ISE07/16-17

• According to the Government, there are at least 30 000 land leases in the New Territories (including New Kowloon) which are made for terms expiring by around mid-2047.^{1Legend symbol denoting See GovHK (2016b).} In the more recent months, there have been public concerns over whether the Government has the power, and if so how, to extend land leases approaching expiry at mid-2047, as the uncertainty in land tenure might in turn have implications for property transferability and mortgage financing in the medium to the longer term.
• This issue of Essentials briefly reviews the historical development of land tenure in Hong Kong, followed by a discussion of issues of concern for land leases expiring in 2047.

Historical development of land tenure system before 1997

• In Hong Kong, virtually all land is leasehold, except a small plot of land granted to St John's Cathedral in Central.^{2Legend symbol denoting The land for St John's Cathedral was granted freehold in 1847 with perpetual ownership under the condition that the land was used as a church. See Goo (2010).} Since 1843, it had been an established practice for the Government to dispose of land by granting leases to users with terms mostly either 75 years or 99 years, and in limited cases, 999 years. This leasehold system stays broadly unchanged after reunification with the Mainland, with leases granted before mid-1997 known as Crown leases and thereafter as Government leases.
• By and large, land leases in Hong Kong before reunification in 1997 have the following common periods of duration, mostly for duration of 75 or 99 years:
  
  

  (a)	Lease term of 75 years: When the Hong Kong Island was ceded to the British government in 1842, it was the initial practice for the former colonial government to grant 75-year leases, in accordance with the instructions from the British government. This practice carried on after cession of Kowloon on the south of the Boundary Street in 1860.
  (b)	Lease term of 99 years: When the New Territories and New Kowloon at the north of the Boundary Street were leased to the British government for a period of 99 years in 1898, the former colonial government began to grant land leases of 99 years less three days to users. This lease duration was later applied to other parts of Hong Kong as well.
  (c)	Lease term of 999 years: Lease term of 999 years is more like an exception than an established practice. During 1849-1898, land leases could be made to last for 999 years upon application of landowners. Yet the former colonial government ceased to offer such long leases after May 1898, as it deprived government control of land and potential land revenue in the longer term. At present, only a few pieces of land on the Hong Kong Island and Kowloon are with the lease term of 999 years.3Legend symbol denoting The residential development at Taikoo Shing is one example of the lands with lease term of 999 years. See Swire Properties Limited (2011).

• Under the Government Leases Ordinance (Cap. 40) enacted in 1973, all renewable land leases in Hong Kong are required to pay a re-assessed annual rent equivalent to 3% of rateable value of the land concerned upon renewal. This has implications for the land lease extension and renewal in the coming years.
• In the early 1980s, there were widespread concerns over the uncertainty over land leases in Hong Kong, as the lease term of the land in the New Territories was approaching towards expiry in 1997. This uncertainty was subsequently removed upon signing the Sino-British Joint Declaration in December 1984. Not only does the Joint Declaration make it clear that the sovereignty over the whole of Hong Kong would be returned to China on 1 July 1997, it also states that land leases in Hong Kong and other related matters would be dealt with in accordance with the provisions of its Annex III. In gist, land matters would be dealt with under the following principles:^{4Legend symbol denoting See Goo (2014) for a brief summary of the land lease issues of the Joint Declaration and the Constitutional and Mainland Affairs Bureau (2007) for its original text.}
  
  

  (a)	all leases, including rights of renewal extending beyond 30 June 1997 are allowed to continue;
  (b)	all leases in the New Territories that expired before 30 June 1997 may be extended for a further fifty years until 30 June 2047;5Legend symbol denoting This is governed by the New Territories Leases (Extension) Ordinance (Cap. 150) enacted in 1988 to extend the lease term of eligible land in the New Territories to 2047, without payment of any additional premium.
  (c)	all leases on Hong Kong Island and in Kowloon that expired before 30 June 1997 without an option to renew could be renewed by the Crown at an annual rent equivalent to 3% of the rateable value without additional premium; and
  (d)	new leases of land may be granted for terms expiring not later than 30 June 2047.

Land administration policy over land lease beyond 2047

• Under the Basic Law, Article 7 states that while all land within Hong Kong is "State property", the Government of the Hong Kong Special Administrative Region is responsible for the "management, use and development" and "lease or grant" to land users.^{6Legend symbol denoting Article 7 of the Basic Law stipulates that "[t]he land and natural resources within the Hong Kong Special Administrative Region shall be State property. The Government of the Hong Kong Special Administrative Region shall be responsible for their management, use and development and for their lease or grant to individuals, legal persons or organizations for use or development. The revenues derived therefrom shall be exclusively at the disposal of the government of the Region."} Articles 120-123 also re-assure continuation of existing land lease and renewal policy. They provide the legal basis for the land policy after reunification.
• According to the policy statement announced by the Government in July 1997, new leases of land shall be granted for a term of 50 years at premium, and subject to payment of annual rent equivalent to 3% of the rateable value of the property at that date. Also, non-renewable leases (leases without option to renew) may, upon expiry, be extended for a term of 50 years, with the exception of short term tenancies and leases for special purposes.^{7Legend symbol denoting Short term tenancies are normally granted for a term of not more than five years and thereafter monthly or quarterly. Leases for special purposes include leases for recreational purposes and petrol filling stations usually with a term of 21 years.} These two measures have direct implications for land leases ending in or straddling across 2047.
• Most recently in September 2016, in response to public concerns over land leases expiring in 2047, the Lands Department stated that the year of 2047 was not a "time limit". It reiterated that such non-renewable leases, "upon expiry and at the sole discretion" of the Government, "may be extended for a term of 50 years without payment of an additional premium", subject to an annual rent at 3% of the rateable value of the property.^{8Legend symbol denoting See GovHK (2016a).}
• Indeed, new leases of land under the land disposal programme after reunification normally have a lease term of 50 years from the date of sale, straddling across 2047. For extension of existing lease beyond 2047, a case in point was seen in the extension of the land lease of the Pokfulam Gardens by 50 years until 2056 without additional premium in mid-2006, when its 75-year lease term expired.^{9Legend symbol denoting See Development Bureau (2016).} Another recent case is the grant of a 50-year special purpose lease of the Sha Tin Racecourse in June 2016.^{10Legend symbol denoting See 沙田區議會2015年 and 2016年. The land lease of the Sha Tin Racecourse was expired in 2012 and then renewed by short-term extensions. In June 2016, the Government approved a 50-year special purpose lease. One of the lease conditions is that The Hong Kong Jockey Club is responsible for the provision and management of recreational facilities in the Penfold Park (located in the racecourse) for public use.}
• While it is acknowledged that the Government has the legal power to deal with the land leases expiring in 2047, there are still lingering concerns over a number of implementation issues, as summarized below:
  
  

  (a)	Discretion in lease extension: There are still doubts and concerns in the community about how the Government exercises its "sole discretion" in extending land leases beyond 2047. Some are concerned whether the decision can be "fair and reasonable".11Legend symbol denoting See Ejinsight (2016).
  (b)	Large number of caseload involved: According to the Lands Department, at least 30 000 leases of land in the New Territories (including New Kowloon) will expire by around 2047, after automatic extension of such leases from 1997 to 2047 under the New Territories Leases (Extension) Ordinance (Cap. 150) enacted in 1988.12Legend symbol denoting See GovHK (2016b). As the Government has indicated a possibility to "extend a large number of leases expiring at the same time in one-go by way of legislation", it should help address the concerns over considerable resource implications for the Lands Department to handle such leases.13Legend symbol denoting See GovHK (2016b).
  (c)	Time requirement in making extension decision: Under the current land lease extension policy, lessees need to apply for "Conditions of Regrant", usually two years before the expiry date. Yet there are concerns that application for such lease extension should be made earlier, as uncertainty over land lease could have knock-on effect on property transferability, and hence, market value of their properties concerned.
  (d)	Mortgage lending policies of banks: As mortgage lending of banks can be as long as 30 years, there are concerns over whether shortening in time span towards 2047 would have implications for mortgage lending policy. In October 2016, the Hong Kong Monetary Authority made a public statement to reassure the banks that they were not required to adjust its mortgage policies, as the Government had the power to extend the leases expiring in 2047.14Legend symbol denoting See《明報》, 2016年10月29日.

• In responding to the concerns raised by various sectors of the community, the Government has reiterated that it has clear and definite policy for handling matters related to the extension of land leases upon expiry, and it will make arrangements to deal with the lease extension work at an appropriate juncture.^{15Legend symbol denoting See GovHK (2016b).}

Prepared by Angela CHOI
Research Office
Information Services Division
Legislative Council Secretariat
8 December 2016