The two thorns hurting Hong Kong’s land resumption plan

As the government intensifies its efforts to acquire private land for the Northern Metropolis and Northeast New Development Areas (NDAs) – for public housing and other public purposes – two crucial points are causing hiccups. 

The first is whether the government has clearly defined “public purpose”, while the second is whether compensation offered to landowners is reasonable. This commentary discusses two crucial aspects: (i) whether the government has clearly defined “public purpose” and (ii) whether the compensation provided to the landowners is reasonable. 

The problem with “Public Purpose” Hong Kong’s government typically justifies land resumptions as necessary for “public purpose” as relevant laws require. If the “public purpose” is to “implement an NDA”, the government can resume and clear all private land intended for development, carry out site formation works, and provide infrastructure. It can then earmark the formed land for different purposes, including disposal by tender for private development.

However, the definition of “public purpose” has become ambiguous, as the government’s resumption of private agricultural lands for NDAs now satisfies the definition regardless of the final land use. This raises questions about whether “NDAs” have become an all-encompassing term for land resumptions under “public purpose” and whether this is perceived as fair.

When it comes to end use, the laws and regulations on “public purpose” are unclear. This lack of clarity has led to different interpretations of what constitutes a “public purpose” and has created confusion and uncertainty for landowners and the public. As a result, the government’s use of the concept has been criticised for being too broad and arbitrary, leading to concerns about protecting private property rights.

The process lacks transparency

In addition, the decision-making process for land resumption and final use lacks transparency. The government’s decision to resume land for a “public purpose” is often made behind closed doors without proper consultation with the affected parties. This lack of transparency erodes public trust in the government’s ability to conduct land resumption fairly and equitably.

When the land is resumed, the government will first offer compensation based on the administrative ex-gratia compensation arrangement. In May 2022, the Lands Department changed the ex-gratia rates from four tiers to two to speed up resumption. These rates will be reviewed periodically and consider the prevailing market conditions.

The Lands Department recently reduced the ex-gratia compensation rates for resumed agricultural land by about 13% (from HKD1,457 per square foot in October 2022 to $1,267 per square foot in April 2023) because land prices have fallen recently.

Ex-gratia compensation has been contentious in any regard, and disputes are frequent. The landowners worry that the government’s “professional valuation”, which lacks any benchmark or details, is not a fair price.

The owner or interested parties can decide whether to accept or reject the government’s offer. If dissatisfied, they can submit a claim for statutory compensation to the Lands Department. However, this assessment has also become contentious of late, as owners still worry that the government assessment will not render a fair price.

If an agreement cannot be reached, either side may refer the case to the Lands Tribunal for final determination. The land is assessed on its legal use the Lands Tribunal will only assess the land value based on existing legislation, which implies that agricultural land will only be valued on its legal use. Landowners argue that the compensation assessment is unfair since agricultural land has a relatively low value compared to land with residential potential.

Landowners argue that the compensation assessment is unfair since agricultural land has a relatively low value compared to land with residential potential – hope value – and expect to be compensated at a higher value. However, when the government resumes private agricultural land, its surrounding area is
usually undeveloped, which lowers its value compared to developed areas.

The government will be the party to establish infrastructure and a transport network based on the gazetted development plan, and this can only be carried out if sufficient land has been resumed.

Only when the surrounding area is developed will the land value increase. This is when the government can dispose of the land for private development, and the formed land’s value increases.
From the landowner’s view, the government is getting their lots at a low price, ignoring the development potential unless it has been robustly established, and selling it for private development at a much higher price.

To increase confidence in the entire resumption compensation system, we suggest the government provide more options for the compensation assessment of ex-gratia compensation rates.

The government is the only entity in Hong Kong able to quickly acquire land needed for the NDAs and the Northern Metropolis without lengthy negotiations with individual landowners.

It is also the only entity able to implement large-scale resumption for “public purposes”. By having a well-defined master plan in place, the government can effectively allocate resources and ensure that the development is carried out efficiently and effectively.

Developing these areas will ease the housing shortage and make living in Hong Kong more affordable, it will boost economic growth by creating jobs and attracting investment, and ultimately promote integration with the Greater Bay Area.

To ensure public projects are successfully implemented while landowners’ rights are protected, the government should have a well-defined master plan, provide more transparency and options for compensation assessment, and engage in proper consultation with affected parties.