Hong Kong

Several land value capture instruments are used (Table 2.24). All land in Hong Kong is under a public leasehold system. Therefore, strategic land management is a key instrument to capture land value gains. Charges for development rights are always levied upon lease modification and in initial land auctions. Local governments always charge the infrastructure levy, as part of the annual land rents or rates. Land readjustment projects are rare, as the revenues raised do not justify the costs of pooling and readjusting plots. There is no adequate legal framework of developer obligations.

Hong Kong is a Special Administrative Region of the People’s Republic of China with a two-tiered system of representative government: the Legislative Council at the municipal level and 18 district councils at the district level. The Basic Law is effective from 1997 to 2047; until them, the region has autonomy to make laws and govern itself. It can define its land use planning framework and design its fiscal policy, including land value capture instruments.

All land is under a public leasehold system. Since 1843, the government disposes of land by granting leases of 75 years or 99 years and, in limited cases, 999 years. After reunification with China's mainland in 1997, the lease term is of 50 years. Leases granted before mid-1997 are known as Crown leases and thereafter as Government leases.

The Town Planning Board is responsible for statutory planning. The main statutory plans are the Outline Zoning Plan, which contains land use zones and major road systems, and the Development Permission Area Plan, to guide and control development in rural areas. In addition, local Outline Development Plans contain more detailed level planning parameters.

Strategic land management is focused on public land leasing. According to the Basic Law, all land belongs to the government. Therefore, land is always leased, for all purposes: to generate public revenues, to provide land for real estate development, to facilitate development with a public purpose and to foster planned urban growth. Hence, the government captures all land value gains in principle. The gradual land disposition method helps capture subsequent increases in land values due to economic development and population growth.

The government acquires land from sea reclamation. After gaining land from the sea, it leases the corresponding development rights to private developers, in order to generate income for defraying the costs and investing in public infrastructure. In all, this means that the main strategy for land management is leasing, and revenues from land leases are used to fund public improvements.

The leaseholder system has been in place since colonial times. Leases range from 75 years to 99 years and, in limited cases, 999 years. After the 1997 unification with China, new leases under the land disposal program normally have a lease term of 50 years. Nonetheless, lands leased for public purposes may have shorter terms, ranging from 20 to 50 years.

Lessees pay two types of charges for obtaining and using the development rights of land. First, lessees pay an upfront payment (called land premium) to obtain the development rights of land initially. In most cases, the amount of premium is determined by public auction. Second, lessees also pay an annual ground rent that is calculated as 3% of the rateable value (estimated rental value) of both land and buildings through the term of the lease. No exemptions or discounts to payment may be granted. Leaseholders of public land may transfer the lease in a secondary market or sublease it to a third party.

The revenues from land leases belong to the government and are an important source of income. Between 2016 and 2019, the annual total lease revenue ranged from 19% to 27% of the yearly total budget. The collected revenues are earmarked to fund and pay for public improvements and infrastructure, such as public transport, roads and parking, affordable housing and public utilities.

Difficulties are of political and practical order. Since land is scarce, the amount of land available for new leases is not substantial, and land prices are high.

The government always levies charges for any modifications of development rights when there is a change of land use or density specified in the original land contract. Since all land is leased from the government, the fee takes the form of a lease modification charge. If the modification of land use or density does not go beyond what is specified in the land contract, there will be no modification charge, as the fee is already embedded in the auctioning price.

The government has high discretion in issuing and setting the charge for development rights. The fee is calculated according to the estimated land value gains from the rezoned land or from the additional floor space. The fee is set for delimited zones of a jurisdiction and cannot be transferred to other areas. It must be paid in cash, through a lump sum, at the time the development rights are issued.

Charges for development rights constitute an important source of local revenues, having been the second largest income generated by leasing public land for the government in the fiscal year of 2018-2019. In that year, it accounted for 27.2% of the total annual lease revenue, which, in terms of the total annual budget, corresponded to 5.4%.

The Hong Kong government keeps all land revenues in a designated land account in its budget. The purpose is to earmark these funds for land-related public development.

Lease renewal charges for capturing land value increments have not been successful among leaseholders, who have refused to pay a substantial amount of money to renew their leasehold rights, whose values have gone up many times since their contracts started 75 or 99 years ago.

The infrastructure levy is always collected bi-annually from landowners in the forms of land rents and rates – which is equivalent to the property tax. The government combines these two levies into a single payment, so as to facilitate compliance.

The annual land rents amount to 3% of the rateable value of the property. Rates are adjustable according to the fiscal needs of infrastructure improvements. Land rents and rates are collected in cash, bi-annually, before completion of the public improvement. The government has high discretion in issuing and setting the fees and in investing the collected funds.

Local districts or special purpose bodies may receive the funds. Typically, the fees are used to fund and pay for public improvements, such as public space, transport, roads, public utilities, safety, and public services.

Overall, a similar system has been in place since 1843 in Hong Kong, and the ongoing costs of infrastructure improvements are included in the annual lease revenues. The main challenge to implementation is sufficient administrative capacities, since setting the annual land rents and rates requires a complex and recurrent mechanism of land appraisal, as well as a bi-annual collection system.

As a densely populated region, Hong Kong has only applied land readjustment in the “vertical” manner, for densification purposes. In vertical land readjustment, after the original plots are pooled and readjusted, a high-density apartment complex is built over the land, and affected property owners receive an apartment unit within the newly constructed building.

Local district councils or private developers may lead land readjustment projects. There is no share of readjusted plots reserved for public improvements. In a similar way, the readjustment does not typically include the creation of plots that could be sold or leased in the future. Yet, through land readjustment, project developers can build extra apartment units for sale at market value to recover a portion of the costs.

A consultation process with leaseholders is always set in motion. If the project is privately led, 100% of the affected landowners must consent. Because reaching consensus is difficult, private-led land readjustment projects are rare. If the project is public, participation is compulsory and therefore there is no legal consent requirement. The government may use compulsory purchases to acquire property from owners who refuse to participate in land readjustment. In this case, owners receive fair compensation, defined at the market rate based on the original use of plots.

After readjustment, landowners may opt for an apartment unit or cash compensation. In addition, if the readjusted plots are less valuable than the original ones, they shall receive due compensation. Third party investors, e.g., developers, can receive readjusted plots in return for their investments in the project.

Despite the high demand for housing in a limited land area, land readjustment projects are rare. For public projects, the difficulty is to face the political and financial costs of conducting land expropriations. Moreover, private and public executing entities are often discouraged by the tight profit margins of land readjustment. The revenues raised often do not justify the costs of pooling and readjusting plots.


[3] OECD (2022), “Subnational government structure and finance”, OECD Regional Statistics (database), https://doi.org/10.1787/05fb4b56-en (accessed on 13 January 2022).

[8] OECD (2021), “Subnational government structure and finance”, OECD Regional Statistics (database), https://doi.org/10.1787/05fb4b56-en (accessed on 25 November 2021).

[2] OECD (2017), Land-use Planning Systems in the OECD: Country Fact Sheets, OECD Regional Development Studies, OECD Publishing, Paris, https://doi.org/10.1787/9789264268579-en.

[1] OECD/UCLG (2019), 2019 Report of the World Observatory on Subnational Government Finance and Investment - Country Profiles, OECD/UCLG.

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