase land supply, Knight Frank supports the options of developing brownfield sites and tapping into private agricultural reserves in the New Territories to increase short- and medium-term land supply. It is believed that reclamation outside the Victoria Harbour, the development of East Lantau Metropolis and new development areas in the New Territories are feasible options to help tackle the ongoing issue of land shortage in Hong Kong in the medium-to-long term. In addition to that, topside development of existing transport infrastructure and public utilities sites are feasible conceptual options.
For further information, please visit KnightFrank.com.hk.
