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News from Knight Frank Hong Kong

Anticipated policy address sets positive direction

11 October 2018

Chief Executive Carrie Lam announced today in her second Policy Address, a series of measures on good governance, housing and land, diversified economy, nurturing talent, improving livelihood, liveable city, and connecting with young people. The land and housing strategies come as anticipated, and Knight Frank agrees with the government's new initiative on land and housing supply, though many policies require long-term planning. The government must set a reasonable timetable with adequate policy support, and maintain the will to continue implementation. Regardless of market volatility in the coming months, the long-term problem of insufficient land supply across all categories in Hong Kong remains in question. Solving this problem requires a multi-faceted approach.

 
Land Sharing Pilot Scheme
 
Alnwick Chan, Executive Director and Head of Valuation and Professional Services supports the government’s proposal of the Land Sharing Pilot Scheme. By adopting Public Private Partnerships (PPP), it brings long-term benefits to the Scheme, taking advantage of developers’ project experience, lowering inputs and risk borne by the government. Given the inflexibility of the Government’s compensation mechanism, the application of PPP avoids the potential conflicts arising from private land resumption and other associated social issues. Alnwick expects that the development timeline of subsidised flats could be fast-tracked by three to five years through PPP, compared to “Land Resumption Ordinance”. As Hong Kong is currently facing the issue of land shortage for subsidised flat development, the Government should create incentives to draw private participation from developers who own land reserves. Alnwick suggests that the ratio of subsidised flats to total housing provision in the PPP proposals could be capped at 50%, to create sufficient private incentives for participating in the development of subsidised flats, and bring balance to communities. He advocates the Government in adopting a positive approach to create a win-win situation. 
 
Civil Servants’ Co-operative Building Society Scheme
 
In the past, it has been very difficult to redevelop Civil Servants’ co-operative buildings, considering the high land premiums and age of the buildings. If the Urban Renewal Authority is invited to lead the redevelopment scheme, Thomas Lam, Executive Director and Head of Valuation and Advisory believes it may speed up the pace of redevelopment. This will greatly facilitate the city’s urban renewal and improve the living standards of the old districts.
Reclamation, Artificial Islands and East Lantau Metropolis 
 
Thomas Lam, Executive Director and Head of Valuation and Advisory believes the development of East Lautau has a certain geographical advantage, together with the Greater Bay Area initiative, but it requires a long-term timetable. Reclamation and artificial islands are considered more desirable and feasible options. The reclamation of non-natural coastlines outside Victoria Harbour and construction of artificial islands in the central waters can reduce the compensation problem thanks to the relatively few relevant stakeholders involved. These proposals are capable of faster development time than other options, as they are simpler and more comprehensive solutions for future new towns. However, feasibility studies, technical and environmental impact assessments should be conducted by the Government prior to implementation. Though Thomas believes reclamation to be a stronger option for consideration, to increase Hong Kong's land supply in the long run, he advocates diverse planning, rather than the government relying too much on one or two approaches. Multiple options to increase land supply should be implemented simultaneously, and the Government should also accelerate the implementation timeline.

Revitalisation of Industrial Buildings
 
Patrick Mak, Executive Director and Manager, Head of Kowloon Office Services says, “Since 2010 there have been over 150 industrial buildings approved for usage conversion, with the majority being in Kowloon East and Kwai Tsuen area. We fully agree with the Government’s initiative to exercise flexibility in converting obsolete industrial buildings into transitional housing since on one hand this will supplement the housing insufficiency and on the other hand it will stimulate a more comprehensive system to support the growth of these newly formed features of the commercial landscape into more well-rounded and mature mixed- development areas.”
 
Brownfield Development
 
Knight Frank Executive Director and Head of Land Advisory Services Adam Lee believes the brownfield issue to be a complex one that cannot be easily resolved and should therefore be handled with caution. In considering the potential influence on stakeholders and methods of attracting occupants to move out, it will inevitably involve certain compensation issues. Since the business nature of some existing brownfield operations is unique, relocating these operations will evolve similar financial and technical challenges, whether it is initiated by the government or the operators. However, the option of brownfield development can increase land supply in a shorter timeframe compared to other options, with the added benefit of existing support from the general public. Adam Lee suggests that the government provide policy support to the affected brownfield operators to accelerate the implementation process of brownfield development.
 
Greater Bay Area Integration 
 
David Ji, Director and Head of Research and Consultancy, Greater China thinks it is positive that the government is promoting economic cooperation with other key cities in the Greater Bay Area. Considering Hong Kong’s key role as the only international financial centre in the region, Mainland companies from the Greater Bay Area will continue to see Hong Kong as a platform from which to raise capital and go global. The Hong Kong office market will benefit from the government’s objective to attract regional talents and provide policy support to new start-ups, while the Hong Kong retail market will attract lucrative consumer spending through exposure to an extended market catchment.