Editorial : Reform Government Revenue Structure

【明報專訊】A string of abortive land auctions has hit the government recently, and sparked a lot of discussion. Some have even linked the issue to the Hong Kong National Security Law.

Last year, due to a host of factors such as the local pandemic situation, rising interest rates, the wave of emigration, as well as the mainland's border closure and economic slowdown, Hong Kong's property market performed poorly. The property price index compiled by the Rating and Valuation Department fell by over 15% over the entire year, ending a rising trend that had continued for 13 years.

Following the restoration of normal travel between Hong Kong and the mainland, as well as both regions' full reopening and return to normal, there have been signs of a recovery in second-hand property prices. But land auctions have shown a different picture, with a string of three abortive auctions involving land sites and large-scale development projects, namely a Stanley luxury home site, an Urban Renewal Authority Kwun Tong Town Centre commercial building redevelopment project and Phase 1 of the MTR's development project in Siu Ho Wan. Some are concerned about whether developers are pessimistic about the property market, and even the economic prospects. Further, some claim that the government's inclusion of Hong Kong National Security Law clauses in land sales terms and short-term lease agreements last November might have affected developers' willingness to place a bid.

The widespread discussion following this series of abortive land sales reflects some political conditions in society. The so-called "National Security Law effect" even smacks of political exaggeration, which is speculative and lacks evidence. This week, a small-to-medium-sized residential land site at Yau Kom Tau, Tsuen Wan was won by the Kerry Group with a bid of nearly $1.44 billion, which was close to the upper limit of market valuation. The land site is not close to any railway station, and the successful bidder must build government facilities. Still, the Lands Department had received ten tenders, making the site the one with the best reception over the past seven months. Although it is not a large-scale project, it will somewhat lift the market mood.

In the latter half of last year, multiple land sites were sold at low prices, such as a residential site in Tuen Mun's Tai Lam and a commercial/residential site in Kai Tak. It has convinced developers that they are more likely to pick up a bargain from land sales. On the other hand, since Hong Kong and the mainland are reopening and returning to normal, the government has a more positive outlook, and stresses that its land will not go for a song. As the two sides enter a tug of war over land prices, there will be more failed land sales.

Land premium is one of the main sources of the SAR government's fiscal revenue. In the year 2021/22, for example, land premium revenue accounted for about 20% of the government's annual revenue. The high proportion was second only to profits tax (about 23%). However, land premium revenue is highly dependent on the economic environment and the property market. Relying too much on land sales and land-related income only defeats the notion of ensuring financial stability.

In recent years, the SAR government has stated that it would step up land creation and housing construction. Large-scale development projects such as the Northern Metropolis and the Kau Yi Chau Artificial Islands will be launched one after another. If the authorities keep their promise about land creation, the supply of "disposed sites" over the next ten years will reach 3,280 hectares, meaning that a structural, long-term change to the situation of demand outstripping supply in Hong Kong's property market may happen. Under the law of supply and demand, the land price frenzy should also recede, unlike before the pandemic.

The government claims that there is no high land price policy, so to strengthen its future fiscal revenue stability, it is time to gradually reform public finances and the government revenue structure to reduce their reliance on land-related revenue.

明報社評2023.02.17:政府賣地進帳不穩定 庫房收入結構要改革











abortive : not successful; failed

smack of (sth) : to seem to contain or involve a particular unpleasant quality

outstrip (sth) : to become larger, more important, etc. than sb/sth

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