2025-02-21 28Hse Editor
Last year's performance of land sales fell short of expectations, characterized by numerous failed land bids and revenue from land premium plummeting to a 14-year low. Further, this fiscal year's fiscal deficit has exceeded projections, largely due to the lower-than-anticipated revenues from stamp duty and land sales. Financial Secretary Paul Chan Mo-po has indicated that the fiscal deficit may persist for several years and disclosed that the government is currently examining various strategies to bolster revenue and reduce expenses.
In line with the government’s recent announcement, a deficit amounting to HK$164.1 billion was reported for the first eight months of the fiscal year, ending in November last year. During this period, fiscal reserves decreased from HK$834.8 billion at the close of March the previous year to HK$670.7 billion. A government spokesperson highlighted that the deficit recorded as of November can be attributed to the timing of major revenue streams, such as salaries tax and profits tax, which are predominantly collected in the latter part of the financial year.
At this juncture, the government's foremost priority ought to be increasing revenue to achieve a balanced budget. An unexpected move, Hong Kong halted government sales of residential and commercial land for this quarter, spanning January to March of 2024 – the first time in 13 years, since the introduction of the land sale initiative in 2011, that such a suspension has occurred. This cessation signifies that there will be no additional revenue from land sales for the fiscal year 2023/24, which may, in turn, exacerbate the deficit.
Market analysts were divided on the government's decision to suspend land sales. Some suggest that this move reflects a weak market sentiment, with concerns that relaunching land sales may result in unsuccessful bids, further leading to an oversupply. Others speculate that the government might be shifting the control of land supply to private developers, perhaps as a strategic measure to regulate the market more effectively. Additionally, there is an opinion that the government's suspension aims to stabilise the property market by controlling the pace of new land entering the market.
Addressing the decision to suspend land sales, Secretary for Development of Hong Kong Bernadette Linn Hon-ho clarified that the government's actions do not stem from a lack of confidence in the property market. At present, there is a significant risk of land sales not attracting bids. By reducing land sales, the government can avoid exacerbating weak market sentiment.
It is believed that the string of unsuccessful bids are because of developers’ hesitance to invest in land, adopting a conservative stance towards the property market. Consequently, their bids have not met reserve prices. Moreover, stringent land restrictions are among the contributing factors. For instance, on the plot designated for first-time housing development in Yau Kom Tau, Tsuen Wan, the successful bidder is obligated to construct government facilities, such as community centres for the elderly, thereby escalating construction costs.
Such an approach will inevitably increase costs and risks in construction, rendering developers more cautious in acquiring land and leading to failed bids. Beyond affecting government revenue, one wonders what other impacts the suspension of land sales might have.
According to data, the government announced moratoriums on land sales in 1998 and 2002, lasting for periods of 9 months and 12 months, respectively. Land sales resumed in 2004, but with a shift to a land allocation mechanism that persisted until 2010. This shift ultimately resulted in significant disruptions to the supply of land and housing, contributing to escalating property prices.
Under the land application mechanism, the government identifies land it intends to sell and places it on the " List of Sites for Sale by Application (also known as Application List)”. Any entity interested in purchasing land can convey its intention to the government and submit a bid at its reserve price. If the reserve price meets or exceeds the government's estimated market value for the land, the land can then be sold.
The suspension of land sales will undoubtedly put pressure on the property market. Should this cessation persist for an extended period, property prices may escalate to unmanageable levels. Based on the information available, land sales have been suspended for only one quarter. It is anticipated that the government will resume land sales in the subsequent quarter and lessen the restrictions on site sales to minimise the occurrence of unsuccessful bids.
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