It’s not all quiet on the Northern Front

Hong Kong’s Northern Metropolis is fast becoming a highly sought-after real estate investment location. Despite no government land sales being planned for this area this year, developers and investors have been active, participating in land exchanges and rezoning exercises. Here is what we know about those recent land exchanges and rezoning applications and their potential impact on the real estate market.

One of the most significant factors driving real estate demand in the Northern Metropolis is its rapidly growing population. The area's residents have been steadily increasing, driven by various factors, including government policies, job opportunities, and improved transport infrastructure.

According to the 2016 By-census and 2021 Census, the population in the Northern Metropolis area – which mainly comprises the Yuen Long and North District – grew 5.2% from 2016 – 2021, significantly higher than Hong Kong’s overall population growth – 1.0%. This growth is expected to create significant demand for housing, commercial properties, and other real estate assets, providing a range of opportunities for investors, especially early investors. 

Another key factor driving real estate development in the Northern Metropolis is the potential to transform agricultural land into residential and commercial properties. Historically, much of the land in the area has been used for farming and other rural activities playing a significant role in the local economy.

However, the government has recently promoted agricultural land conversion to meet the growing demand for housing and other real estate. This has created a significant opportunity for property investors, who can acquire agricultural land at a relatively low price and convert it into high-value residential or commercial property through land exchange and rezoning applications.

There have been three land exchanges executed for sites near the Northern Metropolis area, converting them from agricultural to residential lots. 

Two of these land exchanges have rezoning applications in the pipeline, which aim to increase their plot ratio. Rezoning the two sites would absorb the growing housing demand in northern New Territories in light of the Northern Metropolis initiatives. If the rezoning is successful, around 2.4 million square feet of extra residential gross floor area can be unleashed, subject to an additional premium on the increased GFA.

The Lands Department has launched a mechanism to charge land premiums standard rate for lease modification, including land in Kwu Tung North and Fanling North New Development Areas. A recent land exchange site – DD83 Lot 2435 – just 500 metres outside the Fanling North New Development Area boundary, made the most of the opportunity. 

The owner paid HK$76.6 million for the land exchange, which would have cost HK$179.5 million (HK$3,329/sq m), 136% more than if the standard rate had been used. 

Thanks to the policy support, current market condition and strong housing long-term supply demand, more reasonable premiums have been offered to encourage land exchange from the private owners. As the Northern Metropolis becomes more sophisticated, we expect the land in its surrounding areas will experience comparatively more significant value growth. 

The Hong Kong Housing Society has also entered the Northern Metropolis market by acquiring an industrial building in Fanling to convert into its regional office. The Society has several projects in the Northern Metropolis, including homes for subsidised sales at the dedicated rehousing estate in Hung Shui Kiu/Ha Tsuen New Development Area Phase 1A, rental estates at the dedicated rehousing estate project in Kwu Tung North, and a subsidised sale project in Fanling.

The Society’s plan to establish a regional office in Fanling signals it intends to provide more housing for the Northern Metropolis area. 

The Northern Metropolis has become a hotbed of activity for developers and investors, with rapid land exchanges and rezoning exercises. Private developers are seizing the opportunity to accept the government’s land premiums, launching rezoning exercises to increase their secured lands’ development density. If successful, this will increase residential supply and help alleviate Hong Kong’s severe housing shortage and accommodate the Northern Metropolis’ increasing population. 

Landowners must act fast to benefit from the Northern Metropolis master planning regime; it is an attractive destination for real estate investment. Despite the potential risks, the long-term fundamentals of the Northern Metropolis real estate market appear strong, and investors who can identify high-quality opportunities and execute their investment strategies with care and diligence may be able to capitalise on this exciting and rapidly growing region.