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Author(s)
Land supply and housing price of Hong Kong: implication for

urban planning
Cheung, Yuk-yi, Alice.; .
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1996
http://hdl.handle.net/10722/65219
The author retains all proprietary rights, (such as patent rights)

and the right to use in future works.
LAND SUPPLY AND HOUSING PRICE OF HONG KONG:

IMPLICATION FOR URBAN PLANNING
by
Alice Yuk Yi CHEUNG
DISSERTATION
Submitted in partial fulfillment of the requirements for

the degree of Master of Sciences (Urban Planning),
Centre of Urban Planning and Environmental Management
University of Hong Kong
June 1996
and the area along the transport route of the MTR and future Airport Express. They are willing
to participate in land sales and offer high bid. Therefore, both housing price and land price are
high in Hong Kong. In view as such, the quest for home ownership by the home seekers have
been dampened.
There is an 'inherent conflict' between the planners' concept of 'need' and the builders'
concept of 'demand' regarding land supply and land use allocation in Hong Kong. The result
is a mismatch of housing demand and supply and it has further pushed up housing price. As
planning ultimately governs the supply of land and the land disposal system largely precipitate
the high land price phenomenon, it is therefore possible to look to the planning system with a
view to improving land use allocation and land supply and, in turn, the provision of more
affordable housing for the home seekers.
The mismatch between housing supply and demand can be resolved by the improvement
of the transport infrastructure and an improved planning system which will enable an increase in
the provision of housing land. In the process, the planning system will be able to help improve
the process of land conversion, encourage positive competition among developers and water down
the current market dominance by the few developers and bring down housing price by the
provision of more affordable housing in the long run.
ACKNOWLEDGEMENT
******
I would like to dedicate a sincere vote of thanks to the following people who have given
me guidance and support in the course of preparing the Dissertation.
I am much obliged to Dr. Rebecca CHIU who has guided me all the way through with
constructive advices and insightful comments . With all my heart, I would like to thank for her
patience and care. I admit that I may be unable to live up to her expectation and I wish to
emphasize that the faults that may come to light in the Dissertation would be the sole
responsibility of the student.
******
I am no less indebted to Mr. S.K. NGAI who has shown greatest patience and
understanding in providing the best arrangement between my work and study in these lengthy
years - and who has honoured the cost of the study - Merci! Many hearty thanks that I am given
the chance to assist, though as little as it may be, in various projects. Even though I may only
know the tip of the iceberg, I have learnt from his insightful advices and solid experience that
have widened my scope and horizon in the planning field. I will press on and look forward to
the years ahead.
******
I have to extend my heartfelt gratitude to my family - mum, dad, my brother Sam and
my sister Lillian. They have all shown enduring support and loving care by providing me a
comfortable environment when I was chasing after time to complete the assignment. (Also
apologize for their many sleepless nights since I have my midnight oil well and truly burnt!)
******
Last but not the least, I wish to thank Mr. Steve YIU, to whom I have once worked with.
He is willing to teach and will not be abstained from sharing his views and opinions. He gives
invaluable advice and provides good stuffs for thought. It is from this acquaintance that I began
to set my orientation in this field.
******
And to those I care - Lillian, Shirlin, Roanna and Wendy - merci beaucoup!
******
iii
C O N T E N T S
Page
ABSTRACT
ACKNOWLEDGEMENT
iii
LIST OF FIGURES
ix
LIST OF TABLES
xi
Chapter 1
INTRODUCTION
1.1
Land
1.2
Housing Price
13
Urban Planning
1.4
Scope of Study
1.5
Goals and Objectives of the Study
1.6
Methodology of the Study
1.7
Data Collection
1.8
Structure of the Dissertation
10
Chapter 2
LITERATURE REVIEW
12
2.1
Housing Land Supply
13
2.2
Land Price Determination
15
2.3
Housing Price Determination
22
2.4
Land Price and Housing Price
25
2.5
The Effects of Planning on Land and House Prices
27
- iv -
2.6
Conclusion
30
Chapter 3
EMPIRICAL LITERATURE: LAND SUPPLY, HOUSING PRICE AND

URBAN PLANNING IN HONG
KONG
34
3.1
Land Supply and Housing Price
34
3.2
39
3.3
The Pricing Mechanism of the Land Resources
41
3.3.1
Land Price and Construction Costs
42
3.3.2
The Land Factor in the Pricing of Flats
43
3.4
Planning System in Relation to the Supply of Housing Land
46
3.4.1
Total Quantity of Housing Land
48
3.4.2
Location of Housing Land
55
3.4.3
Way of Development
59
3.4.4
Timing of Development
60
3.5
Uniqueness of Hong Kong's Housing Market
61
3.5.1
Government's 'High Land Price' Policy
62
3.5.2
Land Bank Accumulated by the Private Developers
65
3.5.3
Housing Supply
69
3.6
Conclusion: The Analytical Framework
72
Chapter 4
THE HOUSING MARKET OF HONG KONG
80
4.1
The Hong Kong Housing Market
80
4.2
The Property Cycles
82
4.2.1
The 1973-83 Property Cycle
82
- V -
4.2.2
86
4.2.3
Property Booms in the 1990s
88
4.2.4
The Renewed Upsurge in 1993
89
4.2.5
Government Intervention in 1994
90
4.3
The Market in the Making: behind the Price Changes
92
4.3.1
Housing Supply
93
4.3.2
Income and Savings
96
4.3.3
Degree of Home Ownership
101
4.3.4
Degree of Speculation
104
4.3.5
Vacancy and Take-Up
105
4.3.6
Affordability
105
4.3.7
Cost of Credit
107
4.3.8
Effects of Land Price and Housing Price
109
4.4
Prevailing Conditions of the Housing Market
112
4.4.1
The Quest for Home Ownership
112
4.4.2
Affordability
114
4.4.3
Concentration and Manipulation of the Housing Market
116
4.5
Conclusion
119
Chapter 5
Land Supply in Hong Kong
122
5.1
Availability of Land
122
5.1.1
The Concept: From the Perspective of the Dissertation
122
5.1.2
Existing Land Supply
124
- vi -
5.2
Land Conversion
127
5.3
Land Administration
129
5.3.1
Leasehold System
130
5.3.2
Sino-British Joint Declaration
134
5.3.3
Land Disposal
135
5.4
Land Sales Revenue
151
5.5
Land Supply and Housing Strategy
156
5.5.1
Government Housing Strategy
156
5.5.2
Public Housing Sector
156
5.5.3
Private Housing Sector
158
5.6
A Reappraisal of the 'High Land Price' Policy
160
5.7
Conclusion
163
Chapter 6
IMPLICATION OF LAND SUPPLY AND

HOUSING PRICE FOR URBAN PLANNING
166
6.1
Effects of Urban Planning on Land Supply and Housing Price
167
6.2
Spatial Mismatch between Housing Demand and Supply
169
6.3
Implication for Housing Price - The Future Trend
177
6.4
Implication for Housing Production - The Future Trend
177
6.5
Implication for Urban Planning
179
6.5.1
Review of the Existing System
182
6.5.2
Increased Supply of Redeveloped Land
184
6.5.3
Appropriate Rezoning/Upzoning of Land
185
- vii -
6.5.4
Expedite Projects in the Pipeline
187
6.5.5
Review of Development Intensity
188
6.5.6
Capitalizing on Private Initiatives
189
6.5.7
Provision of Transport Infrastructure
190
6.5.8
Increased Land Supply in Suitable Location
195
6.5.9
Administrative Aspect
198
6.6
Conclusion
202
Chapter 7
CONCLUSION
203
Appendix 1
Residential Land Sales - Land Auction (1985/86-1995/96)
Al-(l)
Appendix 2
Letter from Lands Department dated 30 July 1996
A2-(l)
BIBLIOGRAPHY
B-l
- viii -
List of Figures
Figure
Title
Page
The Pricing Mechanism of the Stock of Real Estate
17
Theoretical Model of Urban Land Structure
20
Land Sales for Private Housing
35
Private Housing Supply (new units)
35
Percentage Change in Real Housing Prices
35
Average Private Residential Land Price and Residential Property Price

in Urban Areas
40
Price Index and Land Disposal
63
Trend in Real Housing Price and Rents
84
Trend in Residential Vacancy Rate
85
10
Rental Yield and Real Mortgage Interest Rate
91
11
Affordability Ratio (1980-1995)
108
12
Structural Change in Employment and Housing Supply
170
13
Residential Vacancy Rates by Area
173
14
Differential Rent for Mass Housing Flat by Area
174
15
Differential Price for Mass Housing Flat by Area
176
16
Price/Travel Index along Major Road and Rail Links
178
17 (a)
Existing Major Private Housing Estates in Hong Kong
191
17 (b)
Newly Completed Private Housing Estates in Hong Kong
193
18
Proposed Railway Development in Hong Kong
196
19 (a)
Key Growth Area: Tai Po
197
19 (b)
Key Growth Area: Ma On Shan
199
19 (c)
Key Growth Area: Tseung Kwan O
200
List of Tables
Table
Title
Page
Sales Prices vis-a-vis Developers' Costs in the Selected Developments
47
2 (a)
Land Supply by Planning Areas - Hong Kong Island
49
2 (b)
Land Supply by Planning Areas - Kowloon
50
2 (c)
Land Supply by Planning Areas - North East New Territories (NENT)
51
2 (d)
Land Supply by Planning Areas - North West New Territories (NWNT)
52
2 (e)
Land Supply by Planning Areas - South East New Territories (SENT)
53
2 (f)
Land Supply by Planning Areas - South West New Territories (SWNT)
54
Existing Land Supply - by selective category of land use
56
Planning Applications for Residential Development by District

(1980 to May 1996)
57
Examples of Land Bank secured by Major Developers from

Land Sales of Recent Years
67
Property Developer Land Bank Exposure to Future Road and Rail Links
68
7 (a)
Residential Projects expected to go on sale in the remainder of 1995
70
7 (b)
Residential Projects expected to go on sale in 1996
71
Population and Household Formation Trend
94
9(a)
Housing Demand and Supply
95
9(b)
Actual and Estimated Number of Private Residential Units

Produced in 1980-1995
97
10
Average Personal Savings in Banks
98
11
Growth of Per Capita Gross Domestic Product (GDP)

and Income
99
Median Income and Annual Income 1981-1992
100
Domestic Household by Tenure of Accommodation
102
Growth of No. of Property Owners (Urban and N.T.)
103
Take-up & Vacancy Trends in Private Residential Buildings
106
Mortgage Lending Policy of Major Banks (as at 5.5.96)
110
Top Ten Listed Property Companies and their Market Capitalization
117
Government Land Disposal Figures, 1985/86-1996/97
125
Land Disposal Programme of the Sino-British Land Commission
136
Government Land Sales Programme
138
Examples of Early Land Grants by Application to Government
140
Government Land Auction Report
143
Amount of Unredeemed Letter A/B Exchange Entitlements
146
Examples of Residential Developments on Land Acquired

through Land Exchange/Lease Modifications with the Government
150
(a)
Revenue generated from Land Sales Programme
153
(b)
Land Sale Revenue from Land Disposal by Type 1994/95-1995/97
153
(c)
Recurrent & Capital Revenue from Land & Buildings
154
Housing Supply in 1996 & 1997 (by district)
180
New Projects on the Rise
194
Chapter 1
Introduction
Land
Housing Price
Urban Planning
Scope of Study
Chapter 1
Introduction
Land is both a consumption good and an economic good that touches the life of every human
being. It is one of the major factors of production that engaged in the housing supply process
are. namely labour, capital equipment and materials. In many respects, however, it is the intimate
relationship between housing and land that distinguishes the production of housing services from
other goods and services in the economy. The market for land also has unique features that have
made it the focus of intense study.
It has been pointed out that the stock supply elasticity of
housing units is importantly influenced both by the behaviour of the market for sites and the
improvement through construction of those sites1. As it is accepted that land supply and land
prices do affect house prices, and that the planning system affects land supply, it will be
worthwhile to look at the relationship between land supply, house prices and planning.
1.1
Land
In general, the discussion of housing can be thought of as having only two components:
the site and the improvements made to the site. If there is an increase in the demand for
housing, the reaction of the price of housing will depend upon conditions under which
each of these components is supplied:
Firstly, if land is defined as an unimproved site, then the supply of land can be thought
of as perfectly inelastic with respect to its price, both in the short and long run. The earth
has a finite number of sites, or locations, and thus more cannot be added, by definition,
Randall J. Pozdena (1988), 'The Modern Economics of Housing, Ch.4, p.47.

1
regardless of price. This means that any increase in the demand for land cannot elicit
additional, unimproved sites.
Rather, to clear the market for land (i.e. to make the
quantity of land demanded equal to the fixed quantity supplied) the price of unimproved
sites must rise.
Secondly land itself is not a 'produced' community. Since there are no underlying costs
of producing unimproved sites, any compensation enjoyed by owners of land derives
simply from the fact that it is in fixed supply.
Imagine that land - though costless to
produce - were in perfectly elastic supply, i.e., any increase in the price of land elicited
a deluge of new unimproved sites being 'supplied' to the marketplace.
If the various
owner-producers of land competed with one another to supply unimproved sites to

households, they would compete until the price of land was zero because it costs them
nothing to produce it. The only reason that land receives a positive payment, therefore,
is because it is in perfectly fixed supply and it is necessary to ration a fixed supply.
A unique idea to the concept of land is 'rent' - a resource receives a positive payment
despite there being no production costs. Specifically, economic rents are the payments
to a factor of production that are permanently in excess of the amount necessary to elicit
the supply of that factor.
Because the site aspects of land would be supplied even if
payments to it were zero, all of the payments to owners of pure, unimproved land are
rents. The value of land - i.e., the price at which land assets will sell in the marketplace thus depends on the expected rent flows.
Since the supply of unimproved land is
perfectly inelastic, and since land is important to the production of housing, it is tempting
to conclude that any increase in demand for housing or other commodities will only result
in the enrichment of landowners 2 . By this logic, an increase in the demand for housing,
for example, that results from an increase in population or the income of households will
simply lead to an increase in the price of land but no increase in the quantity (or quality)
of housing supplied 3 .
1.2
Housing Price
It is accepted that land scarcity is a major factor leading to high land price and
consequently the high housing price since 'the land element has increased as a proportion
of the final housing price' 4 . According to Pozdena (1988), the price of housing is the
price necessary to clear the market of the stock of housing units and is determined by the
interaction of the stock supply and demand relationships.
The price of housing must
adjust to changes in interest rate, inflation expectations, and tax rates (along with
household income, wealth and the demographic factors) until the quantity of housing units
and services demanded and supplied are in balance 5 . Pozdena (1988) cited three seeming
anomalies in the behaviour of housing prices and rental prices in the 1970s: (1) the fact
that housing prices rose more rapidly than other prices in the 1970s, (2) the fact that
housing rents during the same time period, actually grew by less than other prices and (3)
Pozdena (1988), p.49.

Pozdena (1988), p.49.
Sarah Monk (1991), "Planning, Land Supply and House Prices, The National and Regional Picture,
Discussion Paper 33," University of Cambridge, Department of Land Economy, p.37.
Pozdena (1988), p.95.
i
that despite cries that housing was "unaffordable", prices remained high and the average
size of the home increased.
As is the case in Hong Kong, ever since the late 1980s, it is evident that the prices of the
residential property has been on the rise and people's aspiration to become homeowners
has been continuously eroded. In response to the skyrocketing residential property prices,
the Government has since June 1994 introduced a series of measures to curb property
speculation with a view to providing affordable housing to the middle income household.
Since then, there witnesses periodical fall in the property prices and property transactions
in the housing market also slackened.
More recently, however, commentators and
observers of the housing market warn of the probable emergence of negative equity of the
residential property.
Recent efforts are seen from the big developers and the major
bankers of Hong Kong to provide second mortgage on top of the 70% mortgage ceiling
as a trigger to revitalize the stagnant housing market.
1.3
U r b a n Planning
The quantity of land supplied for new housing development will affect land and house
prices as long as that land supply is not completely fixed. In a market without planning
constraints, one would expect the quantity of land made available for new housing to
increase as the price that people are prepared to pay for housing land increases. In the
short run, the extent of such responsiveness may be very limited, or even perverse,
because of factors such as uncertainty, speculation, monopoly ownership of land, or
simple high transaction costs of changing use.
But in the longer term land can be
expected to be brought into the market into its highest value.
The land use planning
system directly affects the supply of land by restricting the range of choices available to
landowners. Therefore the supply of land made available for housing at any given price
will be less than would be expected without planning 6 . The only circumstances in which
this might not be the case would be if the planning system were totally ineffective; if the
constraints on change of use to higher valued use were so strong as to force additional
land into housing; or if there were positive planning powers to bring housing land onto
the market 7 .
The land use planning system restricts the range of choices available to
landowners in at least four way: restricting the total quantity of land supply for
development, restricting the location of the land that is made available, restricting the way
in which the land is developed, and altering the timing of development. All these affect
the profitability of development 8 .
Through restricting both the total quantity of land available and the type and location of
development, the total quantity of new units made available will be reduced. For a given
demand for housing, average house prices will therefore be higher. The quantity of land
cannot be adjusted as easily as other inputs, so as house prices rise, the proportion of the
price attributable to land will also increase 9 . In the short run house prices are demand
determined because the total quantity of housing cannot be varied significantly and
8
9
Sarah
Sarah
Sarah
Sarah
Monk
Monk
Monk
Monk
et al (1991), 'Planning, Land Supply and House Prices, A literature review', p. 1.

(1991), p. 1.
(1991), p. 1.
(1991), p.2.
5
rapidly. Prices vary between house types and locations because of different demands for
their relative attributes. These prices affect the residual value that builders are prepared
to pay for housing land and therefore modify the quantity of land made available, the
total quantity of house building, and the location and types of dwellings produced 10 . But
in the long run, the price of housing is determined by its marginal cost of production,
which includes the marginal cost of land. The marginal cost of land is its opportunity
cost that is. its cost in its next best use, and in the long run land can be expected to be
brought onto the market into its highest valued use".
Put into the context of Hong Kong, the sporadic market conditions compare starkly with
one of the stated objectives of the Long Term Housing Strategy (1986-2001), which is
'to secure the most effective use of the resources of both the public and the private sector
in housing production.
There has been call upon the land use planning system to
increase the supply of housing land in order to boost the supply of housing units and to
resolve the affordability problems arising from the high house price.
1.4
Scope of the Study

This is a study of land supply, housing price and urban planning of Hong Kong. It seeks
to assess the relationship of the three issues with the hope to identify possible ways that
the supply of housing land could improve the provision of affordable housing by means
of the urban planning system.
10
11
Sarah Monk (1991), p.2.

6
15

The goal and objectives of the study are devised as follows:
Goal
To critically examine the relationship between the land supply and the housing
price of Hong Kong for the period 1985-1995
To critically examine the implication of land supply and housing prices on urban
planning in Hong Kong.
Objectives
To examine the development of the private housing market in the period 19851995
on aspects of the changes of the housing price and affordability;
To examine Government's land supply policy in the light of the general allegation
that the Government is upholding a 'high land price policy;
To examine the relationship between land price and land supply and the conditions
of the housing market, and to determine whether, and to what extent, the land
price is affected by the housing price, or vice versa; and
To critically analyze the implication of land supply and housing price on urban
planning.
To examine whether urban planning can help improve and increase the supply of
residential land and, in the ultimate, ensure the supply of affordable housing units
to the home seekers.
12
13
see para 1.6 - Data Collection.

see para 1.6 - Data Collection.
7
1.6

The method for the subject study is derived as follows:
(i)
Literature Review which is to serve the purpose of providing valuable evidence

on some of the hypotheses and help devise the analytical framework.
(ii)
Empirical Studies: the Land Supply System, House Prices and Urban
Planning of Hong Kong provides solid facts for testing the relationship between
land supply, housing price and urban planning enlightened in the literature review.
It will also identify the unique indicators/factors for analysis of the three issues in
Hong Kong. With the findings of the literature review and the empirical literature
on Hong Kong, the analytical framework for the subject study will be devised.
(iii)
Respective Analysis of Land Supply, Housing Price and Urban Planning: In

the light of the analytical framework, detailed analysis for the three issues will be
given to explain the followings:
What affects housing price and why it fluctuates. Is housing price high?
What affects land supply, Is land supply affecting housing price, How
important is the land factor in housing price, Whether there is a high land
price policy?
Is land price affecting housing price or vice versa?
How does urban planning affect land supply and housing price, Can it help
improve housing land supply and in the provision of affordable housing?
(iv)
The Implication of Land Supply and House Prices for Urban Planning will
examine whether urban planning is able to bring forth an effective supply system
for housing land and enable adequate supply of affordable housing units.
1.7
Data Collection
As the study on the linkages between the land and housing markets is still a relatively
new area of interest in current research 14 , there will envisage some lack or inadequacy
of the necessary information. Data collection, however, could still be gathered through
review and analysis of relevant materials on the general housing market and land policies.
Book review on the relevant subjects, various published statistics, analysis report and
annual reports from various agents, as well as journals and press reports would be able
to provide invaluable insights and good stuffs for thought.
Moreover, avenue is also
available for accessing primary source of data. Relevant Government departments such
as the PITA unit of the Planning Department and the Lands Department have been
consulted in the search of information regarding the planning applications for residential
development in various land use zonings as well as Government's land disposal
programme. The information obtained is included in respective appendices.
Where possible, the study uses data from 1980 to 1995. This covers both the ups and
downs of the property market and contains, as well as long stretches of favourable
economic conditions, a number of economic and political s h o c k s .
Due to limited
resources and availability of data, however, the time span used for respective analysis
represents the best effort in the search of information.
15

The economic shocks during the period include the 1987 stock market crash, 1989 Tiananmen Square, 199091 Gulf War, 1991 collapse of BCCI and short period of crisis for some banks.
9
18

The dissertation will be organized as follows:
Chapter 1 is an introduction of the study and explains the structure and organization of
the Dissertation;
Chapter 2 will give a literature review on the land supply and the relationship between
land supply, housing price and urban planning.
Drawing from the international
experience. Chapter 1 will serve as the basis for subsequent analysis on the relationship
between land supply and housing price as well as their implication for urban planning in
Hong Kong;
Chapter 3 will be an empirical background on Hong Kong's land supply and housing
price changes for the period 1980-1995 and an account of her planning mechanism in
relation to residential land supply. This empirical background, together with the literature
review in Chapter 2, will help devise the analytical framework for the subject study. It
will (i) try to establish the relationship among land supply, housing price and urban
planning in Hong Kong; and (ii) identify the unique indicators/factors that are relevant for
respective analysis of the three issues. The framework is devised with the view that it
would help subsequent analysis on how important is land supply in affecting housing price
and whether urban planning could help improve the supply of residential land and make
housing more affordable to the home seekers.
Chapter 4 will give an analytical account of the housing price changes in Hong Kong for
the property cycles within the study period, a critical assessment and evaluation of the
housing market in the light of the indicators/factors identified in Chapter 3 and to examine
10
the prevailing conditions of the housing market in Hong Kong;

Chapter 5 will offer an account of the land supply policy of Hong Kong and a critical
review and assessment of the land supply policy in the light of the indicators/factors
identified in Chapter 3;
Chapter 6 will give an analysis on the planning system in relation to the supply of
residential land use and examine how urban planning affects land supply and housing
price and the implication of land supply and housing price on urban planning in Hong
Kong; and
Chapter 7 will discuss and account for the insights gained from the study.
Appendix 1
Residential Land Sales - Land Auction (1985/86-1995/96)
Appendix 2
Letter from Lands Department dated 30 July 1996
11
Chapter 2
Literature Review
Housing Land Supply

Chapter 2
Literature Review
The literature review serves several purposes.
First, a review of the literature can provide
valuable evidence on some of the hypotheses on land supply, housing price and urban planning.
Second, it will help to devise the analytical framework for the subject study.
Third, it will
provide insights and help identify the major gaps and areas for further research. It was pointed
out that most studies are concerned with the land market, the housing market, or the effects of
the planning system, quite separately 1 , whereas the subject of the Dissertation is primarily
concerned with the links between them. For these reasons, it may be difficult to interpret the
literature effectively for the purposes of the Dissertation. Nonetheless, the review of relevant
literature by Sarah Monk et al (1991) is one of the essential ground works and provides valuable
insights in understanding the hypotheses/relationships between housing land supply, house price
and the effects on and of urban planning.
This chapter will cover three main areas. The first is the literature review on land availability.
The second is on land and house price determination and related issues.
The third area is
concerned with the effects of planning on land supply and house price. The later part of this
chapter will be the conclusions drawn from this wide literature from the point of view of the
dissertation.

12
2.1
Housing Land Supply

There are a range of view about the basic question concerning the relationship between
housing land supply and housing prices, or more particularly, concerning the effect of the
land use planning system on house prices. According to Evans, 'while the supply of land
may be fixed in total, it is not fixed from the point of view of any one use. The supply
of land for housing development can be increased or restricted as can the amount of land
used in the production of each housing unit.
Thus land and house prices are jointly
determined by demand and supply. Restricting the supply of land will raise the price of
both.
Price, therefore, performs the vital function of rationing scarce supply among
competing uses. It is necessary to ensure that, in each location, land is put to its most
profitable use according to the preferences of consumers and society.
It has been pointed out that studies on housing land supply are mostly about the 'number
game.
Sarah Monk (1991) cited several studies relevant to housing land supply. The
Economist Intelligence Unit (1975) found that 'there is only an indirect relationship
between land available in planning terms and land actually available for development' and
JURUE (1977), which looked at housing land release in the West Midlands between 1968
and 1973, found that land supply could not respond to the boom in demand within the
time scale and the land supply system was, in the greater part, in the hands of the
developers.
JURUE (1977) concluded that 'even if housing land allocations were

Jack Harvey (1992), p.34.
13
increased, output still might not rise in line with demand because of the distribution of
ownership as well as shortages of other inputs" 5 . The Department of Environment (DoE.
UK) conducted a study jointly with the House builders Federation (DoE/HBF. 1979)
which looked at housing land availability in Greater Manchester in 1974 where
development was planned for some time during the period 1974-8. They tried to related
this to the local authorities' estimates of 'need' and the builders' estimate of 'demand' and
to past building rates. Availability was then defined in terms of 'planning permission,
services, access and, in particular, willingness of vendors to sell'. The study confirmed
'the importance of large builders on large sites whose phasing decisions determined shortrun output and the tendency of local authorities to build into their plans a circularity of
supply and demand because "need' estimates were based on past building rates and
policies' 6 .
Moreover,
according
to
Cheshire
and
Sheppard
(1990),
which
presented
the
Reading/Darlington study, the authors conclude that "if land supply rises and prices fall,
people are assumed to 'trade up' and buy a bigger house using more land".
Barlow
(1990a) in a case study of Berkshire concludes that "the total supply of land has 'dried
up' and this has led to higher land prices. There is also greater competition between the
various agents in the land market which has bid up land prices" 7 .

Barlow (1990a), Who Plans Berkshire? Land Supply, House Price Inflation and Housing Developers,
University of Sussex Urban and Regional Studies, Working Paper 72. This study is cited by Sarah Monk
(1991), p. 41.
14
With respect to the supply of housing land, there seems to be two main issues.
First,
whether enough land is made available to meet the demand, and it leads to the inherent
conflict between the planners' concept of need which is based on population forecasts, and
the builders" concept of demand which is based on price and profitability.
Apart from
planning, the study on housing land supply, therefore, should also take account of the
boom/slump of the property cycle, local monopolies and speculative planning applications.
Second, whether the planning system can take market demand into account. According
to Sarah Monk (1991), 'the answer seems to be no, or at least not directly, because
planmng implies almost by definition the setting of some kind of relatively stable longterm framework within which the market can operate, and because market demand is
completely different from the concept of future needs which is necessary for any sensible
forward planning' 8 .

According to Evans, the traditional theory of land prices dates back to Ricardo who
argued that land rents were high because the price of corn was high, not the reverse,
which on the face of it looks exactly the same as the argument that land prices are high
because house prices are high 9 . But Evans argues that Ricardo's conclusion was based
on the assumption that the supply of land was fixed or perfectly inelastic. Given the fixed
supply of land, the price will depend on the demand for land which is a function of (or
'derived' from) the price of corn (housing). Evans's main points are therefore land and

15
house prices are jointly determined by demand and supply, and that by restricting the
supply of land will raise the price of both.
From a land economics point of view, the flow of new supplies will be significant relative
to the supply coming on to the market from existing stocks, and will thus be a main
determinant, with demand, of price. However, with certain durable goods such as land
resources, stocks tend to accumulate over time. As a result, new supply has relatively
little influence on price; and for all purposes, supply from old stock dominates the market.
Such pricing mechanism, as shown in Figure 1, is basically a 'residual' model of land
price determination and development decision. Evans's view expounded above is in line
with the 'residual' model. Given knowledge of current and expected future rents, current
building costs (materials and labour), current and expected interest rates (the cost of
borrowing or the opportunity cost of finance), the gross development cost can be
estimated and deducted from the expected gross development value and the price of land or the site value - is the residual 10 . The assumption is that the supply of both land and
houses is inelastic and therefore prices are determined by demand. This residual model
can be seen as a special case of the neo-classical model of the 'derived' demand for a
factor of production. Because land is not required for its own sake but only for the use
to which it is put, its demand is 'derived' from the demand for the final product, which
in this case is housing. Since the supply of both housing and land is fixed that demand
determines the resultant price".
10
11

16
Figure 1 The Pricing Mechanism of the Stock of Real Estate
Source: Harvey (1992), ch.3.
17
It has been pointed out by economists such as Grigson that the residual model is limited
which is only a useful description of individual behaviour in the short run.
In the long
run. the price of housing will be determined by the long-run marginal cost of producing
housing, which includes the marginal cost of land. It is pointed out that in the short run,
the supply of housing is fixed (because it takes time to build additional houses), therefore
house prices are indeed determined by demand, and the individual builder calculates a bid
price using the residual method. But in the long run the supply of housing is not fixed,
as the long run is defined in economic terms as a period long enough for all factors of
production to adjust, including land, and new houses are built, expanding the total supply.
Therefore in the long run the supply of housing does affect its price, and that the marginal
cost of land is its opportunity cost, or the cost of land in its next best use 12 .
As regards the urban land structure, 'the price and type of use of land is determined by
competition between uses, that is, by demand. Therefore land prices in the city centre are
the highest. At the periphery, supply is not fixed at all, but is infinitely elastic, so price
is l o w e r ' .
Competition between alternative land uses results in a gradient of land
prices and densities of development with a peak in the centre of high-value commercial
uses and high rents/land values. At the periphery densities are low (space consumption
high) but access costs are high and this reduces the rent/price of land to below the
agricultural value.
The urban fringe is thus the point at which 'greenfield' land is
supplied for housing use, and its supply is assumed to be infinitely elastic once the
15

Sarah Monk (1991), p. 10.
18
rent/price rises above the agricultural value 14 .
Developing from Alonso's land price structure curve with Harris and Ullman's rent
gradient, a theoretical model of urban land structure is shown in Figure 2.
The rent
gradient R shows the relationship between the land price paying ability and land use, and
the spatial relationship between the land uses. The link between high price land and low
price land is a function of the various land uses. As prime land prices (near the CBD)
go up. the rest of the land prices including the marginal land prices (those on the right
hand side of the rent gradient) will also go up on some portion. The sensitivity of other
land use price responses due to the one land use price fluctuation depends on the
'strength" and "responsiveness" of the urban land structure.
If the structure is closely
related, any land price increase (e.g. office commercial and business land in the CBD) the
new land rent gradient, R will move upward parallel to the original rent gradient. If the
price responses are week, the new rent gradient is likely to be R'.
A more mainstream interpretation of the land price is simply that 'the supply of land at
any given time depends upon the best alternative use both now and in the future and that
land is heterogeneous in this dimension'.
This would also allow more generally for
differences in transaction costs of bringing different pieces of land onto the market. The
The standard neo-classical spatial model of land price determination is variously attributed to Ricardo, von
Thunen, and more recently Wingo (1961), Alonso (1964), Muth (1969) and Mills (1972). The model has
been extensively modified and developed by others including Evans (1973). Bramley (1989) succinctly
summarizes the model as describing a monocentric city situated on an extensive plain where the choice of
land use is determined by a trade-off between accessibility to jobs and services in the centre and
consumption of space (Sarah Monk (1991), p.9).
19
Figure 2
Theoretical Model of Urban Land Structure
Source: Extracted from Kwok (1983), p.10:

William Alonso, "A Theory of the Urban Land Market", Papers and Proceedings, Regional Science
Association, Vol.6, 1960, p.p.149-57.
Hugh O. Nourse, Regional Economics, New York: McGrawl Hill, 1968, pp.93-125.
20
model then becomes 'analogous at the local level to the basic derived demand model with
segmented markets" 5 .
Neutze (1987) stresses that the more rapid the future rise in
prices expected by individuals, the more it will pay to hold on, leading to a possible short
run perverse supply response. This means that even in a competitive market there will
be constraints on the flow of land offered for development as well as a relative scarcity
of the most accessible land, and in turn this means that increases in demand for housing
land may push up rents/prices rather than simply generating an increased supply of
housing land at the periphery. In this respect, Neutze also puts forward a model of land
supply in terms of land owners maximizing the returns from their land subject to
constraints 16 .
Neutze points out that because withholding land from development
depends so much on uncertainty, and planning reduces uncertainty, planning can actually
hasten development. Whether it does in practice depends on the relative importance of
this type of uncertainty as opposed to the direct effect of supply restriction on price17.
In addition, Walters points out that the true opportunity cost of land will differ from its
economic rent or market value in the presence of social costs and benefits; of
monopolistic landowners, and different types of uncertainty. Planning restrictions such
as zoning affect the gap between the economic rent and the opportunity cost of land.
Planning restrictions and the rationing of serviced land deemed 'in the public interest"
may further limit the supply of land in the city. Walters concludes that 'such mechanisms

21
ensure that any urban land commands a much higher price than would occur on a free
market, even after spillover effects are taken into account. This may well be the source
of much of the concern about the scarcity and high price of urban land" 8 .
In this
respect, the standard neo-classical land price model clearly supports the idea that planning
policies restrict the quantity of land available for housing, and this pushes up land prices.
2.3

The standard neo-classical theory of house price determination may be set out in terms
of flows onto the market, which adjust continuously according to the numbers of buyers
and sellers at any point in time, or as a stock adjustment model, whereby the number of
houses and the number of households are stock variables which adjust towards equilibrium
in each period 19 .
In the simplest model, demand for (owner-occupied) housing is a
function of demographic factors, income, price, the availability and price of substitutes
(rented housing), and wealth. In the shorter term the main determinants are seen to be
the income and price variables together with the availability and cost of credit.
The
determinants of the supply of housing are slightly more complicated because houses are
durable, hence new houses are a small proportion of the existing stock, part of which will
be offered for sale at any one time for various reasons. Therefore supply in the shorter
term is a function of what might broadly be termed 'mobility' (second-hand supply)
together with the factors influencing house builders to produce new houses: price,
construction costs, availability of credit, availability and profitability of other work (such
18
19

Whitehead (1974), extracted from Sarah Monk (1991), p. 13.
22
as commercial building or repairs and maintenance), seasonal factors, and bottlenecks in

the building process (Charles, 1977)20.
In addition, much of the debate concerned whether it was the cost or the availability of
credit which determined the amount of effective demand for housing in the short run.
Whitehead (1974) suggested that the relative prices and the cost of credit were more
important than the direct effect of the availability of credit21.
This implies that
deregulation alone should not have a dramatic impact on short-run house prices unless it
significantly affected the marginal price faced by consumers. In the respect, according
to the Bank of England (1989), 'real incomes, real mortgage lending, consumer prices and
changes in household income gearing contribute most to explaining short-run changes in
the prices of existing dwellings (with demographics playing a role in the longer run)' 22 .
Moreover, with the deregulation and liberalization of mortgage markets since the 1980s
in the European market, it is pointed out that 'house prices can be expected to be more
volatile than under a rationed market' 23 .
Maullbauer, on the other hand, argues that what is most important in predicting future
trends in house prices is the current price/earnings ratio - the relationship between current
house prices and current incomes. Evans also argues that the position of first-time buyers
has deteriorated over time. Despite high interest rates, people had to borrow a higher
extracted from Sarah Monk (1991), p. 13.

23
proportion of the price. This suggests that the fall in the house price/income ratio has
occurred not because house purchase has become easier, but because the rise in house
prices has forced people into buying cheaper houses relative to their incomes than they
used to afford, because they do not have enough savings to contribute.
Moreover, it is pointed out that the standard theory of house price determination says very
little about the relationship between new and existing house prices.
But according to
Harvey (1992), since the flow of new houses on to the market is insufficient to affect
significantly the supply, this higher price of existing houses will represent the price of all
houses in the market. Any newly built house which comes on to the market will be sold
at the higher price. In other words, the price of new houses is determined by the price
at which existing houses sell. The price paid for land for new housing is thus the residual
between what the new house will sell at (determined by the demand for old houses) and
what it costs to build, including normal profit.
It is also pointed out that there has been very little in the recent literature on market
imperfections such as monopoly ownership of land, or on the existence and role of
speculation. Both of these are relevant to the shape of the supply curve for land, that is,
its elasticity with respect to price. Evans (1983) points out that in the shorter term the
monopoly ownership of land will reduce the quantity of land offered for any particular
use, putting up its price. However, Coase (1972) examines land price determination in
the context of monopoly ownership and suggests that because land is a completely durable
24
good, its price becomes independent of the number of suppliers and is always equal to the
competitive price. In addition, there is the argument that the higher the price of land, the
less might be offered for sale - Wiltshaw's backward sloping supply curve, justified (for
example) on the grounds that undeveloped land may give utility to a landowner so that
the higher are land rents, the less land such an owner will need to let/sell in order to
maintain the same income. Evans (1986) accepts the theoretical possibility but points out
that in practice a landowner whose income is high would usually tend to have large and
scattered landholdings and so would always be willing to sell provided the price was high
enough. The literature here is therefore inconclusive. It is not clear what this adds to the
standard theory in which a monopolist can always increase prices by restricting supply 24 .
The literature also reviews the role of time lags, or of expectations and risk. Rose (1973)
suggests that if the demand for housing is increasing, it will be more profitable to delay
development, because delay will allow a switch to a more capital-intensive form of
development which increases the returns to land. Neutze (1974), on the other hand, argue
that by delaying development, the developer creates a (temporary) relative shortage which
provided demand conditions remain unchanged will push house prices up further.
2.4
Land Prices and Housing Prices

Grigson (1986) states that ' house prices determine land prices, not the reverse', therefore,
one can expect that land price trends to broadly follow house price trends 25 .
-"
25

25
Such a
view is in line with Harvey (1992), which by citing the Digest of Building Land Prices
1974 that in 1972 the average price paid for land on housing estates was 25,000 an acre.
In the last quarter of 1973 it had fallen to 21,000, and builders who had acquired land
banks at 1972 prices were showing a loss. The reasons for the fall in land prices were
the fall in house prices and the rise in costs. Harvey therefore concludes that land prices
are determined
by house prices rather than the other way round' - an example of the
inductive method of establishing hypotheses as opposed to our deductive method 26 .
Ball (1983). on the other hand, discerns the view that the neo-classical model has the
price of land as given to the individual house builder. The residual (neo-Ricardian) model
has the house builder determining the price of land. Ball suggests that land prices and
house prices are jointly determined by the outcome of the distributional struggle between
landowner and house builder 7 .
Balls argues that the owner-occupied housing market
is inherently unstable, that booms and slumps are endemic, and that a crisis in housing
production is the prime cause of land-term house price inflation.
determined
by costs of production
element in these costs.'
'House prices are
in the long run, and land prices are an important
By citing the British context. Ball notes that house builders are
encouraged to maximize profits on the land element instead of by reducing construction

costs and raising productivity 28 . Ball therefore asserts that high land prices cause high
house prices (Ball 1983) and that implicit in such a causality is an 'adding up' or cost
Harvey (1992), p.44.

26
plus theory of price determination. On this view, house prices are the sum of land costs,
construction costs and builders' profit.
In this approach the price of land is given.
Ricardian rent theory and its modern derivations argue on the other hand for the residual
view of land prices, where the price of houses is given. One variant of Ricardian rent
theory includes monopoly ownership of land, which enables landowners to restrict the
supply of residential land over time, eventually creating a housing shortage which forces
up house prices and so allows higher land prices to be charged.
The question then
becomes whether landlords actually have that power. In principle it is possible in that
landowners are not often forced to sell at a particular time; inherited land is often a debtfree source of wealth, and regular returns from land are not necessary.
Strongly
restrictive planning may also operate to the advantage of landowners.
In view of a difference in the long run/short run perspective, Evans's view of the issue by taking Grigson's version of the residual model of land price determination - that "land
prices and house prices
are determined
simultaneously,
by demand and by supply.
Restricting the supply of land will raise the price of both' will be most appropriate.

Bramely (1989) sets out to include planning in a model of land supply. It starts with a
supply and demand system for new owner-occupied housing in a local market area, the
outcome of which is some level and rate of change in prices.
The range of factors
influencing demand would include income, employment, demographic and financial
27
variables including subsidies and interest rates, and social housing provision.
The
planning system is seen as essentially responsive to the initiative of developers in making

applications for planning permission, so this part of the process is the main way in which
demand may be expected to influence planning. In theory a total quantity of 'potentially
available land' needs to be defined, based on the area of the market but taking account
of obvious limitations such as the built-up area, green belt, areas of outstanding natural
beauty, high grade agricultural land, mineral workings, zones for industry and commerce,
etc. and that the bulk of land is in rural areas and not subject to these kinds of constraints,
yet is mostly not suitable for housing because of accessibility, etc. Within this total stock,
certain land can be defined as being relatively more available: land provided for in
structure plans, and land specifically allocated in local plans. Such land will be generally
more attractive to developers and more likely to be the subject of applications. So the
demand for planning applications is derived from the demand for housing but heavily
constrained by land availability.
The outstanding stock of permissions would have a
negative effect on this demand.
Land use planning system directly affects the supply of land by restricting the range of
choices available to landowners in at least four ways: restricting the total quantity of
housing land made available for development; restricting the location of the land that is
made available; restricting the way in which the land is developed; and altering the timing
of development. Therefore the supply of land made available for housing at any given
price will be less than would be expected without planning and this will affect the
28
resultant profitability of development.
Moreover, through restricting both the total
quantity of land available and the type and location of development, the total quantity of
new units made available will be reduced.
For a given demand for housing, average
house prices will therefore be higher. The quantity of land cannot be adjusted as easily
as other inputs, so as house prices rise, the proportion of the price attributable to land will
also increase.
There are two dimensions with respect to the effect of planning system on land supply
and housing price. At one extreme, it is suggested that modifying land supply through
the land use planning system does not affect house prices because prices are demand
determined and supply cannot adjust significantly and quickly. Any change arising from
planning will be too small to affect the overall market. Moreover, housing system can
be seen as a single market, so that changes in one location will be absorbed into other
areas 29 . At the other extreme, it is suggested that the land use planning system affects
both the extent of land supply overall and the extent to which supply can respond to
changes in price.
Thus supply can adjust and affect prices, but it adjusts less flexibly
because of the planning system.
Moreover, land and housing markets are highly
segmented so that changes in one part of the market will not be fully offset by responses
in other areas. It is clear that there is an important distinction between land supply in
planning terms and land supply in terms of the market30.

29
It can be concluded that the first extreme is basically about the short run and is basically
viewed from an 'economist' perspective, while the other extreme concerns the long run
which is viewed from a 'planning' perspective 31 . House prices are determined by both
supply and demand but in the short run, demand is very much more responsive.
The
supply of new houses in the long run is determined by costs of production, which include
land, and output will increase while costs are covered, thus in the long run the price of
both new and existing dwellings is ultimately determined by these factors32. In addition,
the literature review also highlights a contradiction between the planning process, which
involves structuring long-term decisions based on forecasts and estimates of demand, and
the market process, where decisions are made in response to short-term changes in
economic variables.
It is pointed out that the planning system has increasingly been
forced to these short-term market pressures, but this in turn may exacerbate the volatility
of the market.
2.6
Conclusion
There are a wide range of view about the relationship between land use planning, land
supply and house prices.
According to the literature review expounded above, the
following conclusions can be drawn:
51
32
Sarah Monk (1991) in fact used the 'planning' view for the short run and the 'economist' view for the long
run. It may appear confusing since in the same literature, it is pointed out that 'planning implies almost
by definition the setting of some kind of relatively stable long-term framework within which the market can
operate' (see Ch.2 - p.9 of the Dissertation). From the perspective of the subject study, it is therefore
considered appropriate to modify the terminology and put the 'planning' perspective in the long run.
30
While the supply of land may be fixed in total, it is not fixed from the point of
view of any one use.
The supply of land for housing development can be
increased or restricted as can the amount of land used in the production of each
housing unit. Thus land and house prices are jointly determined by demand and
supply. Restricting the supply of land will raise the price of both.
In the short run, the supply of housing is fixed (because it takes time to build
additional houses), therefore house prices are indeed determined by demand, and
the individual builder calculates a bid price using the residual method.
In the long run, the supply of housing is not fixed, as the long run is defined in
economic terms as a period long enough for all factors of production to adjust,
including land, and new houses are built, expanding the total supply.
Therefore
in the long run the supply of housing does affect its price, and that the marginal
cost of land is opportunity cost, or the cost of land in its next best use.
Land prices and house prices are strongly related. The view that 'house prices
determine land prices' is an inductive method of establishing hypotheses in which
the price of houses is given under this residual view of land prices. The view that
'high land prices cause high house prices', on the other hand, suggests that the
price of land is given so that the house builders are encouraged to maximize
profits on the land element.
31
The planning system is seen as essentially responsive to the initiative of developers

in making applications for planning permission, so this part of the process is the
main way in which demand may be expected to influence planning.
Planning will affect land supply and demand of housing in the short and long run.
In the short run, modifying land supply through the land use planning system does
not affect house prices because prices are demand determined and supply cannot
adjust significantly and quickly. Any change arising from planning will be too
small to affect the overall market.
In the long run, land use planning system
affects both the extent of land supply overall and the extent to which supply can
respond to changes in price.
Thus supply can adjust and affect prices, but it
adjusts less flexibly because of the planning system.
In short, the relationship among the three issues can be discerned in such a way
that
land supply affects housing price, restricting the supply of land will
raise both land and housing price. Housing prices are
determined
by both supply and demand but in the short run, demand is very
much more responsive,
production,
whereas in the long run, the costs of
which include land, would determine
the supply
of
housing units. On the other hand, planning affects both the extent
of land supply and the extent to which supply can respond
32
to
changes in price.
In this connection, it is expected that an increase
in land supply by means of the planning system may help bring

down high housing price and the provision
of more
affordable
housing.
The literature review will provide a framework and set the position for analysis regarding
the relationship between land supply, housing price and their implication for urban
planning.
The findings of this chapter will be applied to the empirical literature in
Chapter 3, which will be a general account on the changes in land supply/land price and
housing price in Hong Kong and the identification of the indicators/factors for detailed
analysis of the three issues in subsequent chapters. Chapter 4 will give a detailed analysis
of the housing market and the price changes in accordance with the indicators/factors
identified in the empirical literature. Chapter 5 is a detailed analysis of the land supply
system, in particular the supply of housing land according to the indicators/factors
identified in the empirical literature, whereas Chapter 6 will be a discussion on the land
use planning system in relation to the supply of housing land and an assessment of the
implication of land supply and housing price for urban planning in Hong Kong.
31
Chapter 3
Empirical Literature: Land Supply,

Housing Price and Urban Planning
in Hong Kong

Housing Supply
The Analytical Framework
Chapter 3
Empirical Literature: Land Supply, Housing Price and Urban Planning in

Hong Kong
According to the literature review in Chapter 2, it is concluded that (i) land supply
housing price, restricting
planning
affects
the supply of land will raise both land and housing price, and (ii)
affects both the extent of land supply and the extent to which supply can respond to
changes in price, and therefore, (iii) an increase in land supply by means of the planning
may help bring down high housing price and the provision of more affordable housing.
system
This
chapter is an empirical literature on land supply, housing price and urban planning in Hong Kong.
It consists of (i) a general account of the changes in land supply, land price and housing price
over the years 1965-1993, (ii) an explanation of the relationship between the three issues, (iii)
an account of the planning system in relation to the supply of housing land in Hong Kong, and
(iv) an identification of the unique indicators/factors in Hong Kong for subsequent analysis of
each of the three issues. The analytical framework will be derived in the light of the findings
of the literature review and this empirical literature and it will be expounded in the later part of
this chapter.
3.1

It has been pointed out by Peng & Wheaton (1994) 1 that land supply in Hong Kong is
restrictive and that the influence of land supply on housing price is quite clear.
The
annual sale of land for private housing between 1964 and 1990 is shown in Figure 3. The
completion of new units during the same period is shown in Figure 4. It shows that while
'
2
see Ruijue Peng and William C. Wheaton, "Effects of Restrictive Land Supply on Housing in Hong Kong:
An Econometric Analysis", Journal of Housing Research, Vol.5, Issue 2, Fannie Mae 1994.
Peng & Wheaton (1994), p.264.
34
35
some of the year-to-year movements in land sales appear correlated with completions,
there should be at least a two-year lag, since Hong Kong's high-rise housing involves
considerable development and construction time. Similar (high) levels of completions
occurred in 1966, 1973, 1979 and 1986, while the land sales in each of these years (or
the year prior) are quite different.
The growth rate in real housing prices is shown in
Figure 5. According to Peng and Wheaton (1994), a clear correlation between land sales
and housing prices can be observed as shown in Figures 3 and 5: Low (high) land sales
seem to increase (decrease) housing prices with what appears to be about a year's
lag3.
According to Peng & Wheaton (1994), a negative correlation between land sales and
housing prices can be explained by in two ways:
A reduction in land sales prevents developers from getting the land they need to
complete desired housing production. As construction slows, the stock of housing
fails to keep pace with demand, therefore raising prices. However, the absence
of a clear (and lagged) relationship between Figures 3 and 4 suggests that this is
not a likely explanation; and
an alternative view, based largely on urban spatial theory 4 , suggest that in a

closed city like Hong Kong, housing supply must eventually keep pace with
population increases, but it does so with increasing substitution of capital for land

Peng (1993), see Peng & Wheaton (1994), p.264.
36
- encouraged by higher prices. In a dynamic context, reduced sales of new land

are seen to cause a smaller long-run supply of land, which eventually will raise
the rents that people will pay for housing and land. In a rational market, these
anticipated higher future rents are capitalized into higher current housing prices.
Higher housing prices generate higher residual land prices, which in turn lead to
capital land substitution in housing production.
In this adjustment mechanism,
restrictions on land supply do not reduce the production of housing units but
increase the longer term density of development 5 .
Moreover. Peng & Wheaton (1994) points out that the impact of land sales on prices
reaches the market in approximately two years. The consistently negative correlation
between land sales and housing prices suggests that the housing market is land restrictive6
and has been greatly influenced by political considerations (Leung 1986; Li 1989)7. As
for the period 1965-1990, land disposal during the outbreak of the Cultural Revolution
in China in the late 1960s was a record low, there was absolutely no new land for housing
in 1967. Recently the confidence crises pertinent to the 1997 return of sovereignty also
lead to a shrank of land disposal in 1983-4. However, even with a crash in real estate
prices, land sales in the early 1980s were maintained at a historically high level. But in
1985, a limit of 50 ha land per year was set in accordance with Annex III to the Joint
Declaration imposes another constraint on land disposal in Hong Kong.

37
Peng & Wheaton (1994) concluded that a reduction in land sales has a direct effect on
housing prices, but no direct effect on the production
of new housing units'1. The higher
housing prices are not caused by a housing shortage but are a direct result of expected
higher future rents.
Thus the effect of more restrictive land policies is not to curtail
housing production in the short run. Rather, higher housing prices actually temporarily
encourage the production of housing units 9 . In terms of housing production, the decision
to produce new housing units in the private sector is based on the expected
of housing construction given the prices of housing and the relative
construction10.
profitability
costs
of
Because of the long duration of construction, current housing completion
must be a result of decisions made in previous periods. Thus the volume of new housing
completion is expressed as a function of lagged housing prices, lagged construction cost
factors, and the expectation of price increase upon completion.
In terms of housing
completion, Peng & Wheaton (1994) found that the number of new completions is
generally not affected by the supply of new land. This signifies that the negative effect
of land sales on housing prices is independent of housing completion.
Thus the price
increase after a shortage of land is not caused by a housing shortage. This leads to an
important understanding of how land supply restrictions affect the housing market:
Housing prices
construction
'
10
11
are directly
affected
is affected by price
Peng & Wheaton

Peng & Wheaton
Peng & Wheaton
Peng & Wheaton
by market expectations,
signals".
(1994), p.266.
(1994), p.267.
(1994), p.275.
(1994), p.279.
38
while the density
of
32

The price movement of land and housing land is shown for the period 1980-1992 is
shown in Figure 6. It can be concluded that both land and housing prices are high in
Hong Kong l : :
a)
both the land and housing price curves move in tandem because the demand for
land is derived from the demand for housing units.
Therefore, the economic
factors that determine the general movement of both curves are basically the same;
b)
the land price curve shows a steeper gradient and greater magnitude at peaks and
troughs.
This is because the demand and price level for land is based on
speculation of the future demand and price level of housing units as the end
products and are therefore more conjectural in nature; and
c)
there are instances of falling housing price when land prices are on the climb as
in early 1987. This shows the time lag of the development process in which a
development cannot stop once it is commenced even though the prevailing market
conditions turn sour.
While the short term take-up of housing units may be
affected by immediate factors such as lending policies of banks, the price of land
is determined by a long-term expectation of demand for housing units and the
expected profits generated from the sales of housing units by the developers. The
12
Rita Lai (1993).

39
two curves can, in fact, show different stage of a property cycle.
3.3

According to the literature review, Ball (1983) suggests that land price and housing price
are jointly determined by the outcome of the distributional struggle between the landowner
and the house builder.
To developers in Hong Kong, land development is a lucrative
investment and residential land becomes the subject of a 'mad scramble'. The price of
Crown Land is pushed up with residential land becomes even more precious which in turn
increases the value of Crown land - which is a never ending spiral 13 .
Moreover, the
variant of Ricardian rent theory - which includes the monopoly ownership of land and
thereby enabling landowners to restrict the supply of residential land over time, eventually
creating a housing shortage which forces up house prices and so allows higher land prices
to be charged - is pointing to the advantage of the landowners. As in the case of Hong
Kong, land is almost auctioned off at prices higher than the Government's minimum, or
reserve price (see Figure 6). These prices are sustained by the expectation that the land
can be developed to its fullest potential given existing planning restrictions and the state
of the market. Thus unlike the situation in England and the United States, where land
sells below its development potential, Hong Kong's property markets typically value land
at prices reflecting maximum development potential 14 . As land is highly valued by both
the developers and landowner of Hong Kong, it is worthwhile to examine the relative
importance of the pricing of the land resources, which includes land cost, construction
13
14
Hong Kong Justice of the Peace Commission (1979), p.50.

Staley (1994), p.97.
41
cost and the price of housing units.
3.3.1
Land Price and Construction Costs

Given the mountainous terrain and the coastal location of Hong Kong the supply of flat
land for development will be very limited. The supply of land is through dredging from
mountains and reclamation from sea. The costs of such engineering services are thus inbuilt to the land cost. Statistics, in fact, support that land cost has overrun construction
cost by a wide margin. Since the 1970s the land/construction cost ratio maintains as high
as 6:4, while in prime site the ratio was even at 7:3 or 8:2, given the international
standard is only at a ratio of 1.2-2.5'5, it is therefore evident that land price in Hong
Kong is high.
It has been pointed out that the proportion of construction costs to total development
investment in Hong Kong projects probably was among the lowest worldwide 16 . In view
of Hong Kong's airport and infrastructure projects will be in full swing over the coming
years, construction costs in Hong Kong are likely to rise faster. However, high property
land values mean that construction cost in Hong Kong are a minor factor for developers
15
16
Kam (1992), 232.

According to Consultants Davis Langdon & Seah HK, building costs in Hong Kong are at the higher end
of the range for Southeast Asia and are much higher than levels in Kuala Lumpur, Jakarta and Brunei.
Average building cost in the four cities are S250-S460 per sq.ft. for standard apartments and $400-$550 per
sq.ft. for standard offices. Construction cost in Singapore are higher than those in Hong Kong, at about
$650 per sq.ft. for standard apartments and $830 per sq.ft. for offices. But HK's properties generally are
more expensive than those in Singapore, because of the lower land values achieved in Singapore, (see
Kenneth Ko (12.4.95), SCMP).
42
considering a project 17 . Despite sustained growth in the last few years (with an average
growth of about 10% per year), owing to the boom in land and property prices between
1992 and 1994, construction expenses usually account for less than one-fifth of total
development cost of a project - represented less than 10% of the average selling prices
of finished properties 18 .
In view of this, it is believed that the biggest slice of
development cost probably will continue to be derived from the high land values charged
by the Government.
The determinant of high land cost to the final value of property
development could be illustrated from the response of the developers in public auction
such as the sale of King's Park Rise. It was estimated that the accommodation value for
the King's Park Rise site was $5,516 per sq.ft. Even if the developer spends about $1,000
per sq.ft. in construction for the project, the portion of that to the total cost remains
low 9. In this respect, the large gap between construction costs and land values means
the increase in the proportion will not be significant.
construction
costs will remain a secondary factor
Therefore, it is contended that
with developers
and their
project
planners20.
3.3.2
The Land Factor in the Pricing of Flats

The price of domestic flats is basically made up of 3 components - land cost, construction
costs and the developer's gross profit.
Generally speaking until 1977, land comprised
40% of the cost of a flat while construction comprised 30%, and the gross profit another
17
18
19
20
Kenneth
Kenneth
Kenneth
Kenneth
Ko (12.4.1995), South China Morning Post.

Ko (12.4.1995), South China Morning Post.
Ko (12.4.95), SCMP.
Ko (12.4.95), SCMP.
43
30%. The ratio of the 3 components was thus 4:3:3 21 . However, in early 1978, as land
prices went up the ratio changed to 5:3:2 and even went up to 6:2:2 in some cases22.
As can be seen in Figure 6, the land value is being as much as 60-70% of the residential
property value at the same point in time. Thus, it is a major component of housing price.
By 1987, it has been estimated that land cost of a typical small-flat project to be 40-50%
of the development costs and as much as 60% in some cases23. Compare with the world
standards of 15-25%, this level of land price is extremely high24.
Consumer Council
(1996) also points out that land costs are the 'biggest single cost element'15.
It also
shows that at project level, the project margins for development on public auction land
were generally lower than for developments on land obtained by tender. It is probably
due to the fact that land costs are normally lower if land were obtained through tenders,
in particular tenders via Letters A and B entitlements.
For those tendered sites, the
estimated profit margins range from 77% to 364% of the total estimated development
costs. On the other hand the estimated profit margins are in the region of 6% to 109%
for lots obtained through public auction 26 .
21
22
23
24
25
26

According to the sales record for the 43 storey Block ' C of the Causeway Centre, the selling price was
fixed at $570 per sq.ft. The land component was reported as $322 per sq.ft. and the construction costs
totalled $ 124 per sq.ft. Hence in this case the ratio of the components of the price was approximately 6:2:2
(Hong Kong Justice of the Peace Commission (1979), p.44.)
Figures given by Jones Lang Wooten, see Rita Lai (1993), p.27.
Churchouse (1987), p.77.
Consumer Council (1996), p.3-7.
Consumer Council (1996), Annex 9: Profitability of Developers - Case Studies, p.A9-l.
44
Although land is becoming an increasingly large cost component in the price of flats, land
prices however have no direct causal relationship to the cost of flats11.
The price of any
commodity in an open market is determined at the level where the supply meets the
effective demand.
In the case of land and housing price, developers do not simply fix
selling prices by first estimating cost factors and then add a fixed percentage for profit.
Instead, the developers determine their prices by concentrating on how much households
are willing and capable of paying for flats. Based on these calculations they push prices
and profit margins as high as the market will bear. Developers'
expectations
regarding
sales and profits indirectly influence their original bids for the site and so push up land
prices2*.
Developers, therefore, aim at gauging the highest level of price that end-users
are willing to and capable of paying. The price at which they are willing to pay for the
land will be determined by their expectations of future housing price with due regard to
the money they have to spend on the development 29 .
On the other hand. Consumer Council (1996) also states that whether a developer can
realize a profit from his development depends very much on his business foresight.
If
land was acquired at a high price at the peak of the property market and sold during the
recession, the developer would most probably suffer a substantial loss on his project. On
the other hand, if he bought land at a low price when the market was uncertain or moving
up from the trough and sold his development in a buoyant market, he would probably

Rita Lai (1993), p.57.
45
realize a significant profit. Most of this profit would be attributed to the increase in the
value of land. Table 1 shows the sales prices vis-a-vis developers' costs in the selected
developments.
Land cost ranges from 12.23% to 178.38% of the final sales price. It
therefore suggests that even if there may have no direct causal relationship between land
price and housing price, it is in fact a significant element in housing price, in which the
importance
varies according
to the market conditions
and developers'
own
pricing
strategy.
3.4

According to the literature review, the supply of housing land is mostly about the 'number
game" since "there is only an indirect relationship between land available in planning
terms and land actually available for development' 30 .
Availability of housing land has
been defined in terms of 'planning permission, services, access and, in particular,

willingness of vendors to sell' 31 . The planning system is therefore seen as essentially
responsive to the initiative of developers in making applications for planning permission,
as this part of the process is the main way in which demand may be expected to influence
planning 32 .
Moreover, within the total stock of land, certain land can be defined as
being relatively more available - i.e. land specifically allocated in structure/local plans.
Such land will be generally more attractive to developers and more likely to be the subject
of applications. So the demand for planning applications is derived from the demand for
see Ch.2 - p.8.

see Ch.2 - p.9.
see Ch.2 - p. 17.
46
Table 1
Sales prices vis-a-vis Developers' Costs in the Selected Developments

(unit: $/fr)
Average
Land Cost
Estimated
Construction
Costs
Estimated
Total Cost' of
Developer
Sales Price
670 (19.04%)'
550 (17.41%)'
1569 (49.67%)'
2784-3543
2. Finery Park
505 (12.99%)
550 (14.14%)
1357 (34.90%)
3883-3894
3. Sunshine City
571 (12.23%)
550 (11.78%)
1440 (30.83%)
3291-6050
4. Ma On Shan Centre
646 (14.86%)
550 (12.65%)
1550 (35.64%)
3104-5593
5. Bayshore Towers
897 (18.92%)
550 (11.60%)
1860 (39.24%)
4400-5080
6. Avon Park
1255 (31.6%)
550 (13.85%)
2321 (58.45%)
3096-4846
7. Harvest Garden
1511 (53.92%)
550 (19.63%)
2651 (94.59%)
2796-2809
8. Emperor Height
3806 (41.24%)
1100 (11.92%)
6017 (65.19%)
9230
9. Pare Oasis
2468 (37.52%)
800 (12.16%)
4203 (63.89%)
6107-7049
10. Wing On Lodge
705 (75.81%)
285 (30.65%)
1467 (157.74%)
930
11. The Homestead
1320 (178.38%)
285 (38.51%)
2378 (321.35%)
740
12. Cheerful Park
386 (16.04%)
550 (22.86%)
1204 (50.04%)
2406
13. Goodrick Garden
467 (19.82%)
420 (17.83%)
1141 (48.43%)
2356
Development
1. Well On Garden
Note:
' Total cost included land, construction and finance costs.

' Percentage of sales price
Assumptions:
(a) Developments 1-7, 9-13 look 3 years to complete; development 8 took 2 years to complete.
(b) Construction (professional fees included) and finance costs:
Developments 1-7, 12: the average construction cost was $550 p.s.f. in 1994 (Davis
Langdon & Sean); finance cost at 8.75% p.a.
Development 8: the average construction cost was $1100 p.s.f. in 1995 (Data supplied by
the Emperor Group); finance cost at 10.75% p.a.
Development 9: the average construction cost was $800 p.s.f. in 1994 (Davis Langdon &
Seah); finance cost at 8.75% p.a.
Developments 10-11: the average construction cost was $285 p.s.f. in 1984 (Rating and
Valuation Department); finance cost at 14.0% p.a.
Development 13: the average construction cost was $420 p.s.f. in 1993 (Davis Langdon
& Seah); finance cost at 8.75% p.a.
(c) Land cost:
Development 1-5: tender price.
Development 6-13: public auction price.
Source: Consumer Council (1996), Annex 9: Table 2, p.A9-3.
47
housing but heavily constrained by land availability
Moreover, the land use planning system directly affects the supply of land by restricting
the range of choices available to landowners in at least four ways: restricting the total
quantity of housing land made available for development; restricting the location of the
land that is made available; restricting the way in which the land is developed; and
altering the timing of development.
Therefore the supply of land made available for
housing at any given price will be reduced and this will affect the resultant profitability
of development. Moreover, through restricting both the total quantity of land available
and the type and location of development, the total quantity of new housing units made
available will be reduced. For a given demand for housing, average house prices will
therefore be higher. As the quantity of land cannot be adjusted as easily as other inputs,
so as house prices rise, the proportion of the price attributable to land will also
increase 34 .
3.4.1
Total Quantity of Housing Land

In the context of Hong Kong, the planning framework is basically a plan-led and planning
application system. Within this framework, the overall land supply for different uses is
reflected on the statutory town plans, as shown in Tables 2 (a)-(f). As for the supply of
residential land, it is reflected in the designated residential zones such as 'Residential
(Group A)-(Group D)' [R(A-D)], 'Commercial/Residential' (C/R), 'Comprehensive
"
34
see Ch.2 - p. 18.

see Ch.2 - p.18.
48
O - Open Space
G B - Green Hell
R ( A ) , R(B) & R(C) - Residential (Group A. D & C)

C D A - Comprehensive Development Area
CP - Country Park
CPA - Coastal Protection Arcd
C/ll - Commercial/Residential
C - Commercial
01) Other Specified Use
V - Village Type Development

I - Industrial
G/IC - Govemment/Insliliition/Community
U - Undetermined
L D C - LanJ Development Corporation Scheme Plan .
(Source: The Tabic is compiled on llic basis o f lite information given in the current enforced Outline Zoning Plans and the relevant Explanatory Statements )
49
Table 2 (h)
Land Supply by Planning Areas - Kowloon
Land Supply fbi Various Hscs(ha)

Planning Area/Plan
No
R(A)
T s i n i Sha Tsui O Z P ( N o . S/K 1/9)

Yau M a T c i O Z P ( N o
S/K2/7)
M o n g K o k 0 2 P ( N o . S/K3/9)
Shek K i p M c i O Z P (No.
S/M/6)
Cheung Sha W a n O Z P
(No
R(C)
(DA
C/R
(i/IC
0.45
1.35
4.1 25
24 59
23 02
47 22
0 71S
11.87
2.16
1.69
6.57
29.73
1831
1 7 09
0 12
14 34
7 70
K 40
5445
18.57
56 32
12 56
42 64
27 14
5oK5
""
39.0
7.9
13 14
3661
7849
0.56
7 52
111
35 13
( P
OJ)
< I'A
S/K5/II)
H o M a n T i n O Z P ( N o . S/K7/7)
3609
W a n g Tau Horn & T u n g Tau O Z P
67.41
(No. S/K8/8)
H u n g M o m O Z P ( N o . S/K9/7)
25.46
M a Tau K o k O Z P ( N o . -S/K10/7)
40.30
Tsz W a n Shan. D i a m o n d Mill &
100.76
San Po K o n g O Z P ( N o
30 42
1191
0 69
32.57
7.62
OH
70 01
12 59
7 61
0 38
26 60
25 97
39 42
2 77
6 66
f><>8
1354
16 28
2 53
0 18
1 1 44
[K 72
21 99
4 15
11 72
46 36
22 86
74 55
29 36
7 80
93 46
9 15
58 21
46 72
62 84
58 15
19 43
ISO 15
6 53
I,
[.DC
1 59
S / K l 1/7)
Ngau Chi Wan O Z P

(No
R(B)
5.R2
33.26
2.37
56.95
463
1 25
S/K12/6)
N g a u Tau K o k & K o w l o o n Ray
251
26 19
1 }t>
(No. S/K 13/9)

0 66
K w u n Tong (North) OZP

(No
K w u n T o n g (South) O Z P
(No
S/KI4N/2)
14691
1 84
1431
42 67
46 26
35 68
25 07
4 95
13 54
45 04
27 l)')
54 39
10.91
2f>ul
20 27
2 00
34 1(.
33 44
18 59
18 35
26.01
44 79
175 54
606.69
430 22
S/KI4S/3)
Cha K w o l i n g , Yau l o n g . Lei
6702
0 42
17.31
8 59
Y u c M u n O Z P ( N o . S/K 15/7)
Lai Chi Kok OZP (No
S/K16/4)
18 13
1 30
(No.
8 88
30 92
2862
437:
S/K20/2)
Total
0 03
197,
S/K1R/I)
South West K o w l o o n O Z P
(No.
0 21
71 46
Kowloon long OZP
799 53
61 96
121154
9278
0 00
V) 1)
R ( A ) , R ( B ) & R ( C ) - Residential (Group A , 13 & C)
9 84
51053
0 00
0 - Open Space
C D A - Comprehensive Development Area
G B - Green Hell
C/R - Commercial/Residential
CV - Counlr)
C - Commercial
CPA - Coastal Protection Area
V - Village T y p e Development
O U - Other Specified Use
Park
1 - Industrial
" - Undetermined
G/IC - Govcmmcnl/Inslitution/Coinniiinity
1 DC Land Development Corporation SLIILIIIU I ' I J I I Area
(Source: The Table is c o m p i l e d on the basis o f the information given in the current enforced Outline Zoning Plans and the relevant Explanatory
50
Statements )
0 00
I I 1 52
1 36
2 "
51
52
53
54
Development Area' (CDA) and 'Village Type Development' (V) zones. Table 3 is a
summary of the selective category of commercial and residential land uses in respective
regions of Hong Kong.
To date, the bulk of residential land is in Hong Kong Island
(17.18%), Kowloon (20.59%), North East New Territories (NENT) (20.98%) and North
West New Territories (NWNT) (25.58%), comprising residential land with varying
development intensity use such as 'R(A)' (the highest intensity of development) to 'R(D)'
(lowest intensity of development).
As for the commercial
use (including the
'Comprehensive Development Area' ('CDA'), commercial/residential ('C/R') and pure

commercial ('C') uses); it is mainly concentrated in the traditional metro area, with
significant new supply (planned or committed) in the New Territories, notably the NWNT
and SWNT where the new airport will be located.
4.2
Location of Housing Land

Table 4 is a summary of planning applications from 1980 to May 199635. It shows that
the demand for housing is responsive to the market conditions as the number of
applications increases in the high times of the property cycles (i.e. 1986-88 and from 1990
onwards) when house prices are on the rise. Housing demand, however, is constrained
by the planning system which restricts the location of housing land. It is noted that in
early years in the 1980s, applications for residential development are in the main in the
Main Urban Areas - Hong Kong, Kowloon, Kwai Chung and Tsuen Wan (a total of 448
"
Information on the planning applications from 1980 to May 1996 was obtained from the PITA Unit of the
Planning Department in June 1996. Table 3 is a summary of planning applications for residential
development by district. Owing to the bulk of the information, details of each application is not included
as an appendix of the Dissertation.
55
799.53
515.99
377.46
139.08
322.65
2,460.61
Kowloon
NENT
NWNT
SENT
SWNT
Total
860.00
61.55
4.75
258.98
299.28
61.96
173.48
R(B)
1,026.90
63.66
77.99
245.23
179.26
120.54
340.22
R(C)
Note: Extracted from Tables 11 (a) to (f)
305.90
R(A)
Hong Kong
Region
9.84
...
422.03
27.25
50.35
338.42
1,990.80
202.82
195.96
1,367.0
206.67
8.51
...
6.01
56
4,769.54
475.11
272.17
1,220.09
1,000.54
982.03
-819.60
Res. Use
(excl. 'V')
110.2
488.75
...
5.68
157.93
86.83
92.78
35.33
CDA
9.96
5.71
25.58
20.98
20.59
17.18
%to
Total
Land Uses
349.99
166.57
14.28
24.23
...
89.06
3.64
9.31
79.11
36.0
44.07
64.34
...
152.52
C/R
Existing Land Supply - by selective category of land use
R(D)
Table 3
1,005.31
213.54
29.91
205.64
160.48
171.89
223.85
Commercial
Use
...
21.24
2.98
20.46
15.96
17.10
22.27
% to
Total
A = Approved, R = Rejected, D/W = Defer/Withdraw (D - Town Planning Board deferred from making a decision; W - the applicant withdrew the application)
' 22 withdrawals
Information of planning applications is obtained from the PITA Unit of the Planning Department as at 18.6.96.
Source:
Planning Applications for Residential Development hy District (IPSO to May 1996)
Note:
Table 4
applications).
The rate of approval is 1.8 times that of rejection.
As the urban land
eventually dried up, housing demand shift to the New Territories, which is also in parallel
with the improvement in transport infrastructure in rural areas and the massive housing
programme and new town development.
Applications for housing land in subsequent
years are seen concentrated in the New Territories, namely, Tuen Mun (TM) and Yuen
Long (YL) (and Tin Shui Wai - TSW) in NWNT and Sha Tin (ST), Ma On Shan (MOS),
Tai Po (TP), Fanling/Sheung Shui (FSS) and North District (N) in NENT (a total of 348
applications).
The rejection rate, however, is greater than that of approval granted by
about 1.52 times. This phenomena is in fact in line with the findings of the literature
review that 'certain areas will be generally more attractive to developers and more likely
to be the subject of applications'
- in the case of Hong Kong, it is Tuen Mun, Yuen Long,
Tai Po, Fanling/Sheung Shui and North District. It should, however, be cautioned that
planning approvals should not have a causal relationship with the increase in planning
applications since every application will be considered by the Town Planning Board on
their individual merits. It is stated clearly in the Explanatory Statement of the town plans
that applications should have satisfied the planning requirements and should demonstrate
to have no adverse impacts on the surrounding area in terms of drainage, traffic and
environmental quality or that appropriate measures to mitigate such impacts should be
provided. Nonetheless, the rejection of application means that housing demand in these
areas have been dampened and that the planning system has restricted the location of
housing land.
3.4.3
Way of Development
It is also noted from the bulk of information obtained from the PITA Unit of the Planning
Department that residential developments in the Main Urban Areas are largely applied on
land which is zoned 'Government/Institution/Community' (G/IC), 'Other Specified Use
(Comprehensive Redevelopment Area)' [OU(CRA)] and 'Commercial/ Residential' (C/R),
Residential (Groups A, B and C ) \ [R(A), R(B) and R(C)], 'Open Space' (O) and
'Comprehensive Development Area' (CDA). Under these zonings, residential use will be
permitted with or without conditions by the Town Planning Board.
Residential
applications in areas other than the Main Urban Areas, by contrast, are mainly applied on
land whose zonings are not specifically designated for residential development, most
notably, the 'Unspecified Use' (UNSP), 'Undetermined' (U) areas and the 'Green Belt'
(GB) and 'Recreation' (REC) zones. Though detailed information on the residential gross
floor area and the number of units are not directly available from the information obtained
from the PITA Unit, it is able to gauge that application for residential development in the
main urban area is in the main density development since the applications have been
applied in zonings such as 'CDA', ' G / I C and higher density residential zones such as
'R(A)' and 'R(B)'. Whereas the applications in rural areas have been applied in zonings
not specifically designated for residential use, and in zonings such as the ' G B ' and ' R E C
and the 'Unspecified Use' area is generally not supportive to large scale and high density
development.
36
With the relative higher rejection rate in the rural areas 36 , it is therefore
The ratio of approved/rejected cases is calculated for Tai Po (1.6), North District (1.09), Tuen Mun (1.19)
and Yuen Long (2.3). It seems that Yuen Long, with the bulk of planning applications for residential
development, the rejection level is also the highest.
59
reasonable to point out the planning system is also restricting the way of development .
4.4
Timing of Development
Development of land should be in accordance with the zoning(s) of the land on the
statutory Outline Zoning Plans (OZPs) in Metro areas and new towns in the New
Territories and Development Permission Area Plans (DPA Plans) in rural areas via a
planning application system. In the case of residential development within the residential
zones, planning application will not be required but it would require the submission of
building plans and land exchange/lease modification application so that development
control could be ensured. Where planning application is required under Section 16 of the
Town Planning Ordinance, the development proposals will be considered by the Town
Planning Board within 60 days from the date of submission. This 60 days time-span is
only for the deliberation of the s. 16 application, additional time should be allowed if the
application is rejected by the Town Planning Board and that an applicant wants to pursue
a s.17 review (another 3 months) and on rejection of the application on review, a s. 17(b)
appeal (another 8 months). It noted from the planning applications from 1980-1996 that
a significant portion of the planning applications has previous reference and further
reference, meaning that for any application for residential development with that period,
it may have undergone several attempts and still be rejected or before approval can be
obtained from the Town Planning Board. Given the time-consuming planning process of
application-deliberation-notification and for the time expended for review and appeal, it
is therefore evident that the existing planning system also affects the timing of residential
60
development which may lead to project delay. In this connection, it may further added
to the supply lag of new housing units in meeting the effective market demand.
In view of the fact that (i) the existing planning system is restricting the total quantity,
location of housing land and the way and timing of residential development, and (ii) the
demand for application is derived from the demand for housing but has been heavily
constrained by land availability, the result is a mismatch between housing demand and
supply. It is pointed out by Yuming Fu (1995) that the mismatch has pushed up house
prices. Similarly, it is also in echo with Evan's view that 'restricting the supply of land
will raise the price of both' (i.e. land prices and house prices). It is therefore evident that
the planning system has increasingly been forced to short term market pressures in which
demand is more responsive - this in turn has exacerbated the volatility of the market and
may have fuelled the house price surge since the 1990s.
3.5

Although Hong Kong is a market economy, its government plays an important role in
urban development.
Hong Kong.
There are unique characters pertinent and distinct to the case of
Identifying these unique characteristics would help devise the analytical
framework for the subject study.
61
3 5.1

Hong Kong has a rather peculiar land tenure system37. Because of its colonial history,
the Hong Kong Government is effectively the sole owner of the territory enjoying a
monopolistic privilege in the property. It leases land to private developers. Land for noninstitutional uses is generally leased to the highest bidder at public auctions. Each lease
term requires a large lump-sum premium and a small annual rent. Because the rent serves
only as a legal symbol to maintain the lessor and lessee relationship, the premium attached
to any given land lease approximates the land value. Most of the leases are transferable,
and the land market, therefore, is a market of the land leases38. A consequence of this
system is that the government has special powers in regulating land uses: it determines
when and how much new land will be put on the market as well as the uses allowed on
this land.
While Figures 3-5 discusses the general sales pattern in the early 70s and 80s, Figure 7
shows a more detailed picture for recent years. It can be seen that in the boom year of
1981, the amount of land sales was significantly out of line with the price index. This
could be explained in 2 ways: either (i) the Government was increasing the supply of land
to bring down the land price, or (ii) it was taking the chance to make the most money out
of the strong market.
In 1983 and 1984, the amount of land sold was substantially
reduced. This was not a result of land not attracting bids at auctions, as there were no
records of lots being withdrawn. Therefore, it is to be explained by the fact that less land
"
38

62
Figure 7
Price Index and Land Disposal
Source: Rita Lai (1993), p.67.
63
was put to the market 39 . This then lends support to the proposition that the Government
has an intention to sell land at high prices and hoard land until the market conditions
improved.
It can also be supported by the revenues from land and buildings which
averaged 20% of the total revenue from 1973 to 1994 (see Table 25 in Ch.5).
The amount of land sales after 1986 was, by and large, stabilized. The years 1990 and
1992 saw a reduced residential land sales despite the market sentiment was good. This
was explained by a restrained supply of residential land when the Land Commission raised
the concern to the to the Hong Kong Government so that no land could be made available
within a short breadth of time and without approval by the Land Commission. A guiding
principle for land disposal policy is to
meet the need for a balanced development in the urban area and
the new towns, actual and expected demand and the amount of
premium likely to be obtained from the land
In this connection the need of approval from the Land Commission for land disposal
means that land supply by the Government has been constrained which may hinder the
responsiveness of the land supply system to market demand.
Rita Lai (1993), p.66.

Rita Lai (1993), p.68.
64
As the land market is constrained both by the market (highs and lows of the property
cycles) and non-market factor (the 50-ha ceiling of land disposal), and that land sales
revenue is one of the major component of Government's total revenue, it is held that
based on the public ownership of land in Hong Kong, the Government is pursuing an
active "High Land Price' Policy. Such a claim is unique to the Hong Kong context in the
study of land policy.
3.5.2

As shown in previous discussion, even though Government controls the disposal of
housing land and private development by means of the planning system, it is in turn
constrained by the Land Commissioned.
On the contrary, once land purchase is
completed and so long as the lease conditions and building covenant are complied with,
developers can control the quantity and timing of delivery of housing units to the market.
It is respect that private developers may have a winning edge over the Government in
their influence over the property market.
A notable item on the agenda of the private developers has been the accumulation of land
bank.
Such claim is supported by the aggressive attitude by the developers and their
willingness to offer bidding prices far exceed the reserve price during land auction.
According to Consumer Council (1996), the six leading properties companies in Hong
65
Kong are holding 6.8 million sq.m.41 of land throughout the Territory, with the majority
landholding in the New Territories, which is equivalent to 8.25 million sq.m.42
residential gross floor space. This has not included the amount of Letter A/B Exchange
Entitlements held by developers totalling up to 2 million sq.ft. of building and agricultural
land up to March 1996 (see Table 25 in Ch.5). This means that the Government will
have to dispose of sufficient land in the New Territories in order to redeem these amount
of Letter A/B from the market before 1997.
It is observed that with the drying up of suitable sites in prime urban areas for
development, the focus for development has shifted to the New Territories.
Table 5
shows some examples of the land bank secured by the major property developers in recent
years. It is noted that most of the new land acquired is located in Tuen Mun/Yuen Long
(NWNT) and Tai Po (NENT). Moreover, it is also noted that developers are eager to
accumulate land in areas along the major road and rail links in order to capitalize on the
future easy and convenient access which will help boost the profit margins of their
development projects in these areas. Table 6 shows some examples of the land reserve
of the major developers in areas along the existing/future transport nodes. It is expected
that the New Territories will be subject to vigorous development pressure until and unless
The six leading property companies, in descending order, are Sun Kung Kai Properties Ltd., Henderson
Land Dev. Co. Ltd., Cheung Kong (Holdings) Ltd., New World Dev. Co., Hang Lung and Sino Land. Data
from Jardine Fleming Securities Ltd., 1994. For details, please refer to Consumer Council (1996), Annex
5, p.A5-l: Table 1.
The six companies in descending order are: Sung Hung Kai Properties Ltd., Henderson Land Dev. Co. Ltd.,
New World Dev. Co., Cheung Kong, Sino Land and Hang Lung. Data from Jardine Fleming Securities
Ltd., 1994. For details, please refer to Consumer Council (1996), Annex 5, p.A5-l: Table 2.
66
Table 5
E x a m p l e s o f L a n d B a n k secured hy M a j o r D e v e l o p e r s f r o m L a n d Sales o f Recent Y e a r s
Dale
Location
Use of
site area
Ciross d o o r
Sale p r i c e
area (sq R}
in Sin
Buyer
1 Jun 93
Kau To Shan, Sha Tin
Res
165,904
505
S l n o L a n d led c o n s i i r l i u m
| D e c 93
Lung Ping Rd
Res
726,095
3.940
S i n o L a n d led c o n s o r t i u m
[ Feb 94
Tuen Mun
Godown
41,00
76
Mar 94
Tllen Mun
Res
84,756
6 St)
May 94
July 26 94
Aug 24 94
Jun 95
Sep 95
Realty D e v e l o p m e n t
Corp
Hang L u n g Development
Kowloon
Res
84,787
2,260
Tai Po
Res
198,950
2.140
Sino L a n d
Nonh Point
Res
28.643
2.200
Cheung K o n g
Tuen Mun
Non-lnd
63,507
850
lai Cheung Holdings
Slia Tin
Ind/Off
70,100
650
Wharf(Holdings)
Putting
Non-lnd
223,675
2,040
C o n s o r t i u m o f 12 d e v e l o p e r s
Yuen Long
Non-lnd
63,389
510
C o n s o r t i u m o f 14 d e v e l o p e r s
Tai Po
Res
204,946
890
Lai Sun. China Travel, U K
Tai Po
Res
150,000
335
P j l i b u r g Development
Tai Po
Res
271,576
9,500
Kwai Chung
Godown
Tai Po Area 30
C/R
226,581
500
Tai St, Tai Po
cm
114,754
3211
Henderson Land
Tai Po Area 37
Res
131,751
218
Cheung Kong
526,769
88
13,381
107
Sino Land
Parkview
t Hi Pacific
Cili Pacific
36,059
1 lenderson Land
Kelly Group
Kwai Chung
Ind/Stonge
Nov 95
Kelly Rd, Peak
Res
Wo Tek SI, Tsuen Wan
C/R
39.500
95
Dec 95
Stubbs Rd, Happy Valley
Res
163,885
860
Hung Lung Development
Causeway Bay
C/R
88.800
191
Hon Kwok Land
Hung Horn Bay

Reclamation
CDA
. 1.478,554
4,725
Henderson Land/SHK Properties
Wyndham St, Central
C/R
255,914
765
Sino Land/South China Strategic
Hong Man St, Cliai Wan
C/R
147.763
440
Sino Land
Tai Po Area 2
C/R
26.975
70
Feb 96
China Overseas
lion Kwok Land
Palibury Development
Source: South China Morning Post (22.8,94 & various issues), Hong Kong Economic Times & I in Tin Daily various issues
Table 6
Property Developer Land Bank Exposure to Future Road and Rail Links
(Unit: million sq.ft.)
Company
Sun Kung Kai
(0016)
Yuen Long
Castle Peak Rd
Tsing Yi/Ma Wan
Total
2.95 (14%)
1.27 (6%)
1.21 (6%)
5.43 (26%)
4.18 (20%)*
2.56 (10%)
6.74 (33%)
* Royal Palms
*Fairview Park
"Villa Camillia
Cheung Kong
(0001)
(3%)
TMTL 365
3.66 (25%)
(0%)
0.51 (3%)
4.17 (28%)
10.14 (51%)*
(0%)
(2%)
10.14
(53%)
Kingswood Villa
Sino Land
(0083)
Henderson Land
(0012)
Hang Lung Dev

(0010)
*Ma Wan Dev

*Tsing Yi Cement
Factory Site
*Nga Ying Chau
Dev'
*Nga Ying Chau

*TY Station
0.06 (2%)
(0%)
(0%)
0.33 (2%)
(Wo)'
. . . (0%)
(0%)
0.68 (1%)
0.18 (1%)
(0%)
(0%)
0.18 (1%)
7.3 (24%)*
(0%)
(0%)
7.3 (24%)
0.02 (1%)
0.15 (4%)
(0%)
0.17 (5%)
(1%)*
(4%)
(0%)
--- (5%)
Tai Hing Court

New World Dev
(0017)
0.03 (1%)
(0%)
(0%)
0.03 (1%)
8.17 (59%)"
(0%)
(0%)
8.17 (59%)
*Tsuen Wan
Dyeing Plant
Discovery Bay
Note:
( )
1
2
#
*
% of Gross Floor Area to total land bank

existing development project
development project under negotiation
including the GFA of all potential development project
joint-venture by SHK Properties, CK (Holdings) and Chinachem Group
Source: Credit Lyonnais, in South China Morning Post (22.1.1996) and Hong Kong Economic Times (26.1.1996).
68
some of the massive reclamation projects related to the Airport Core Projects under the
Port and Airport Development Strategy (PADS), namely, the West Kowloon Reclamation,
the Central and Wai Chai Reclamation and the relocation of the Kai Tak Airport have
been completed in the urban areas. In any case, however, it may mean to be a matter for
the late 1990s.
3.5.3
Housing Supply
Once the land is leased out, subsequent development on the land will be at the hands of
the developer. The developer will implement the development programme according to
their own agenda by taking into account the prevailing market sentiments, their perception
to the future market demand, their anticipated gross profits as well as their marketing
strategy. The supply of the final housing unit is at the discretion of the developers so far
if they comply with all the statutory requirements, therefore, the developer can, at their
wish, hoard on the housing supply until the market demand is mounting thereby reaping
a 'windfall' benefits from the flat sale. It has been pointed out that housing supply in
1996 will be a record low as compared to the past 10 years 43 . Contrary to the annual
production of 300,000 units according to the production target under the Long Term
Housing Strategy, it is then most evident that housing supply fails to meet the demand.
An account of the residential projects which will go on-sale at the close of 1995 and 1996
is shown in Tables 7 (a) & (b). It shows that even all the units as listed are released as
scheduled, it only compiles a total of 25,616 units, which is still some 274,384 units
15.5.1996, Hong Kong Economic Times.

69
Table 7
Latest On-Sale Residential Projects
Table 7 (a)
Residential Projects expected to go on sale at the close of 1995
Project
Location
Units
Pare Royale
Sha Tin
640
Laugna City
Kwun Tong
Kingswood Villa
Yuen Long
Woodladn Crest
Sheung Shui
Aegean House
Developers
Wheelock, Sino, China Overseas
about 400
Cheung Kong
2,864
Cheung Kong
540
SHK Properties
Clearwater Bay
12
SHK Properties
Europa Garden
Sheung Shui
63
SHK Properties
Palm Springs Phase 2
Yuen Long
about 400
SHK Properties
Sea Crest Terrace
Mui Wo
45
Sino
Long Beach
Castle Peak Rd
50
Sino
Pare Versailles Phase 1
Tai Po
about 300
Hang Lung, Lai Sun
Par Oasis Phase 5
Yau Yat Chuen
about 100
Wheelock. Sino
Pare Regal
Ho Man Tin
about 100
Wheelock
Flora Plaza
Fanling
Lagoon Court
Tai Po
136
Henderson Land
Fairview Height
Mid-Levels
198
Henderson Land
Classical Gardens
Tai Po
Cypress Garden
Ho Man Tin
54
Ryoden
Blessings Garden
Mid-Levels
110
Lai Sun
Discovery Bay Phase 4C
Lantau
230
New World
about 2.000
about 360
Total
Source: 11.10.95, SCMP.
70
8,602
Henderson, Chinachem
Sino
Table 7 (b)
Residential Projects expected to go on sale in 1996
Project
Location
Units
Developers
Royal Ascot Phast 2
Sha Tin
1,248
SHK Properties
King's Park Villa
King's Park Rise
360
SHK Properties
No.3 Repulse Bay Road
Repulse Bay
42
SHK Properties
TKOTL 17 site
Tseung Kwan O
2,184
SHK Properties
Ha Yau Tin
Yuen Long
1,100
SHK Properties
YLTL 456 site
Yuen Long
350
SHK Properties
Regalia
King's Park Rise
302
Wheelock, Sino. China

Overseas
TPTL 115 site
Tai Po
NKIL 6160
Diamond Hill
China Dying Factory

Phase 1
Tsuen Wan
1,120
Island Place
North Point
784
Swire, China Motor Bus
The Floridian
Quarry Bay
214
Swire
Site at Clearwater Bay

Road
Sai Kung
STTL 338 site
Ma On Shan
1,982
Cheung Kong, Pacific Concord
Kingswood Villas Phase 6
Yuen Long
2.192
Cheung Kong
TKOTL 36 site
Tseung Kwan O
2,064
Henderson Land
Classical Gardens Phase 4

& 5
Tai Po
about 300
about 1,700
72
about 1,000
Total
Source: 11.10.95, SCMP.
71
17,014
Wheelock
Wheelock. Wharf
HKR, New World
Cheung Kong
Sino Land
behind the target. The supply lag of housing unit, couple with the significant land banks
held by the developers, may suggest that there may be a cartel of major developers who
deliberately controls a steady output of new residential units, with a view to preventing
the flooding of the housing market with residential units, so as to ensure that housing
prices can be maintained at high levels. In a nutshell, it is to protect the 'windfall' profits
of the developers.
From this illustration, the developers may have enjoyed a better
bargaining position in the housing market, whereas the Government may be subject to a
co-ordinated effort of the developers in the course of land sales. The high land price
policy, therefore, may not be as simply an attempt on the part of the Government to
ensure a stable revenue from land sales, but is also a near set-up by the private developers
to maintain high housing prices in order to reap the substantial profits from their flat sale.
3.6
Conclusion: The Analytical Framework

In the light of the literature review and the empirical literature of Hong Kong, the
importance of the land factor in Hong Kong can be ascertained:
Low (high) land sales seem to increase (decrease) housing prices with what
appears to be about a year's lag. Housing market is land restrictive. Therefore,
land supply affects housing
price.
Land supply in Hong Kong is restrictive as it is controlled by the Government via

the land use zoning(s) of the planning system. In this connection, urban planning
affects land supply and, therefore, housing price.
72
Studies lend support to the fact that in Hong Kong land prices are determined by
housing prices, not the vice versa44.
Ball, on the other hand, asserts that high
land prices cause high house price since 'house prices are determined by costs of
production in the long run, and land prices are an important element in these
costs'. In any case, therefore, housing price and land price are strongly related.
However, as land price is only an aspect of land supply, it will only indirectly
affect land supply. The issue of land supply should also look at the unique land
disposal system (leasehold system), which is said to have reinforced high land
price in Hong Kong.
Developers' expectations regarding sales and profits indirectly influence their

original bids for the site and so push up land prices.
The irregular pattern of land sales in Hong Kong, therefore, shows that the land
supply in Hong Kong is restrictive and can be constrained by non-market
forces
at times.
The variant of Ricardian rent theory includes the dimension of

ownership,
monopoly
which enables landowners to restrict the supply of residential,
eventually creating a housing shortage and forces up house prices and therefore
charges higher land prices. The question then becomes whether the landlord had
Peng & Wheaton (1994), p.274, Rita Lai (1993) and Tse (1994).
73
that power. The study of the 'high land price' policy by C.L. Wu (1983) and R.
Yin-wang Kwok (1983) lend support to the popular belief that Hong Kong
Government wants to keep land prices high45.
In addition, the characteristics of housing market and the mechanism behind the housing
price in Hong Kong can also be discerned:
Housing market is land restrictive.
Land costs are the 'biggest single cost
element' in the pricing of housing units.
A reduction in land sales has a direct effect on housing prices, but no direct effect
on the production
completion
of new housing
units and is independent of
since it is largely In the hands of the major
housing
developers.
The higher housing prices are a direct result of expected higher future rents,
expected profitability and the relative costs of construction.
It is noted that the restricted land supply has led to substantial land bank
accumulation
by major developers and a concentrated housing market dominated
by a few key players. The major developers, in turn, have much influence in the
supply and therefore pricing of new housing units. It is said that major developers
Wu (1983), p.18.
74
have a near set-up to maintain high housing price in order to reap the substantial
profits from their flat sale.
As regards the implication on urban planning in Hong Kong, the following aspects should
be noted:
The planning framework is basically a plan-led and planning application system.
The plan-led system means that it directly affects the supply of land by restricting
the range of choice available to developers in terms of total quantity and location
of housing land.
The planning application system, on the other hand, restricts the type and timing
of housing development.
From the information of planning applications in the past 17 years, it is apparent

that the demand for housing is responsive to the market conditions as the number
of applications increase in the high time of the property cycles. Housing demand,
however, is constrained by the planning system which restricts the quantity and
location of housing land, as well as the type and timing of residential
development.
The existing planning system, therefore, results in the spatial mismatch between
75
housing demand and supply in Hong Kong.
Since the planning system has
restricted the supply of land, therefore, it will raise the price of both land prices
and house prices. It is therefore evident that the planning system has increasingly
been forced to short term market demand pressures - this in turn has exacerbated
the volatility of the market and may have fuelled the house price surge since the
1990s.
In the light of the above, it is noted that while the study on land supply, housing price
and urban planning is, in general, a study of supply and demand, the issues of 'high land
price* policy, (ii) land bank accumulated by the major developers and (iii) the degree of
market concentration are unique to the case of Hong Kong.
The research theme and
detailed analysis of the three issues in ensuing chapters will be as follows:
Land supply affects housing price; and land costs are the biggest single cost
element in the pricing of housing units.
Planning affects land supply and, therefore, housing price.
Both land and housing prices are high in Hong Kong. The high price levels are
not simply affected by supply and demand because of the unique land supply
system (leasehold system), the accumulation of land bank by the private
developers and a concentrated market which governs the supply of both land and
housing units to the market and, in turn, ensures the high revenue from the sales
76
of land and housing units to the Government and the private developers.
As the planning system is the 'ultimate gatekeeper' for land use allocation, it
seems that an increase in land supply may help bring down the high price of
housing units and improve the provision of affordable housing for the home
seekers in Hong Kong.
Detailed analysis would be given to the Housing Market of Hong Kong: the
housing market of Hong Kong is unique in the sense that the Government plays
a significant role alongside its free market economy. Government's philosophy
on housing development is to provide sufficient land, supporting infrastructure and
a financial environment which induces private sector investment in property
market.
The housing market, therefore, is largely in the hands of the private
developers and is characterized by substantial land bank accumulated by the

private developers and a concentrated market which governs the supply of housing
units and ensures high housing price and 'windfall' profits to the private
developers. On the other hand, the housing market is dominated by the cyclic
property cycles each experience their own ups and downs with their respective
socio-economic-political contexts. The market in the making should therefore be
examined in terms of housing supply, income and savings, degree of home
ownership, degree of speculation, vacancy and take-up, affordability, cost of credit
and effects of land price and housing price.
77
As such the prevailing market
conditions can be discerned in the light of the quest for home ownership,
affordability and the market concentration and manipulation by the private
developers.
Detailed analysis would be given to Land Supply in Hong Kong:
The
Government, as the sole supplier of land, directly controls the availability of land
for property development. As the public sector currently provides about 58% of
the total housing stock which is resource-demanding, revenue from land sales
should be guaranteed.
The peculiar leasehold system which sells land to the
highest bidder further fuels the claim that the Government is upholding a 'High
Land Price" Policy, which is unique to the case of Hong Kong. Land supply in
Hong Kong will be examined, in the light of the 'High Land Price' Policy, in
terms of the housing land availability, leasehold system. Government's land sales
and land supply and housing strategy.
Detailed analysis would be given to the Implication of Land Supply and

Housing Price for Urban Planning: According to the empirical literature, the
existing planning system restricts the supply of residential land in terms of the
total quantity and location of housing land, and the way and timing of residential
development. The result is a spatial mismatch of housing demand and supply and in fact a segmentation of the housing market - which has fuelled the property
price surge in recent years.
As planning should be viewed from a long term
78
perspective, that it affects both the extent of land supply overall and the extent to
which supply can respond to changes in price, the analysis on the implication for
urban planning will discuss the current spatial mismatch between housing supply
and demand, and the recommendations for the planning system to improve land
supply and therefore, help bring down high housing price and ultimately, the
provision of more affordable housing to the home seekers.
79
Chapter 4
The Housing Market of Hong Kong

The Property Cycles
The Market in Making
Affordability
Chapter 4
The Housing Market of Hong Kong
This chapter will examine the housing market and the associated price changes in Hong Kong.
It will first examine the housing market by an account of the changes in housing price in terms
of the property cycles from 1973-83 to the 1990s, second analyze the factors behind the price
changes in terms of housing supply, income and savings, degree of home ownership, degree of
speculation, vacancy and take-up, affordability, cost of credit and effects of land price, and third
identify the prevailing market conditions in the light of the quest of home ownership,
affordability and the manipulation of the housing market by the private developers.
4.1

The housing market of Hong Kong is unique in the sense that Government plays a
significant role alongside its free market economy.
The positive non-interventionist
approach is applied to the housing sector so that housing units are provided both by the
public (mainly for the lower-income groups) and private sectors (mainly for middle-tohigh income groups). Government's philosophy on housing development is to provide
sufficient land, supporting infrastructure and a financial environment which provides
incentives for private sector to invest in property development.
The private housing
sector, therefore, is largely in the hands of the private developers and it appears that they
have exerted greater influence by governing the quantity and the prices of housing units
to be supplied in the market.
80
On the other hand, the desire to own our home is a rising aspiration for the people of
Hong Kong. Besides the need for shelter, it is a potent symbol of material success and,
therefore, one of the strongest motivational forces1.
With the rising population and
severely limited land availability, property is also a favourite form of investment and a
hedge against inflation.
Two most notable market trends in Hong Kong over recent
decades have been (i) the increase in home ownership and (ii) rise in property prices.
Despite cries that housing is "unaffordable', prices remained high.
In the immediate aftermath of World War II (1945-51), the provision of housing was
largely left with the private sector through the non-interventionist, laissez-faire policies
of the Government.
Housing in the simplest form of shelter provision was hardly met
because of the damage to the housing stock during the wars and the restricted
development intensity imposed on the form of building construction. The Government's
intervention was minimal in the early 50s until its launching of the public housing
programme in 1954. The public housing programme can be considered very successful
in terms of the supply of housing stock.
By 1981, 4 3 % of the total population were
housed in public housing. This, however, had not hampered the private residential market
which through booms (in 1962-65, 1976) and busts (in 1967, 1973) has remained
generally buoyant. The fundamental reason is that the supply of housing units for those
falling
outside the net of the Government's
subsidized system have persistently
lagged
Consumer Council, 'How Competitive is the Private Residential Property Market?', Consumer Council, July
1996, p.1-1.
81
behind the demand1.
The changes in the supply and, therefore, the prices of housing
units characterize the various property cycles, which will be examined in ensuing
paragraphs.
4.2
The Property Cycles

The changes of the prices and rents of the housing market of Hong Kong since the early
1970s are shown in Figure 8. In general, the private residential market in Hong Kong has
experienced two major cycles since 1973 and each of the bust and boom has its own
precipitating factors. The previous boom dated to 1975 when the market recovered from
the world oil crisis in 1973. Real housing price almost tripled during the six booming
years before the market conditions reversed in 1981. Real housing price rumbled more
than 40% before the market recovered in 1985. The recent property market boom lasted
since 1985, with a brief slowdown around 1990 mainly due to the Tiananmen Square
Crackdown and the Gulf crises. Real price rose more than tripled in ten years to 19943.
4.2.1

The post-war property market recovered gradually after the oil crisis and stock market
slump and bankruptcy in 1973. By 1976, the market entered into a cycle of boom. Prices
and rents experienced unprecedented increases in the following few years and continued
unabated into the early 1980s.
The bubble burst in 1981 when the Government
introduced rent controls to cover post-war residential units. Mortgage rates climbed up
2
3
Rita Lai (1993), p.5.

Yuming Fu (1995), The Other Hong Kong Report 1995.
82
to 19% and speculators backed off the overheated market. As Figure 8 shows, housing
price movement before 1991 followed fairly closely with the movement in rent.
Price
rose faster than rent between 1975 and 1980 when real mortgage interest rate was
declining, and price declined faster than rent between 1980 and 1984 when real mortgage
rate was rising. But overall the trend was set by the rent, which reflects the demand and
supply condition in the user's market.
The rising real rent between 1978 and 1981 could be explained by low vacancy rates since
1976. and the collapse in rent in 1981 could be attributed to the high vacancy rate in that
year.
Figure 9 explains the movement in vacancy rates since 1973. High population
growth rate, due to large inflow of mainland immigrants, and falling supply of new
housing units created a very tight market for housing accommodation, as indicated by
falling vacancy rates between 1973 and 1976. The supply of new housing units picked
up after 1975, but high rate of growth in both population and income kept housing
demand high and vacancy low. The trend in population growth reversed after 1979, and
the economy slowed down with soaring inflation, rising interest rate, and looming political
uncertainty over 1997. New demand for housing accommodation fell behind the new
supply, therefore, vacancy rose and rent started to fall in 1981.
An important
characteristics of this episode of boom and bust is the wide swings in demand for housing
accommodation, due to large changes in population and income. The response in housing
production lagged behind the change in demand due to long development and construction
period. The mismatch in the change in market demand and change in new supply results
83
Figure
Trend in Real Housing Price and Rents
Note: Pnce and rental index are deflated with CPKA). The rental index before 1980 is
estimated based on the trends in rental indexes for office and retail properties)
S o u r c e : Y u m i n g Fu ( 1 9 9 5 ) , in The Other Hong Kong Report
84
1995, ch. 14, p . 2 6 6 .
Figure 9
Trend in Residential Vacancy Rate
Source: Yuming Fu (1995), in The Other Hong Kong Report 1995, ch. 14, p.267.
85
in cycles in vacancy rate and rent.
4.2.2

Concurrent with the worldwide economic downturn, the Sino-British talks over the return
of sovereignty of Hong Kong since 1983 had shocked the territory of confidence. The
financial market was worst hit and Hong Kong dollar was at its all time low of US$1 =
HKS9.6 on September 24
1973 4 .
The currency crisis was only stabilized at
Government's attempt to peg the local currency unit to the US dollar at US$1 = HK$7.8
on October 15 1983. In the year of 1983-1986, 8 banks namely, Hang Lung Bank, Sun
Hung Kai Bank, Overseas Trust Bank, Hong Kong Industry and Commerce Bank, Ka
Wah Bank. Wing On Bank, Union Bank and Hong Nin Bank faced difficulties of different
degrees from bank runs to solvency or being taken over by the Government's Exchange
Fund. Some commentators have reasonably argued that the banking crisis had much to
do with the state and confidence of the property market5.
By 1982, property prices had fallen by as much as 50% from their 1981 peak values.
Only small units experienced some growth in take-ups. The signing of the Sino-British
Joint Declaration in late 1984 restored confidence to the territory and in fact, in the years
after
1987, Hong Kong's economy including the property market had benefitted
substantially from the 'China factor' with her 'Open Door Policy' 6 . According to Rita
Rita Lai (1993), p.6.

Rita Lai (1993), p.6.
Rita Lai (1993), p.7.
86
Lai (1993), Hong Kong rebounded strongly in 1986 with a 12% real growth in gross
domestic product (GDP). The supply of private housing units in 1986 exceeded the 1985
level by 13%. Average selling price was some 10-20% higher than they had been in
1985. Moreover, the brain-drain after 1983 had resulted in a significant rise in income
levels. The economy entered into a consolidation phase in 1987 after the stock market
crash.
From 1988 to 1990s, the growth in GDP had slowed down but the median
domestic household income continued to rise. This had provided the source of finance
for people to aspire to higher standards of housing.
There was a brief crash after the crushing of the democracy movement in Tiananmen
Square on 4 June 1989, but by 1989:Q4 prices had recovered to its pre-crash level. In
the year 1989:Q4-1990:Q4, prices increased by almost 15% 7 . Moreover, the June 4th
Crackdown in 1989 brought the market to a short-lived halt only to see more rapid
increases in 1991 after the Gulf War. The increase was further fuelled by the Sino-Hong
Kong agreement on the new airport projects, the forecast of high inflation rates, low
prevalent interest rates and a buoyant economy. Prices rose by an average of 60% and
in some instance, such as the City One Shatin and Tuen Mun Town Plaza, over 80%
increases were recorded 8 .
Initially these increases were demand-led with the people
aspiring for home ownership but as prices rose, speculators entered the market and sent
prices soaring.
7
8
Richard Wong & Samuel Staley (1992), The Other Hong Kong Report, p.325.
Rita Lai (1993), p.8.
87
4.2.3
Property Booms in the 1990s

The characteristics of the property market boom since 1991 was very different from that
betore 1981, as the trend in real prices significantly departed from that in real rents
(Figure 8 refers).
While real rents were stable given relatively stable new demand
formation and new supply during 1990-1994 period, real prices soared. The cause of the
significant departure lies in the low real interest rates. As inflation rate jumped from
9.8% in 1990 to over 12% in 1991, mortgage rate slipped from 12.25% in early 1990 to
10.75 at the beginning of 1991, which resulted in a decline in real mortgage rate from
1.93% to -1.24% 9 .
The situation, therefore, encouraged housing demand and fuelled
price soar.
In a bid to dampen speculation which was thought as the driving force behind the soaring
market in 1991, the Government had taken or few measures, which were quite
unprecedented 10 :
Legislative amendment to levy stamp duty on every agreement for sale and
purchase of properties rather than on their assignment.
Recommend the banking institutions to take a conservative line in their lending.

This has led to the 70% mortgage cap introduced in late 1991.
9
10
Yuming Fu (1995), p.267.

Rita Lai (1993), p.8.
88
Recommend developers to adopt balloting as a method for selling units and to

restrict the number of units for sale to insiders.
Commentators such as Lam (1992) has pointed to a 9-year cycle of the Hong Kong
property market". However, the expected slump after the sharp rises did not materialize
in 1992. By and large, the market was upheld by the continuous low level of interest
rates. Prime rate was 10.5% on 27 May 1991 and dropped to 9.5% on 1 July 1991, then
through to 6.5% as from 6 July 1992.
The year of 1992 was relatively quiet with
marginal consolidation by some 5% in the small-to-medium residential flat market but

continued improvement in the luxury flat market 12 . The second quarters of 1993 saw
another upsurge in prices which were said to be rises precipitated from the quiet times of
1992. A 20-30% increase in prices was recorded in the second quarter of 1993 with the
higher end of the market being more active13.
4.2.4
The Renewed Upsurge in 1993

In the first half of 1993, there were a reversed change in the overall market sentiment.
Owing to the generally more cordial Sino-British relation and high hopes on
infrastructural in Hong Kong, prices started to spiral upward.
By June prices of
large/luxury units have gone up by about 2 5 % from the start of the year, and, despite the
30% downpayment requirement, there was a mini-boom in the small/medium sector,
Rita Lai (1993), p.8.

Rita Lai (1993), p.8.
Rita Lai (1993), p.8.
89
averaging around a 10% increase 14 in the property price.
The real mortgage rate
remained negative until March 1994 when US raised its interest rate. The negative real
mortgage rate made housing investment extremely profitable.
Investors' demand for
housing property soared and, therefore, further pushing up prices. It should, however, be
pointed out that there was not hard fact to show that the price level of 1993 and early
1994 was abnormally high. As Figure 10 shows, historically rental yield followed fairly
closely real mortgage interest rate, maintaining a spread of about 5-6% points on average.
The year 1993 was no exception. Among the cries of unaffordable housing, Fu (1995)
was of the view that the house price surged in the last four years was due to an imbalance
in the investment market created by negative real mortgage interest rate, rather than due
to a shortage of housing accommodation, as the rental market was stable15.
4.2.5
Government Intervention in 1994

Over the past ten years, however, it is evident that property prices has risen continuously,
apart from a few occasions such as the aftermath of the June 4 Incident in 1989 and the
Gulf War of 1991. By June 1994, the price for small- and medium-sized flats was about
HKS6,000 per sq.ft. as compared with the HK$600 price tag in 198416. Young working
couples have found it increasingly difficult to afford a mortgage for new units, notably
those in comprehensively developed private housing estates. At the same time, it is not
uncommon for estate agents to come across the institutional purchasers who buy
11
15
16
Hang Seng Economic Monthly, July 1993.

Yuming Fu (1995), p.269.
Lawrence Lai (1994), The Other Hong Kong Report, ch.l 1, p. 189.
90
Figure 10
Rental Yield and Real Mortgage Interest Rate
91
aggressively in residential property. Before the June 4 Incident, Japanese companies were
very active in the second-hand market but their leading position was taken over by
Chinese enterprises such as Citi Pacific and China Travel. Soaring private housing prices
caused a chorus of outcry within the context of political democratization and an urge of
government intervention. In response, the Governor established an Anti-Speculation Task
Force in March 1994. The Secretary for Planning, Environment and Lands announced
in late March a four-pronged strategy to tackle the problem, viz. (1) to achieve an earlier
utilization of Tin Shui Wai Phase II; (2) to utilize private sector land holdings in the New
Territories, requiring developers to shoulder infrastructural costs if necessary; (3) to speed
up urban renewal by assisting the Land Development Corporation (LDC) and private
sector in land assembly (application of government resumption powers is the measure to
be taken); and (4) to speed up development programmes of the Housing Authority and
the Hong Kong Housing Society.
Later the government made a new
financial
arrangement with the Housing Authority, conferring upon it a new development fund.
The Housing Society has also stepped up the process of implementing new lending
instruments such as the 'Sandwich Class Housing Loan Scheme'.
4.3
The Market in the Making: behind the Price Changes

As property prices rose continuously over the past ten years except for years 1989 and
1991, it is generally held that housing accommodation is increasingly beyond the reach
of the population, in which the young working couples are most hardly hit.
It is,
therefore, important to look at the following fundamentals, which are identified in the
92
literature review and the empirical literature in Chapters 2 and 3, in order to have a
thorough understanding of the flamboyancy of the housing market and the changes in
housing price.
4.3.1
Housing Supply
Income and Savings
Vacancy and Take-Up
Affordability
Cost of Credit
Housing Supply
Demand for housing is primarily a function of demographic growth and the formation of
new household, thereby creating a need for housing. Given comparable increase in the
household income, the housing need will become an effective housing demand. As shown
in Tables 8 and 9(a), which show the housing supply and demand situation by comparing
the population housing stock and the numbers of household, it reveals a shortfall of
supply in the 1980s and early 1990s. By 1994, however, statistics shows that the supply
of housing stock can barely keep pace with the growth in the numbers of household.
However, it has been predicted by the Rating and Valuation Department that in 1996,
mass/medium residential supply will be 26,070, which is substantially lower than the
93
Table 8
Population and Household Formation Trends

Year
Population ('000)
No. of Households
('000)
Av. Size of
Households
1961
3,130
687
4.4
1966
3,709
757
4.7
1971
3,937
857
4.5
1976
4,403
999
4.2
1981
5.110
1,245
3.9
1986
5,495
1,453
3.7
1991
5,674
1,582
3.4
1992
5,812"
1,640"
3.4"
1993
5,919"
1,681"
3.5"
1994
6.061"
1,736*
3.4*
1996"
6,296
1,908"
3.3
Source: HK Annual Digest of Statistics, various issues & Hong Kong Social and Economic Trends 1995
Notes: # Data extracted from Hong Kong Social and Economic Trends 1995
* Projected figure
94
Table 9(a) Housing Demand and Supply

Year
1981
1986
1991
1994"
2001'
Population ("000)
5,510
5,495
5,674
6,061
6,362
Housing Size
(no. of persons)
3.9
3.7
3.4
3.4
2.95
No. of HHs ('000)
1,245
1,453
1,582
1,736
2,157
Total Private Housing

Stock
509,000
34,105
787,000
878,800
1,101,000
HOS/PSPS
11,113
69,287
123,743
182,400
318,821
Public Rental Estate
459.265
543,902
619,811
684,800
844,528
25,000
1,558
1,900
2,264
1.12
1.05
0.95
No. of flats
Temporary Housing
4,835
Total Housing Stock
('000).
Overall av. no. of HH.
in one flat
984
1.27
651
2.26
Source: HK Annual Digest of Statistics, various issues & Hong Kong Social and Economic Trends 1995
# Data extracted from HK Social & Economic Trends 1995
* Projected Figures
95
32,170 flats in 199417.
Taking into account the possible new families created from
shrinking household sizes, and new family formations from consistently high marriage
rates. Kleinwort Benson (1995) predicted that the take-up of residential flats would
rebound to 25,000 in 1996 from the estimated 21,000 in 199518.
In addition. Consumer Council (1996) compares the supply estimates published by the
Government based on developers' production plans and the Rating and Valuation
Department's estimates, and actual supply of private domestic units in 1980-1995, as
shown in Table 9(b). It is found that in 12 out of the 16 years to the end of 1995, actual
supply fell short of published estimates. Shortfalls in private housing production occurred
in rising as well as falling markets. The historical 16-year average of private residential
sales flats was about 29,000. However, below average supplies were found in 7 years i.e.
1980, 1982-1984, 1992-1993 and 1995. It is pointed out that the discrepancy between
estimated and actual supply ranged from +9% to -35%. This supply lag, coupled with
restrictions on the supply of housing units further down the line, may have contributed to
the rise in property prices until
mid-1994.
Income and Savings

The improved ability to purchase a residential property can be reflected by the increase
in personal savings as shown in Table 10. The growth in real wage and the per capita
GDP as shown in Tables 11 and 12 also underline the viability of the housing market and
Kleinwort Benson (1995), Hong Kong Property: After the Storm, reported in 23.8.1995, SCMP.
Kleinwort Benson (1995), in 23.8.95, SCMP.
96
Table 9(b) Actual and Estimated Number of Private Residential Units Produced in 1980-1995
Note:
Year
Actual Supply
(a)
Estimated Supply
(b)
Difference
(a)-(b)
% Difference
[(a)-(b)]/(a)
1980
24.490
28,370
-3,880
-15.8%
1981
33,475
33,880
-405
-1.2%
1982
23,140
27,310
-4,170
-18.0%
1983
21.620
24,060
-2,440
-11.3%
1984
22,270
20,225
2,045
+9.2%
1985
29,875
30,195
-320
-1.1%
1986
34,105
37,140
-3,035
-8.9%
1987
34.375
38,600
-4,225
12.3%
1988
34.470
37,700
-3,230
-9.4%
1989
36.485
37,655
-1,170
-3.2%
1990
29,400
27,415
1,985
+6.8%
1991
33.400
32,545
855
+2.6%
1992
26,220
33,510
-7,290
-27.8%
1993
27,670
37,326
-9,656
-34.9%
1994
34,170
33,361
809
+2.4%
1995
22,620
26,164
-3,544
-15.7%
1980-95
average
29,240
31,590
-2,350
-8.1%
Estimated data is compiled in respect of all known development and re-development sites in the territory
in accordance with information derived from Buildings Department returns, architects' and developers' plans
and returns. Rating and Valuation Department's estimates and/or site visits.
Source: Hong Kong Government Property Review, various issues (extracted from Consumer Council (1996), p.4-6).
97
Table 10
Average Personal Savings in Banks
Year
Total Deposits*
HK$ million
Mid-Year
Population
Av. Personal
Saving in '000
Rate of
Increase (%)
1982
232,765
5,264,550
44
1983
288,044
5,435,100
54
22.7
1984
354,965
5,397,900
66
22.2
1985
430,811
5,456,200
79
19.7
1986
550,651
5,524,600
100
26.6
1987
703,609
5,580,500
126
26
1988
845,520
5,627,600
150
19
1989
1,007,658
5,686,200
177
18
1990
1,231,271
5,704,500
216
22
1991
1,374,606
5,754,800
239
10.6
1992
1,503,100
5.811,500
259
8.37
1993
1,722,500
5,919,000
291
12.36
1994
1,941,700
6,061,400
320
9.97
Total
18.13
Source: HK Annual Digest of Statistics 1992 & 1995

* Including savings in HK$ and foreign currencies
98
Table 11
Year
Growth of Per Capita Gross Domestic Product (GDP) and Income

Per Capita GDP'
1984
75,005
Annual Growth Rate (%)
Wage Index
99.4
8.9
Consumer Price Index"
68.8'
83.3 2
1989
99,076
1.5
109.2
1990
102,121
3.1
115.3
102.8
1991
106.349
4.1
114.2
114.0
1992
111.907
5.2
114.5
125.1
1993
116,940
4.5
102.4
137.0
1994
120,341
2.9
103.1
150.7
Note:
* at constant (1990) market prices

A
Wage Indices by Industry Sector & Broad Occupational Group (HK Annual Digest of Statistics
1995)
- 1984-1992: March 1982 = 100
- 1993-1994: September 1992-100
# Hang Seng Consumer Price Index
1
1985 figure extracted from HK Annual Digest of Statistics 1995
:
1988 figure extracted from HK Annual Digest of Statistics 1995
Source: HK Annual Digest of Statistics 1995 & Hong Kong Social and Economic Trends 1995
99
Table 12
Median Income and Annual Income 1981-1992
Year
Note:
House Price ($)
% of
Increase
Median
Income ($)
% of
Increase
Annual
Income ($)
1981
416,000
...
3,345
...
40,140
1982
359.000
-13.7
3,694
10.43
44,328
1983
318.500
-11.3
4,194
13.5
50,328
1984
293.500
-7.8
4,508
7.6
54,096
1985
326.000
11.1
4,930
9.4
59,160
1986
371,500
14.9
5,400
9.5
64,932
1987
455.400
22.6
6,096
12.9
73,152
1988
544,500
19.6
6,892
13.1
82,704
1989
679.000
24.7
8,251
19.7
99,012
1990
772.500
13.8
9,335
13.1
112,020
1991
1.138,000
47.3
13,778
47.6
165,336
1992
1.593,000
39.98
13.259
-3.8
159,108
Average
14.65
13.91
Rita Lai (1993), p.23 (Figure D), with additional calculation on the rate of increase house price and
median income. (Table complied from Property Review, Richard Ellis Research & HK Annual Digest
of Digest of Statistics)
100
lend support to the rising aspiration of home ownership. Moreover, there is an in-flow
of foreign capital into the property market, notably from Japan in mid-1980s, from China
in late 1980s and more recently, from Southeast Asian property giants. Foreign capital
is injected into property market for investment purpose and for providing shelter to
expatriates working in Hong Kong. Both trends are growing as Hong Kong takes on an
ever-important role as an international financial centre and an Asian-Pacific base for trade
particular with China.
4.3.3

It should be pointed out that the increase in the numbers of households will only become
effective demand in housing only when a considerable
financial
reserve can be
ascertained. Therefore, the so-called 'sandwich class', who has been excluded from the
social welfare net for public housing but with good salary and career prospect, will have
higher propensity to take up the housing stock. As Table 13 shows, with the growth of
the economy and the rise of affluence of the people, the trend towards home ownership
will be more eminent. The growing number of property owners is shown in Table 14.
In 1995, the proportion of owner-occupier already accounted for 4 5 % as compared to the
tenanted households 19 .
1995 data is provided by the Census and Statistics Department, extracted from Consumer Council (1996),
p.1-1.
101
Table 13
Domestic Household bv Tenure of Accommodation

% of Household
Tenure of
Accommodation
1971
1976
1981
1986
1991
1994
Owner-occupier
18.1
23.2
27.9
35.1
42.6
45.0
Sole tenant
45.5
46.3
44
45.4
45.6
43.8
Main tenant
5.9
4.3
3.9
1.7
0.8
0.6
Sub-tenant
20.2
14.5
11.7
5.1
2.6
1.9
Co-tenant
4.1
4.7
5.6
5.9
3.9
Rent Free
6.2
3.5
2.5
2.2
1.1
1.4
Provided by Employer
3.5
4.4
4.6
3.3
3.4
Source: HK Annual Digest of Statistics, 1993 & 1995
102
Table 14
Growth of No. of Property Owners (Urban and N.T.)

Year
Total at end of year
Increase over previous year
1972-1973
222,649*
18.248*
1973-1974
241,940*
19,291*
1974-1975
255,789*
13,849'
1975-1976
285.461*
29,672'
1976-1977
302,110'
16,649'
1977-1978
1978-1979
346.618*
26,035*
1979-1980
366,428*
19,810'
1980-1981
388.438'
22,010'
1981-1982
410,121*
21,683*
1982-1983
427,635*
17,514*
1983-1984
450,069*
22,434'
1984-1985
473,660"
23,591'
1985-19-86
846,169
N/A
1986-1987
922,528
76,359
1987-1988
1,046,017
123,489
1988-1989
1,142,602
96,585
1989-1990
1,243,881
101,279
1990-1991
1,345,918
102,037
1991-1992
1,455,919
110,001
* No. of property owners in urban area only.

Figures for the N.T. from 1972-73 to 1984-85 are not available.
Source: Rita Lai (1993), P-16 (Table compiled from the Registrar General Annual Report, various issues)
103
4.3.4
It is also generally held that Hong Kong's property market is fuelled by speculative
activities.
Windfall gains from speculative activities at the good times have prompted
more people to join in the speculative activities pushing market values to new heights and
bridged them over through periods of consolidation. The result of speculative activities
is that market values rises more sharply during booms but are relatively less disturbed
after each wave of frantic increase resulting in a period of consolidation of the property
market. It is hard to meter the level of speculative activities or how much of the increase
level of values has been attributable to such activities since the term 'speculation' would
require certain subjective definition and a degree of value judgement. Figure 9, however,
demonstrates to a certain extent the effect of speculative activities.
It shows that the
rental index is less fluctuating as compared to the price index. It is attributable to the fact
that the rental market is less subject to speculative activities than the sales market.
According to Rita Lai (1993), the performance in the rental market should give a better
picture as to the true supply and demand situation20. Her study shows that had the price
index moved at the same pace as the rental index, the present residential sale price should
be reduced by about one-third 21 . It should, however, be noted that speculation is not the
only factor behind the making of the sales and rental markets.
Given the growing
aspiration and financial ability for home ownership in the absence of speculation, it is
expected that the price index would move ahead of the rental index 22 .
20
21
22
Rita Lai (1993), p.20.

Rita Lai (1993), p.20.
Rita Lai (1993), p.20.
104
4.3.5
Vacancy and Take-Up

The degree of speculation can also be illustrated by the vacancy and take-ups of private
residential units, as shown in Table 15, for the period 1980-1995. It indicates there is a
higher rate of take-ups and price levels in the years of 1985-88 than in the years 1982-85,
which coincides with the period of confidence crisis in during the Sino-British talks over
the future of Hong Kong. Similarly, the years 1994-5 indicates a lower take-up rate can
be explained by the prevailing market conditions, viz. government's intervention since
1991, the speculative activities in the housing market as well as the changes in the best
lending rate. Though the lowered lending rates and more favourable mortgage repayment
terms have allowed more people to enter the market, it has also fuelled speculative
activities in the property market.
4.3.6
Affordabilitv
It has been suggested that housing prices have been boosted by speculation to an
exceptional level, so that the affordability of the people is deteriorating and their growing
aspiration of home-owning has been dampened. It has become increasingly difficult for
end-users, especially first-time owners, to purchase residential flats.
The issue of
affordability, therefore, is the centre of the question. Home ownership is increasingly

confined to a more mature population with relatively high incomes or those with
substantial savings to become home mortgagors 23 . The affordability ratio is defined as
the monthly mortgage payment on an average flat divided by median household monthly
25
Hand Seng Economic Monthly, May 1992.

105
Table I 5
Take Up and Vacancy Trends in Private Residential Buildings

1
Year
New Supply of
Residential
Units
No. of Vacant
Units
% of Vacancy
over total stock
Changes in No.
of Vacant Units
Additional
take up (1-4)
1980
24,490
16,685
3.5
-11,110
35,600
1981
33,475
29,655
5.9
12,970
20,505
1982
23,140
31,180
1,525
21,615
1983
21,620
24,430
4.5
-6,750
28,370
1984
22,270
22,435
-1,995
24,265
1985
29,875
22,090
3.7
-345
30,220
1986
34.105
24,665
3.9
2,575
31,530
1987
34.375
22,330
3.4
-2,335
36,710
1988
34.470
20,225
2.9
-2,105
36,575
1989
36,485
30,295
4.2
10,070
26,415
1990
29,400
26,150
3.5
-4,145
33,545
1991
33,380
33,005
4.2
6,855
26,525
1992
26 222
34,069
4.2
1,064
25,158
27,673
32,247
3.9
-1,822
29,495
1994
34,173
40,712
4.7
8,465
25,708
1995
22,621
36,202
4.1
-4,510
27,131
Average
28,712
1993
Source: Property Review, various issues
106
income. It has the advantage of reflecting those factors such as changes in the mortgage
rates, prevalent downpayment requirement and payback period in the ratio and therefore
is a more reliable indicator than the price-income ratio.
According to Consumer Council (1996), since the mid-1980s, residential property prices
have generally grown faster than income. From 1985 to 1995, the affordability ratio,
based on mortgage repayments against average household income, averaged 58% and has
been much higher in the last five years. The 1995 figure shows that the typical monthly
repayment 24 for a small-sized flat (40 m 2 ) in an urban area represented 7 3 % of average
household income. The ratio has slightly improved in the first quarter of 1996, but is still
high at 64%. The changes in affordability in the period 1980-1995 is shown in Figure
11.
This compares quite starkly to the 40-50% ratio of size of monthly mortgage
repayment to household income considered by banks to be the maximum affordable. In

Europe and North America, the mortgage burden seldom exceeds 35% of average
household income 25 .
As a result of the discrepancy between house price and income
levels in Hong Kong, many potential buyers cannot afford to purchase a home.
4.3.7
Cost of Credit
Mortgage and interest rates have much to do with the booms and busts of the property
cycle.
24
25
Property price will soar when mortgage and interest rates decline whereas the
based on a 30% downpayment and a repayment period of 20 years (figures obtained from the Financial
Services Branch). Extracted from Consumer Council (1996), p. 1-2.
Consumer Council (1996), p. 1-2.
107
108
Note: ' assume 70% mortgage ratio

Source: Economic Analysis Division, Financial Services Branch
Extracted from: Consumer Council (1996), Annex 2.
Figure 11 Affordability Ratio (1980-1995)
property market will dampen when mortgage and interest rates rise. It is understood that
interest rates play an important role in the movement of property prices. In Baring's
report (1995), it pointed out that in theory, for every 0.25 percentage point cut in
mortgage rates, property prices should rise by approximately two percentage ceteris
paribus- . The importance of mortgage rate in the housing market is reflected in the
early 1990s when major banks tighten their mortgage-lending policy owing to the
arbitrary 70% mortgage ceiling imposed by the Government in 1991. Property transaction
virtually came to a standstill when the banks further lowered the mortgage ceiling 27 in
subsequently years.
Recently residential mortgage lending has become more lenient
(Table 16 refers) and 'sweeteners' such as second top-up mortgage offered by not only
the banks but by the developers themselves, and various favoured lending policies are
accompanied by a rekindle of the property market, thereby pushing the property prices up
to the pre-1991 level when over-speculation of the market was not evident.
4.3.8

According to the literature review, land prices and house prices are strongly related. The
inductive method suggests that 'house price determine land prices', whereas in the long
run, 'house prices are determined by costs of production and land prices are an important
element'.
From the empirical literature, it is evident that both land value and housing
price are high in Hong Kong, and land cost is the biggest single cost element of housing
26
27
23.8.1995, SCMP.
For example, in July 1993, Hong Kong Bank lowered the ceiling from 70% to 60% for properties valued
at over HKS5 million. In late January 1994, Hong Kong Bank and Hang Seng Bank further lowered the
ceiling to 50% for properties valued at over HK$5 million and over HK$7 million respectively.
109
Table 16
Mortgage Lending Policy of Major Banks (as at 5.5.96)
Bank
Standard
rate
Discounted Rate
Conditions
Maximum length
of mortgage'
ABN-Amro
10.25%
60% mortgage: 9.0%

70% mortgage: 9.0% for first year
9.25% thereafter
Good for the month of May

End-user must be permanent
HK resident
25 years
Standard
Chartered
10.25%
9.25%
For priority banking

customers (HK$500,000
deposits)
25 years
Bank of
East Asia
10.25%
9.25% or 9.0%
Lower rates for civil servants

and professionals
30 years
Hongkong
Bank
10.25%
9.75% to 9.5%
Lower rates for government

civil servants and
professionals
25 years
Wing Hang
Bank
10.25%
9.25% to 9.0%
1.25% discount for civil

servants with housing
allowance, 9.25% for the rest
30 years
Liu Chong
Hing Bank
10.25%
9.5%
9.25% for properties under $5 mil
9.5% for civil servants and

professionals
20 years
* depends on age of property

Source: 5.5.96. SCMP.
110
price. It is considered that the extremely high level of land price is attributable to the
peculiar land supply system in Hong Kong and that Government land sales at public
auction will be the major determinant of the land and housing price. As shown in Figure
6 in Ch.3, the land price trends broadly follow the house price trends. The relationship
therefore seems to lend support to the fact that, in Hong Kong, house prices
determine
land prices.
As regards house prices, according to Consumer Council (1996), developers have direct
control over prices in the primary market for new units. Although these comprised only
3-5% of the total housing stock between 1985 and 1994, sales of new housing units
accounted for 30-40% of the total transaction volume 28 . The relationship between prices
in the primary and secondary markets was interdependent. Developers appear to have set
prices with reference to similar property in the location (if such property existed), physical
attributes of the new development, and, to a lesser extent, pricing by competitors. Pricing
of the new units often tended to set a benchmark for similar, second-hand units in the
same locality. The influence of the prices of new units on similar units in the secondhand market was likely to be greater in a rising market. Although prices for first and
second hand units were interdependent, because of the dispersed ownership of the latter,
and preference for new developments, developers were able to exert a strong influence
despite their small market share29. It is therefore considered that land price is a main
determinant of housing price whereas housing price, which reflected the latest market
Based on HKPU research on assignments of private housing units in Land Registry. Extracted from
Consumer Council, p.5-7.
Ill
demand and conditions, will set the benchmark for the price of land.
Similarly, the
pricing of the new and existing housing units is mutually dependant, and is constantly
adjusting to accommodate the fluctuating market conditions and demand.
4.4
4.4.1

From the point of view of many developing countries, Hong Kong's recent 'housing
crisis' is actually a rich man 's problem.
The crux of the issue is not a question of many
people without roofs over their heads as in the 1950s and early 1960s, but a question of
tenure: the quest for home ownership. In the 1950s and early 1960s, a huge influx of
refugees fleeing political and economic upheavals in China created a situation of massive
hillside squattering.
Recurrent fires created an immense dislodgement problem.
Government responded to the 1953 Christmas fire in Shek Kip Mei by commencing a
low-cost public rental housing programme. The original government perception of the
issue was not out of philanthropy but land economics:
Squatters
are not resettled simple because they need, or
because they deserve, hygienic and fireproof
necessarily
homes; they are resettled
because the community can no longer afford to carry the fire risk, health
risk and threat to public order and public prestige which the squatter areas
30
Lawrence Lai (1994), The Other Hong Kong Report 1994.

112
present, and because the community needs the land on which they are in
illegal occupation.
And the land is needed
urgently.^
With the launching of the 10-year housing programme and, in association, the new town
development programme, the number and percentage of living quarters accommodating
more than one household has fallen from 26% in 1976 to only 2.7% in 1991.
Such
notable achievement was the result of the high rate of production of both the public and
private sectors.
An empirical study reveals that the productivity of the construction
industry has been on a par with the overall productivity of the economy 32 .
With the
growth of the economy and the affluence of the people, Hopkin's prediction about middle
class home ownership demand has stood the test of time".
Although Hong Kong's
population has really grown tremendously since the 1967 riot, its per capita income has
grown even faster while household size has gradually fallen. The nature of the current
heavily politicized housing price issue is not one of inadequate shelter but of middle class
home ownership 34 . As shown in Table 13, the home-ownership ratio has risen steadily
from 18% in 1971 to 4 5 % in 1994, while the rental ratio has fallen correspondingly, it
reflects major income growth. Indeed, property had become in the 1980s a major store
of value for Hong Kong. In April 1989, the total value of property was HK$ 1,241,760
31
32
33
"
Annual Report of Department of Resettlement, 1954, p.46, see Lawrence Lai (1994), p. 191.
Lawrence Lai (1994), p. 191.
Keith Hopkins, "Public Housing Policy in Hong Kong", inaugural lecture from the Chair of Sociology,
University of Hong Kong Supplement to the Gazette 46, No.5 (Hong Kong: University of Hong Kong,
1969), p.l 1, see Lawrence Lai (1994), p. 196.
Lawrence Lai (1994), p. 196.
113
million 3s and by April 1993, it had risen to HK$2,834,478 million. In a context where
half the population has been accommodated in public sector housing, the current housing
politics is in fact a matter of home ownership promotion against a background of property
prices upsurge and democratization 36 .
4.4.2
Affordabilitv
The thrust behind the government intervention into the private housing market was to
battle an affordability crisis created by soaring property prices. The report of the Task
Force on Land Supply and Property Prices states that the problem of high property prices
is the frustration they cause for households who aspire to improve their living conditions.
Figures 10 and 11, however, evidently show that housing accommodation today, although
still extremely expensive compared to other major cities in the world, is no less affordable
than ever.
Between 1973 and 1990, real housing price, real housing rent and real per
capita income increased, on average, at roughly the same rate (Figure 8 and Table 11
refer). Since the beginning of the recent property market boom in 1985, the rise in per
capita income outpaced that in rent. Whereas rental index multiplied less than 3 times
in the period between 1985 and 1994, the median household income multiplied by 3.6
times, rising from $4,050 to $14,575 37 . Clearly, private housing accommodation became
more affordable in 1994 than in 1985 to average households.
The cost of housing
Anthony Walker, Chau Kwong-wing, and Lawrence Wai-chung Lai, Hong Kong: Property, Construction
and Economy (1st & 2nd editions; London: Royal Institution of Chartered Surveyors, 1990), see Lawrence
Lai (1994), p. 197.
Lawrence Lai (1994), p.198.
Yuming Fu (1995), p.269.
114
accommodation for home owners was even cheaper than that for renters. The nominal
mortgage payment based on the market value of housing rose faster than median
household income between 1985 and 1994, which was taken as evidence that housing
became less affordable 38 .
The nature of the problem with property price inflation during the recent property market
boom, therefore, is very different from that in the late 1970s.
In the late 1970s the
shortage of housing accommodation, as indicated by an average residential vacancy rate

of 2.8%, was behind the property price rise; in the early 1990s, the average vacancy rate
was 4.3%, which actually reflecting a balance in demand for and supply of housing
accommodation 39 .
The problem with rising property prices in the early decade of the
90s is not the deterioration in affordability of housing, but a problem of housing tenure
choice. The real cost of owning a home was actually made cheaper in recent years by
high inflation, the reduction in interest rate by the banks as well as Government's antispeculation measures; unfortunately, many families were unable to take the advantage of
the relatively cheap housing accommodation through owning due to the
constraints they face under the current mortgage lending
liquidity
practice.
High inflation in property prices created a liquidity problem for first-time home buyers.
The problem was caused by the mortgage lending policy that restricts banks to lend up
to certain percentage of the market value of the property. The maximum loan-to-value
Yuming Fu (1995), p.269.

Yuming Fu (1995), p.269.
115
ratio for small to medium flats offered by the authorized lending institutions in Hong
Kong dropped from 88.5% in 1990 to 69.5% in 1994. Home buyers had to finance the
rest with their personal savings. With fast rising property prices, personal savings can
barely catch up with rising downpayment requirement, making home acquisition
increasingly more difficult.
As can be shown in Table 12, though by a narrow margin,
the rate of increase of the median income lags behind the rate of increase of the house
price. The existing home owners, however, saw their home equity rapidly increasing with
property price inflation and found it easier to finance larger homes.
As housing
investment becomes very profitable, the problem is therefore how to finance housing
investment with limited personal savings.
According to Fu (1995), with the recent
relaxation of mortgage lending policy of the banks and financial institutions, it seems that
the home equity problem and housing affordability will be able to improve the prospect
for home ownership.
4.4.3

Estate development is an important element of the economy of Hong Kong. It can be
shown in Table 17 that the total market capitalization of the top 10 listed property
companies amount to 50% of the total stock market, which is indeed a significant increase
from the 20% capitalization in 1993. In view of their prominent position in the economy,
the developers have been co-opted by the Government for long (especially) the British
firms which are often represented at the Executive and Legislative Councils. The Real
Estate Developers' Association is also represented on the Land and Building Advisory
116
fable 17
Top Ten Listed Property Companies and their Market Capitalization
Companies
12/1979
Mkt Cap.
$ billion
HK Land Ltd
7.3
New World Dev

Co Ltd
5/1993
Mkt Cap.
$ billion
Compaines
5/1996
Mkt Cap.
$ billion
7/1983
Mkt Cap.
$ billion
Companies
5/1988
Mkt Cap.
$ billion
Companies
HK Land Ltd
9.2
HK Land Ltd
18.9
Sun Hung Kai
75.8
SHK Properties
185.79
3.2
Swire Prop
Ltd
4.0
Cheung Kong
(llldgs) Ltd
16.0
Cheung Kong
62.4
Hutchison
174.64
SHK Prop Ltd
2.8
Sinn 1 and
3.4
NWD Co Ltd
12.1
UK Land Ltd
43.8
Cheung Kong
126.37
Swire Prop Ltd
1.9
SHK Prop
Ltd
3.4
Wharl (llldgs)
Ltd
118
Henderson Land
Dev Co Ltd
37.8
Henderson Land
91.26
Hopewell
1.2
NWD Co Ltd
3.1
Kai Wang
International
8.9
New World
35.4
Citic Pacific
65.06
Hang Lung Dev

Co Ltd
1.1
International
City
2.2
Henderson Land
8.1
Hopewell
22.8
Wharf (Holdings)
63.54
Tai Cheong
1.0
Henderson
Land
1.8
New City
6.9
Amoy Prop Ltd
18.8
New World Dev
60.23
Hutchison
0.8
Hysan Dev
Co Ltd
1.6
Hopewell
5.4
Hang Lung Dev

Ltd
16.1
Wheelock and Co
30.74
Mai Hong
Enterprises Ltd
0.9
Hopewell
1.2
Hang Lung Dev

Co Ltd
6.0
Hysan Dev Co
Ltd
15.7
Hysan Dev
24.94
Amoy
23.34
Total
Companies
22.95
33.4
109.78
374.00
Total as % of
construction &
development
capitalization
value
72.62
71.00
68.96
48.20
78.53*
Total as % of
overall stock
market
capitalization
20.34
18.78
20.74
20.38
50'
Source: For 1979-1993: HK Economic Journal, various issues (1979-1993) [extractedfrom Rita Siu-Fun LAI 1993)/
For 1996: 25.5.1996 & 26.5.1996, South China Morning Post
Note:
# Data calculated from the top 100 listed companies as at 26.5.1996, SCMP
* Data extracted from 25.5.1996, SCMP
845.91
Committee and its sub-committee are consulted by the Government on policy issues in
connection with land supply and development 40 .
Recently, Consumer Council (1996) points out that Hong Kong's residential market has
become concentrated among several big developers. According to the report, between
1991 and 1994, 70% of all new private housing was supplied by seven developers. In a
finer breakdown, it is found that 50% was being offered by three of those developers and
one company consistently supplied a quarter of all the new units. It is believed that the
three big developers are Sun Hung Kai Properties, Henderson Land Development and
Cheung Kong (Holdings). In 1994-95, the three big property giants who dominated in
the supply of housing units are shown as follows:
No. of units supplied
c _
1994
1995
Cheung Kong
1,612
5,761
Sun Hung Kai Properties
1,504
2,045
Henderson Land
1,428
1,948
Total
4,544
9,754
Source: 14.5.1996, Hong Kong Economic Times
The developers are said to have avoided clashes with some sales techniques that would
be anti-competitive, including alternating sales of properties on competing sites and
Rita Lai (1993).

118
releasing completed flats in small batches, as well as restricting supply by retaining units
for internal sales and deferring public sales.
It is noted that no new firms with the
potential to become big players entered the market after Sino Land in 1981. It is said that
smaller developers and foreign companies who might have contested the market were
deterred by restricted tendering procedures for some sites, large land lot size and tightly
controlled land supply.
So far no concrete evidence of the big developers forming a cartel in the housing market
has been shown, but the market is no doubt concentrated and dominated by the big
developers.
It should, however, be pointed out that Government also plays a role in
encouraging the big developers rather than the small one to come to the scene in land
development because the restricted tendering procedures for some sites, large land lot size
and tightly controlled land supply will be prohibitive to the smaller developers with only
limited capital.
The large scale projects encouraged by the Government, such as the
massive commercial/ residential/ office development along the stations of the MTR and
the Airport Railway would require substantial capital investment, and even the big
developers has teamed up as a consortium to bid for these sites, therefore, the current
tendering procedure will keep small developers at bay.
Though it is noted that the
property market is highly concentrated, and that the sales techniques help maintain the
housing price at a high level, it can be seen as only one of rational business operation.
As it is pointed out by Tse (1994), as long as the land auction is open to competition and
that the Government gets its share in the form of a land premium, which can then be
119
invested in various social welfare facilities, there is no real worry of an over-manipulation

of the housing market by the big developers.
4.5
Conclusion
As shown in this chapter, there is no doubt that housing prices are ever on the rise and
that housing price is high in Hong Kong. The high housing price is dampening the home
ownership aspiration of the people since their affordability is deteriorating. High housing
price is in fact attributable to the 'supply lag* of private residential units to the market.
This "supply lag", in turn, is attributable to the high land price and the restrictive land
supply and the dominance of the private developers in the housing market. According to
the literature review and the empirical literature, land and housing prices are strongly
related and that restriction on land supply via the planning system will lead to a mismatch
between housing demand and supply, which will force up prices of both land and housing.
In the long run, however, land supply and the planning system allow adjustment on the
production factors which include land. Therefore, the high housing price may, in the long
run. be addressed by the land supply and planning system as well as an improvement in
the planning system itself. The literature, however, is inconclusive as to the monopoly
of the market and the role of speculation will increase prices by restricting supply.
Nonetheless, as it is able to exercise development control by means of the land disposal
system (via the lease conditions and building covenants) and the planning system (via the
conditions attached to the approval for planning application), there should be no grave
concern of over-manipulation of the housing market by the private developers and that
120
the provision of adequate and more affordable housing units can be achieved by the land
supply and the planning system. These issues will be discussed in the ensuing chapters.
Chapter 5
Existing Land Supply
Land Conversion
Land Administration
Land Sales Revenue
Chapter 5
This chapter examines land supply of Hong Kong and its conversion of land to housing as well
as the response to changing market demand. *A prompt response to market signals and efficient
land conversion process would help ensure an adequate future supply of property and, by making
the supply more predictable, stabilize property prices' 1 . The ensuing sections will examine (i)
the overall availability of land and constraints on new land, (ii) the efficiency of the land
conversion process - to see how quickly and fully land supply is translated into housing units on
the market, (iii) the land administration and disposal method, and (iv) land supply and housing
strategy.
The later part of this chapter will give a reappraisal of the land supply and land
administration policy in the light of the alleged 'High Land Price' Policy.
5.1
5.1.1
The Concept: From the Perspective of the Dissertation

According to the literature review, housing land supply is mostly about the 'number
game" as "there is only an direct relationship between land available in planning terms and
land actually available for development'.
DOE/HBF defined 'availability' in terms of
"planning permission, services, access and, in particular, willingness of vendors to sell".

In this connection, there is an inherent conflict between the planners' concept of need
which is based on population forecasts and the builders' concept of demand which is
based on price and profitability. As in the case of Hong Kong, the key constraint on the

122
availability of housing in Hong Kong is the very limited supply of land suitable for
housing as a result of hilly terrain and the territory's small area. New land mainly comes
from reclamation and the opening up of new areas. The pace at which new land can be
supplied is therefore subject to constraints such as transport, infrastructure capacity and
environmental concerns 2 . The Government, as the sole supplier of land, directly controls
the availability of land for property development through:
(i)
sale of new land,
(ii)
approval of development and re-development, and
(iii)
control through zoning and rezoning of land3.
It is considered that the land supply mechanism in Hong Kong also inherits the 'inherent
conflict' between the planners' estimate and concept o f ' n e e d ' and the builders' estimate
and concept of "demand". The sale of new land and approval of development and redevelopment (through the planning system) can be regarded as demand-led, which
according to the literature review, should be viewed in the short run, whereas the control
through zoning and rezoning of land are supply-led, and therefore, viewed in the long run.
According to the empirical literature of Hong Kong, it is reasonable to point out that the
(i) the eagerness of the developers to participate in land auction (and tender) to
accumulate their land reserve, (ii) their willingness to offer high bidding price, and (iii)
the bulk of planning applications (a total of 861, or an average of 52 planning applications
per year) in which the developers assemble their own housing land for development

123
instead of seeking the 'designated' land as shown on the statutory town plans, can be
regarded as the most significant manifestation of this inherent conflict. The end result,
according to the empirical literature, is the mismatch between housing demand and supply,
and in the view of Yuming Fu (1995), has pushed up house prices.
Despite this inherent conflict, it is considered that the mismatch is not insurmountable.
As shown in Appendix 1, new land to be supplied through land sales (i.e. auction) will
be made known to the public by means of gazette, its usage is reflected in the zonings on
the statutory town plans. It is therefore entirely at the discretion of any interested parties
to bid the land. Moreover, approval of development outside any designated zonings will
subsequently be reflected on the town plans, implying a zoning/rezoning of land to the
uses the developers applied for.
In this connection, through the sale of new land, the
granting of approval and the subsequent zoning and rezoning of land use, the planners'
concept of need should be able to meet the builders' concept of demand in the long run.
In this respect, it has enlightened
the research theme that an increase in the supply of
housing land by the planning system may help bring down the high prices of housing units
and improve the provision
5.1.2
of affordable housing for the home seekers of Hong
Kong.
Existing L a n d Supply
Table 18 shows Government land disposal figures for private/commercial and assisted
housing purposes over the period 1985/86 to 1996/97.
It is observed that the annual
residential land supply has varied from 40 to 80 hectares per year (except the low level
124
Table 18
Government Land Disposal Figures, 1985/86-1996/97

(unit: hectares)
Residential/Commercial
Year
Assisted Housing
High
Density
Low
Density'
1985.86
9.17
0.54
9.71
1986/87
16.20
1.00
17.20
6.00
1987/88
20.65
3.50
24.15
1.98
1988/89
21.34
Subtotal
HOS
Village
Housing
Subtotal
Total
SCH
PSPS
HKHS
2.90
2.90
12.61
11.26
3.00
20.26
37.46
10.52
/
/
6.97
2.00
19.49
43.64
23.32
13.17
3.81
2.70
3.00
22.68
46.00
1989/90
19.44
3.60
23.04
12.15
5.04
0.00
2.00
19.19
42.23
1990/91
16.00
3.00
19.00
11.08
7.58
0.60
2.00
21.26
40.26
1991/92
20.55
3.65
24.20
16.43
/
/
6.57
0.08
2.00
25.08
4928
1992/93
20.42
2.61
23.03
14.17
3.07
2.56
2.00
21.80
44.83
1993-94
18.38
18.38
16.09
4.80
1.57
3.17
2.00
27.63
46.01
199495
26.95
5.95
32.90
20.74
9.29
2.75
3.59
3.00
39.37
72.27
1995 96
37.70
5.49
43.19
18.59
3.10
13.62
1.69
3.00
40.00
83.19
6.08
44.51
26.62
1.70
10.49
0.83
3.00
42.64
87.15
199697
Note:
HOS
SCH
PSPS
HKHS
38.43
-
Home Ownership Scheme

.Sandwich Class Housing Scheme
Private Sector Participation Scheme
Hong Kong Housing Society
Source: Lands Department

Extracted from Consumer Council (1996), pA-2.
125
of land supply in 1985/86) 4 .
Consumer Council (1996) notes the Government's
continuing interest in revenue from land sales (in 1994/95, land sales accounted for 11%
of total government revenues). That creates an incentive for the Government to keep
residential land supply as close to assessments of demand as possible, and adjust its
carefully planned disposal programme if bids for land lot do not reach the reserve price 5 .
By controlling supply, the Government therefore can influence land prices, and continue
to obtain budgeted revenues from land sales.
An overview of the existing land availability in Hong Kong is reflected on the statutory
town plans, namely, the Outline Zoning Plans (for urban areas and new towns) and
Development Permission Area Plans (for rural New Territories), as shown in Tables 2 (a)(f) and Table 3 in Chapter 3. To date, the bulk of residential land bank is in Hong Kong
Island (17.18%), Kowloon (20.59%), North East New Territories (NENT) (20.98%) and
North West New Territories (NWNT) (25.58%), comprising residential land with varying
'R(A)' (the highest intensity of development) to 'R(D)' (lowest intensity of development).
As for the commercial use (including the 'Comprehensive Development Area' ('CDA').
commercial/residential ('C/R') and pure commercial ('C') uses); it is mainly concentrated
in the traditional metro area, with significant new supply (planned or committed) in the
New Territories, notably the NWNT and SWNT where the new airport will be located.
4
s

For example, in 1994, one residential land site (YLTL No. 462) with a site area of 8,400 nr (about 7% of
the total disposal programme for the year) was withdrawn from the land auction when the land lot failed
to reach the reserve price. The lot was re-auctioned at a later date. (Consumer Council (1996). p.4-3).
126
However, this existing land supply is, by and large, 'number game' since it is better
regard as the planned land use allocation in the long run. Land uses on the town plans,
apart from the committed developments, only present an overall picture of broad land use
for an area in the long run because their zoning(s) are either the reflection of (a) the
existing use, (b) government's planning intention for the area; (c) applications being
approved by the Government; or (d) simply vacant land pending proper site servicing or
provision of basic infrastructure.
According to the literature review, effective land
availability actually stems from 'planning permission, services, access and, in particular,
willingness
of vendors to selV.
In order to have an in-depth understanding of the
volatility of both the housing market and housing price, and ultimately, their implication
for urban planning, the ensuing sections will examine the following aspects (i) the land
conversion process, (ii) the land administration and land disposal system, and (iii) land
supply and housing strategy in Hong Kong.
5.2
Land Conversion
According to Consumer Council (1996), the time taken for land formation and the land
conversion process poses further constraints to land supply. The turn-around time for new
land to be converted into housing units is almost 3-4 years for the private market and
currently 7 years (including site formation work) for public housing units. Hence housing
supply cannot be immediately increased by increasing the land supply should there be a
sudden upsurge in demand (it has been stressing throughout the subject study that the
effect should be taken from a long term perspective).
127
For complicated projects, the
process can, at times, take up to ten years 6 .
Moreover, land conversion should also be examined in the light of the development
control mechanism. Some developers point out that Government's extensive development
control mechanism imposed significant costs, and created uncertainty 7 . It is noted that
the average approval time is a minimum of 3 months for new developments, and longer
for lease modification and land exchange cases. The 3-month average does not include
the processing of amendments which may considerably lengthen the wait. In the case of
lease modifications (which apply to most redeveloped sites) and land exchanges, the
average time limits varied between 259 days for a straightforward modification lease to
808 days for a more complicated case in 19958.
In addition, the change in Hong Kong's economic base from manufacturing to service
industries and the relocation of many Hong Kong-owned factories to southern China,
created considerable scope for building new housing projects on redeveloped land.
Although redeveloped land accounted for approximately 2/3 of new private housing since
19909, Consumer Council (1996) points out that its full potential had not been realized
with a considerable number of industrial buildings or sites lying empty in Kwun Tong and
other areas. In this aspect, land conversion is constrained by the obstacles such as zoning
restrictions, lack of infrastructure, environmental improvements and land resumption costs
Consumer Council (1996), p.10.

128
in optimizing the most efficient and economic use of these resources.
The implication is two-fold: (i) from a market point of view, a protracted period for
approval would deter market entry, particularly for small developers who often cannot
afford the time, effort and money involved in completing the lengthy approval
procedures 10 . Therefore, it will further reinforces market concentration and consolidates
the influence of the several key players in the housing market and (ii) from a planning
and supply point of view, the time-consuming land conversion will cause the quantity of
housing units further down the line and therefore, further pushes up the price of the
already scarce housing stocks currently available in the market.
5.3
Land Administration
Land in most cities of the world are freehold land where land belongs to the private
owner forever. Hong Kong, however, is one of the few cities in the world where all the
land are owned by the government and leased to private owners for a certain period of
time. The leasehold system has been used since Hong Kong becomes a British Colony
in 1842. The land administration policies will be examined in the following manner and
to examine whether the claim of a 'high land price' is substantiated.
10
Leasehold system
Land disposal methods

129
5.3.1
Land policies towards the housing sector
Leasehold System
As soon as the British occupied Hong Kong, the first sales of land were already launched
in the same year. Thirty-three marine lots were put up for sales at auction on 14 June
1841". After the ratification of the Nanking Treaty in 1843, the British sent instructions
to the administrator in Hong Kong to ' abstain from alienating any land for any time of
greater
length than might be necessary
substantial buildings'.
to induce and enable the tenant
to erect
This laid down the fundamental philosophy in the Government's
design of the land disposal system: firstly, to encourage development by the granting of
sufficiently long lease terms and secondly, to preserve the Government's right to the land
in the longer term.
Private land developments are encouraged to foster growth and prosperity of the Colony.
But the Government's long-term interest is protected and promoted by the fact that
buildings on land will revert back to the landlord, i.e., the Government, at the expiry of
lease according to the British laws of property. This explained the origin of the leasehold
system in Hong Kong in the first instance. When the New Territories were leased from
China, the leasehold system was legitimized because this was the only lawful mode of
disposal for a term longer than what she possesses in the first place. This system of land
B.J. Hadland, "Land Policies in Hong Kong", see Wong L.S.K. (1978 ed.), Housing in Hong Kong: A
Multi-disciplinary Study, p.72.
Hadland (1978), p.74.
130
alienation
with a lease document
Government
administration
governing
the rights and obligations
between
and land lessees has played an important part in the Government's

and development
control
the
land
functions^.
The following basic principle of land sales in Hong Kong were thus established:
all land belongs to the Crown and is leased for a fixed number of years
public auction is the normal method of sale
a minimum expenditure on building is specified
Government will re-enter if conditions are not fulfilled
In the following year of 1844, 101 marine, town, suburban and country lots totalling 10
ha were auctioned by bids of the annual rent' 4 . The speed at which land was sold off no
sooner the Colony was taken over was amazing and went some way to suggest the early
colonial administration making rapid money out of land.
Terms of Lease
The lease is an official legal document between the lessee and the lessor who is the Hong
Kong Government. Unlike most freehold system which is a contract between two private
parties, it is a contract between a private party and the Government in Hong Kong. Early
leases (usually unrestricted other than for offensive trades) contained very few lease terms
other than the time period and renewability of the lease.
Rita Lai (1993), p.31.

Hadland (1978), p.72.
131
After World War II, many
conditions are added to the terms of the lease in order to exert greater development
control and to give a clearer idea of the development potential of the land at land sales.
Time Period, Renewal and Payment

In the early days, leases of land were granted for different lengths of term varying from
75 years (renewable or non-renewable) to 99 years and even 999 years. A number of the
most valuable sites in the city centre had been granted for 999 years and most of them
to British companies before the Government abandoned 999-year leases in favour of
shorter term leases in 1898.
standardized.
From 1875 onwards, the practice had become more
Leases of land on the Hong Kong Island and Kowloon Peninsula were
granted for 75-year terms, with the right of renewal for a further 75 years at a re-assessed
rent while those in the New Territories were granted for 75-year term from 1 July 1898
renewable for 24 years less the last three days.
The renewal of leases provided an
opportunity for the Government to regain equity in the land because a premium or reassessed Crown Rent would be levied if the lease was renewed. When the leases were
not renewed for certain reasons, the Government saved itself money by not having to
compensate the landowners and tenants for early termination of leases.
Lease Conditions
Contemporary leases sold at auction include a variety of restrictions or lease conditions.
To promote the 'optimum use of land as well as to control the development in order that
the environment is not adversely affected', lease conditions often contain restrictions that
132
specify the site converge, plot ratio, building height, and minimum floor area to the
constructed.
Lease conditions have become increasingly complex in recent years as
planners have incorporated more development controls to mitigate the apparent willingness
of private developers to disregard the public interest. Leases, then, increasingly include
development controls common in the development and zoning plans of many Western
countries' 5 .
Building Covenant
To prevent speculative hoarding of land, Government leases since the 1950s contain a
"building covenant' clause which requires the spending of a specified amount of money
on the development or the completion of a certain gross floor area within a specified
period of time. Failing which, the Government has a right to re-enter the lot but usually,
a penal premium is taken to modify the period for compliance with this covenant.
recent example can be shown in the case of the development of Nina Tower in Tsuen
Wan. It is understood that subsequent to the grant by the Government, construction works
for the giant office tower had not been commenced, which is a breach of the building
covenant specified in the relevant lease, and since no consent for extension of the building
covenant has been obtained, therefore, the Government is considering of re-entering the
land, thereby terminating the lease16.
Staley (1994), p.98.

25.3.96, Tin Tin Daily.
133
In this connection, the leasehold system has constrained the development of a parcel of
land in terms of the way, intensity and timing of its development on the part of the
developers but may help ensure the implementation of the project and the supply of
housing units to the market.
5.3.2

Another restricting factor on the availability of new land, since 1984, has been the 50
hectares annual limit for land grants and leases (exclude land to be granted to the Hong
Kong Housing Authority for public rental housing) tied to Annex III of the Sino-British
Joint Declaration. The Land Commission has since set up overlooking all aspects of the
land disposal programme including land allocation, development intensity and timing 17
prior to the return of sovereignty.
Premium obtained from land transactions is, after
reduction of the average cost of land production, shared equally between the Hong Kong
Government and the future Hong Kong SAR Government 18 .
It is also noted that by
virtue of the New Territories Leases (Extension) Ordinance, which was enacted pursuant
to the Sino-British Joint Declaration, all leases other than short term tenancies and leases
for special purposes expiring before 30 June 1997 are automatically extended, at nil
premium but a revised annual rent of 3 % of the rateable value of the lot, to expire on 30
June 2047.
17
18

Hong Kong 1988.
134
Despite the quota, owing to the general outcry against the significant property price rise,
the Land Commission has agreed to release more land for the residential development,
including the public rental and home-ownership flats, and for private residential housing.
As shown in Table 19, the annual release of land by the Land Commission since 1987
actually exceeds the 50 ha limit and since the year 1993/94 the amount of land assigned
for private residential and commercial development has increased significantly.
On the other hand, the Land Sales Programme should be put to the Land Commission for
approval annually because of the insufficient time to process two programmes a year.
This is considered as a degree of inflexibility as compared to the situation before 1985
when auction and tender sales were approved by the then Land Supply Sub-Committee
of the Land and Building Advisory Committee (LBAC) of the Executive Council, which
will be meeting twice in a year19.
In other words, the Government, for good or bad,
cannot make ad-hoc changes to the land sales programme so as to keep apace with the
latest market situation. Supply of land by sale therefore may not be responsive enough
to the volatile market conditions and may be one of the contributing factors to the high
housing price of Hong Kong.
5.3.3
Land Disposal
The Lands Administration Office of the Buildings and Lands Department co-ordinates all
aspects of land administration throughout the Territory. The land policy is to optimize
Rita Lai (1993), p.70.

135
Table 19 Land Disposal Programme of the Sino-British Land Commission (ha)

Land Use/Year
87/88
Commercial/Residential
88/89
89/90
90/91
91/92
"22
"28.04
"24
"22
Industrial
Public Housing'
Public Utility/ Education/Welfare/
Religion/Recreation/ Others
Special Uses
Total
#
*
A
74.1
92/93
93/94
94/95'
95/96
96/97
23.00
18.38
32.90
43.19
44.51
4.96
4.99
5.63
19.20
2.03
22
19.19
21.26
19
21.80
27.63
39.37
40
42.64
19
22.11
17.89
17
16.79
14.70
17.67
16.23
16.31
31.5
8.92
65.12
23
92.75
62.10
1,285.16
31.59
47.52
159.30
127.83
1,380.73
132.93
153.01
94.51
78.26
128.27
81.0
Figures for 'Commercial/Residential' were combined with 'Industrial'

includes the supplementary land disposal of 1,263.46 ha
includes HOS/PSPS/HKHS/SCHS Flats & Village Type Housing
subsequently an supplementary land grant of 60 ha for the Hong Kong University of Science and Technology was included, making a total land disposal
of the year of 154.5 ha
The soaring housing prices in 1991 led to strong public outcry, in response, the Government requested the Land Commission for an additional land disposal
of 5.93 ha for residential use.
The figure did not include the 5 ha additional land grant for the year.
Source: H.C. Pang (1994), Property Surveying (Valuation) - Professional Knowledge of the Property Market, Kam Shek Publisher (for years 1987/88-1991/92)
15.5.96 Hong Kong Economic Times (for years 1992/93-1996/97)
136
the use of land within the framework

first priority
Government's
of land use zoning and development plans.
with regard to land supply is to make available sufficient

public housing programme,
The
land for the
for the Hong Kong Housing Authority's
public rental estates, and for the residential element of the authority's Home Ownership
Scheme. Land for the rental estates constructed by the Hong Kong Housing Society, a
non-profit-making body with aims similar to those of the Housing Authority, is provided
on concessionary terms. As almost all land in Hong Kong is held by the Government in
public trust, the private sector acquires land for development through public
public tender and private treaty grant.
auction,
Premium will be charged at market values for
auction and tender, whereas at nil or nominal premium for private treaty to non-profitmaking charitable institutions 20 .
Land Sales Programme

A land sales programme is issued at the beginning of each financial year and updated
regularly showing the details of public auctions and tenders which are normally held each
month. An example of the sales programme in 1995/96 and 1996/97 is shown in Table
20. Typically in any year between 20 to 25 hectares of land for residential, commercial
and industrial purposes are offered for sale either by public auction or tender. Moreover,
it is the sale of the land lease but not the land. Government will regain control of the
land (i) on lapse of the lease, (ii) when the lease is not renewed, or (iii) re-enter the land
to terminate the lease agreement should there be any in breach of the lease.
Hong Kong 1988.

137
Table 20
Government Land Sales Programme
1995/96 Sales Programme
1996/97 Sales Programme
Auc,ion
Auciir.n/l.ctler It I,-,,,!,-,
I.ol No
Location
Use
S I L 825
Sliau K c i Wan Main

Slreel Lasl
Commercial/
Residential
Area (so m)
1,296
Location
Use
Area 30, l a i Po
Residential
228,196
2,971
Area (sq it)
1 R I I - 117
Area 30, Tai I'o
Residential R3
26.310
Headland Slick 0
Residential
I f I I . 97
Area 37, l a i Po
Residential R3
1 5,301)
Mui Wo
( ommcrcial
9.556
K C T L 452
Shing Y i u Street
K w a i Chung
Industrial
6,580
Wan H o i Street
Hung Horn
Residential
79.675
R B L 1119
26 Mt. K c l l e l Road
1 he Peak
Residential R3
1,910
San Po Kong
Commercial/
Residential
2.336
W o Tik Street
Commercial/
Residential
Police station site

Electric Road
Commercial
12,260
Taoen Wan
I L 8870
A d j . 42 Slubhs Rd.
Residential R2
3,200
South Bay Road
Residential
19.052
KIL
Wan Hoi Slrcet

Hung Horn
Residential K l
6,800
Ma 1 m Road and
Commercial
45,263
44 Jardine's Cresent
Causeway Hay
Commercial/
Area 48, Tuen M u n
Residential
54.6X1
Chung I lau Slrcet
Residential
22.6'H
T W T L 377
11055
I L 8871
C W I 1 . 156
572
l a i Yuk Road
543
Residential
l l o n g Man Slreet
Commercial/
Chai Wan
Residential
1,400
I L 8872
llospilal Road Western
Residential R l
580
Siu Sai Wan
Residential
285,246
KIL
11084
Hung Horn Day

reclamation
Residential R l
7,720
Yuen 1 ong
Residential
73,367
KIL
11085
Hung Horn Bay
Commercial
7.254
Sham Iseng Reclamation
Residential
215,280
Shin W o Street
Commercial/
Residential
Area 11, S h a l i n
Commercial
reclamation
Cash Tender
I.ol N o
Location
Use
Silc C37
Tamar Basin
Commercial
Area 30A
Petrol Tilling station
Area (sq m)
3,480
810
29.281
T K O T L 50
Area 55
Tseung K w a n O
Privalc sector
participation scheme
T M T L 388
Area 16, Tucn M u n
OodowrVOffice
T M T L 395
Area 18, Tuen M u n
Private sector
IMTL
Area 16, Tuen M u n
Godown/Omce
Hung Horn Bay
Private sector
27,800
M o n g Kuk west
Private sector
K w a i Fuk Road
Container related use
389
11076
rcclamalion
KIL
11082
K C T L 455
[ oealion
Use
Cheung Slia Wan wholesale

market site
Market, container
handling, ind'olTice
Area 1 sq I'll
Cheung Yip Slreet &
Industrial/godown
69.966
loduslrial/gndown
30.139
941,850
1 am Chak Street
Tucn M u n
KIL
69.966
Cash Tender
I L 8822
I M T L 402
10,979
l u n g l a u Industrial Estate
386,428
1,300
Area 18, Tuen M u n
I'SPS
41,000
Area 16, Tucn M u n
Godown/officc
22.906
Aberdeen Praya Road
I'SPS
46.931
Area 16, Tuen M u n
Godown/oOlce
32.507
38,100
Container Port Road

K w a i Chung
Petrol filling station
16,953
16,800
Aldrieh Bay Reclamation
I'SPS
Aberdeen
I'SPS
Hammer Mil! Road
PS PS
1,760
250.801
K w a i Chung
S T T L 443
Tsung Tau Ha Road

Fo Tan
9,100
Industrial *
lorry park
Source: Soulh China Morning Posl - 23.5,95 & 22.5 96
138
A K u n g Ngarn
Indus trial'godown
24.111
Shouson H i l l Road
Commercial
21,528
Shn Tau K o k
Residential
12,379
Private Land Grant

Some examples of land grants by applications are shown in Table 21. It is evident that
some of the now notable developers had already built up their land banks in the early
years. According to Rita Lai (1993), other than in the New Territories where building
as well as agricultural land could be granted to private individuals by application, such
grants in the urban areas were invariably for non-residential use.
This explains
Government's policies to promote commercial and industrial development. In the later

years, however, there witnesses many of the former old dockyards, sugar refineries and
cement plant sites had been redeveloped into commercial/residential uses through lease
modifications and land exchanges with the Government. It was only until 1963 that an
official statement was released which underlined Government's land policy on the aspects
of the disposal methods, the year term of leases, and the Government's intention to
reclaim more land. The statement also re-affirmed that public auction as the approved
form of alienation.
Direct land grants are only made to charitable, non-profit-making
bodies, public utilities and statutory bodies at nominal or concessionary premium. In the
case of public utilities, such as the Land Development Corporation, the premium is
assessed on the basis of full market value because they can will obtained land in the
market as part of their operation. The fact that these public and non-profit making bodies
do not have to compete in the open market represents a form of privilege, and the present
system of direct land grants can be seen as fair and reasonable 2 ', therefore, there is no
concrete evidence of a 'high land price' policy in this aspect.
Rita Lai (1993), p.35.

139
Table 21 Examples of Early Land Grants by Application to Government

Year of Application
Site
Applicant
1882
IL 837, Quarry Bay Sugar Refinery
1888
QB1L Nos. 10, 11, 12 & 15

Tai Koo Terrance & Club Chambers etc
1889
QBIL No.3
1890
QBIL 1-3 Tai Koo Dock
"
1891
Crown land facing Wyndham Street
1892
RBL 33 race course
1893
IL 1332
1890
QBIL No. Manager's House
Tai Koo
1890
Crown land between ML 53 & 52 & Green

Island Cement Co
Ho Kun
1900
Slipways on QBM 12
1902
Yatch Club site
Royal HK Yatch Club
1904
Tramways
HK Wharf & Godown

Co.
1907
Star Ferry Pier
1917
Seabed opposite QBML 1
Butterfield & Swire Co.
1919
KML 28
HK & Whampoa Dock

Co. Ltd.
1922
Ice & Cold Storage Depot at Peak
1924
IL 3546 North Point
HK Tramways
1936
Ice Store KIL 3871
Dairy Farm
1936
IL 3566 & ML 104
HK & Shanghai Banking

Corporation
1939
SSIL 9-12, Fanling
HK Jockey Club
1939
NKIL 53, Ngau Tau Kok
1940
Land & at Lantau Island for grass growing &

stock raising
Tai Koo
"
Dairy Farm
HK Jockey Club
HK Tramway
Butterfield & Swire Co.
HK Tramways
Dairy Farm
Amoy Canning Corp.

Ltd.
Dairy Farm
Source: Extracted from Rita Lai (1993) (Table compiled from the Index of Pre-War C.S.O. Files)
140
Auctions
Land auction is the method of disposal to achieve the best price when the sale is
conducted in a competitive atmosphere. Government's basic policy is to sell leases to the
highest bidder at public auction. As shown in Appendix 1, the sale of residential sites by
auction for the period 1985/86-1995/96 reveals that significant land (a gross site area of
1,064,274 n r ) has been auctioned residential use for the past 10 years which has
generated significant revenue for the Government (a total of $62,239.28 million). The
practice of land sales by auction has been seen as a major manifestation of the
Government's 'high land price' policy. Such allegation, however, can be refuted for the
reasons as shown below:
(i)
The Government cannot decide to sell land at a particular level of value at

auctions because the final selling price will be largely in the hands of the
bidder.
(ii)
Although the Government retains a right to withdraw land from auction

sales at any point in time before the hammer is dropped, the auctioneers'
instructions are to withdraw a lot only if he considers that a sale has been
'ringed' or any other irregularity exists. Otherwise, he is to sell provided
the reserve price set internally by the Government prior to the auction is
reached 22 . It has been observed that the Government did sell land at the
Rita Lai (1993), p.36.

141
opening bid, as shown in Table 22. This indicates that the opening bid is
often the reserve price. If the Government only sells land at 'high' prices,
it should have set a high opening bid and reserve price and withdrew all
and that did not reach the reserve price.
As a matter of practice, the
opening bid is only set at a fraction of the assessed full market value of the
lot before the auction. This means that when the Government sells land
at the opening bid, it is accepting sales of land at below the market
value 23 .
It is noted that there were only rare occasions that the
Government withdrew lots from sale. Table 22 also shows that the time
with low sale prices coincided with a generally week market in the
property cycle (the 1990 trough after the crackdown in 1989). The result
shows how the residential market excelled over the industrial market. Sale
prices exceeded the opening bids by 25% to 97% even when the general
market situation was weak. This goes some way to prove that the market
dictates over prices rather than the Government setting prices to dictate
market
(iii)
values.
Lots for which there were bids had been withdrawn and re-sold later at
lower than the former bid prices. Had there been a deliberate 'high price'
set for the land, the lot should have been withdrawn even at the subsequent
21
24
Rita Lai (1993), p.36.

Rita Lai (1993), p.38.
142
Table 22 Government Land Auction Report

Date of Auction
Lot No.
Location
User
1. Sale Price ($)
II. Starting Price ($)
l/ll
23/1/90
HH1L 543
Man Lot Street, Hung Horn
Godown
200,000,000
200,000,000
1.00
23/1/90
YLTL 385
Wang Yip Street East, Yung

Tau Ind. Area, Yuen Long
Ind &/or
Godown
20,000,000
20,000,000
1.00
23/1/90
DD 216,783
Chuk Yeung Road, Sha Ha, Sai

Rung
Private
Residential
8,000,000
5,000,000
1.60
23/1/90
STTL 328
On Muk Street, Area 11,

Sha Tin
Godown
80,000,000
80,000,000
1.00
23/10/90
DD 229, 236
Clear Water Bay Road,

Ah Kung Wan, Sai Kung
Private
Residential
8,300,000
4,500,000
1.84
11/12/90
STTL 372
On Ping Street, Area 11,

Sha Tin
Ind &/or
Godown
125,000,000
125,000,000
1.00
11/12/90
TPTL 112
Ma Wo Area 6, Tai Po
Private Res
197,000,000
100,000,000
1.97
18/1/91
TPTL 110
Private Res
280,000,000
200,000,000
1.40
11/2/91
DD215, 1104
Tui Min Hoi, Sai Kung
Ind &/or
Godown
14,000,000
14,000,000
1.00
12/3/91
APL1L 122
Ap Lei Chau West,

Ap Lei Chau
Ind &/or
Godown
60,000,000
60,000,000
1.00
12/3/91
TPTL 113
Private Res
200,000,000
125,000,000
1.60
25/2/92
YLTL 460
Wang Yip Street East, Y'ung

Tau Ind. Area, Yuen Long
Godown
38,000,000
38,000,000
1.00
25/2/92
KIL 11002
Kings Park Rise,

Wylie Road, Kings Park
Private Res
1,190,000,000
950,000,000
1.25
25/2/92
TPTL 124
Mui Shu Hang Road,

Tai Po Shui Wai Road, Area
15, Shui Wai, Tai Po
Private
Residential
800,000,000
520,000,000
1.54
25/2/92
TMTL 353
Castle Peak Road, Wah Fat St.,

Wing Fat Lane, Area 39 Castle
Peak Bay, Tuen Mun
Private
Residential
405,000,000
250,000,000
1.62
Source: Extracted from Rita Lai (1993), p.37. Please refer to Appendix 1 for full report of Government Land Sales (Auction) for 1985/86-1995/96.
143
auctions 25 .
In this connection, the practice of selling by auctions and tenders should be regarded as
basically an open and fair system in ensuring the best price for public benefit. Auctions
will ensure no favouritism towards any particular purchaser. The basic land policy is to
optimize the use of land and the purchaser able to bid at the highest price should be the
most efficient developer in his utilization of the scarce land resources.
Tenders
Land being tendered are mainly land where the user is strictly defined and the sale is
unlikely to attract general interest, or where Government wishes to examine in advance
detailed proposals for the development of a particular lot.
The pecuniary and non-
pecuniary benefits from tenders are weighted before the award of tenders. But the tender
system is by far a fairly open system for the selection of a purchaser.
Land in the New Territories is often sold by way of Letter A/B tender 6 .
This system
gives the lessee an opportunity to voluntarily surrender his holding in exchange for the
right to be granted Crown land in future.
Letter A is used where resumption (i.e.
compulsory purchase) proceedings have not begun, whereas Letter B is used where
Rita Lai (1993), p.38.

Letter A/B were issued by the Government prior to 3/83 in lieu of cash compensation for the acquisition
of land in the New Territories. They confer upon the holder an entitlement at an unspecified date to a grant
of land.
144
resumption has been notified in the Government Gazette 27 .
The letters are freely
assignable. When Crown land (for building use) is available for exchange, the registered
owners of the letters may submit tenders in the form of the exchange entitlements they
are prepared to surrender in return for the grant of a site. The exchange entitlements are
converted to an 'area of entitlement' 28 . The area of entitlement is then multiplied by the
number of days it has been outstanding.
The successful tenderer is the one with the
largest product of such a multiplication or, in the case of more than one area of
entitlement, the largest sum of the products 29 .
The provision that the surrender of these entitlements is accepted in lieu of cash for sale
by auction and tender of sites in the New Territories has proved to be very popular with
land owners and developers 30 . A side effect of this aspect of Government's land policy
is 'a thriving secondary market for these Land Exchange Entitlements (especially for
Letter B) and much speculation and "hope value" in potential developable land' in the
New Territories 31 , which added to the heated climate in the speculation of property
prices in the private housing sector. As shown in Table 23, the amount of Letter A/B
Exchange Entitlements held by developers totalling up to 2 million sq.ft. of land which
27
28
29
30
31
Wu C.L. (1983), "A High Land Price Policy in Hong Kong? A Preliminary Study", p.5.
The conversion is on a one-for-one basis in the case of a Letter A or B covering building land, i.e. the
lessee is entitled to a square foot of building land from the Government for each square foot of building
land he has surrendered (the building having been compensated for in cash by the government at the time
the land was surrendered by the lessee). In the case of a Letter A or B covering agricultural land, the
conversion is at a ratio of 2:5, i.e. the lessee is entitled to 2 sq.ft. of building land from the Government
for every 5 sq.ft. of agricultural land he has surrendered.
Wu (1983), p.5.
Hong Kong 1985.
R. Bristow (1984), p. 246.
145
Table 23
Amount of Unredeemed Letter A/B Exchange Entitlements

Date
Building Land
(s.f.)
Agricultural Land
(s.f.)
Total Land
(s.f.)
30.9.90
211,473
7,334,539
7,546,012
31.3.91
210,530
7,094,272
7,304,802
30.9.91
210,385
6,577,186
6,787,571
31.3.92
208,957
6,231,346
6,440,303
30.9.92
200,870
5,508,269
5,709,139
31.3.93
181,552
4,876,099
5,057,651
1994
1995
31.3.96
52,647
2,029,340
2,081,951
Figures not available

Source: Rita Siu-Fun LAI (1993), Housing Price and Government Land Policies, M.Sc.(Urb.Plan)
HKU (for figures from 1990 to 1993 - Sing Tao Yih Pao)
15.5.96 Tin Tin Daily (for figures of 1996)
146
93L Thesis,
includes 52,647 sq.ft. of building land and 2 million sq.ft. of agricultural land. To date,
it has been estimated that about 90% of these Letters are in the hands of the four big
developers, namely. Sun Hung Kai Properties, Henderson Land, Nan Fung Development
and Chinachem Group j 2 .
The substantial outstanding unredeemed Land Exchange
Entitlements means that Government will have to dispose of sufficient land in the New
Territories in order to redeem the Letters before 1997. Recently Government has made
use of the two commercial/residential sites (4.5 ha each) in Tseung Kwan O Area 37A
to lure the surrender of the Letters from the market33.
It has been pointed out that
restricted tendering practices at some sites which gave holders of Letters A and B
exclusive rights to take part reinforce market concentration and the dominance of major
developers, who can maintain smooth production levels regardless of Government supply
levels 34 .
Land Exchanges and Lease Modification

The earliest leases contained very little control over the form, user and engineering
requirements of development, i.e. the unrestricted lease. The use of lease conditions as
a means of development control becomes popular at a later stage when restrictions on
building height, type of building and form of development were incorporated. With the
changing economic and social developments, many of older restrictions may not suitably
apply to the current condition, or that the developer would like to increase the intensity
32
"
34
15.5.96, Tin Tin Daily.

17.5.1996, Hong Kong Economic Times.
147
for development. The Government is prepared to modify outdated lease restrictions and
rectify
lot boundaries in keeping with the changed planning and
requirements.
development
Lease modification may then be granted in accordance with the town
planning layouts and other development controls 35 .
Lease modification has in fact
become another source of Government revenue and cause for allegation against the
Government because a land premium being 100% of the enhancement in land value by
virtue of the lease modification or land exchange will be charged from developers. The
premium is tantamount to a 100% Development Land Tax36 which may appear severe.
This is not. however, considered unjustifiable because it is a form of recoupment of
betterment by the community 37 .
Some of the planning gains that normally have to be
carried out through negotiations with zoning under the freehold system, therefore, can be
included in the lease conditions.
This facet of the policy comes some way to a
redistribution of wealth (whether the redistribution is even a fortuitously spread is quite

another issue) and alleviate the heavy burden of the Government in the resumption of land
and the development of infrastructures which prices have been bid up in part by the
developers" activities 38 .
Yeh (1992), p.8.

This is a system of land taxation in the UK where the enhancement in land value due to betterment is
recouped from the lot owner. The tax rate is changing from time to time as a tool to stimulate
development.
For example, in leasing the land in Admiralty, the Government allows a higher plot ratio in order for the
developer to provide bus stations underneath the buildings. In leasing the land in Sha Tin town centre, the
lease require the developer to build pedestrian flyovers to be connected with the neighbouring buildings.
In this way, the planning objectives of separating the pedestrians from vehicular traffic can be achieved at
little cost to the Government, (see Yeh (1992), p.10)
Yeh (1992), p. 10.
148
Table 24 shows some notable transactions of residential land by lease modification. It is

noted that some of the major property developers have been fairly inactive at Government
land auctions in recent years. For instance, Cheung Kong (Holdings) Ltd. and Sun Hung
Kai Properties Ltd. which have substantial land holdings and stocks of Letter A/B
Exchange Entitlements.
This is because the profit margins for development on the
tendered sites have been so much greater than those for developments on public auction
land, which is comparatively costly39. In recent years. Government land auctions have
been dominated by the last-comers such as Sino Land Co. Ltd. (who adopts an aggressive
attitude during land auctions), World International (Holdings) Ltd. and China Overseas
Land and Investment Ltd. The veteran tycoons, however, are engaged with private deals
such as lease modifications, land exchanges and joint venture with the Government (e.g.
the proposed Kowloon Point Reclamation by Wharf (Holdings) Ltd.) and with other big
developers in the development of the different phases of commercial, commercial/
residential, office and hotel developments along the MTR sites in Central, Tai Kok Tsui
and Kowloon Bay, as well as along the Lantau Expressway related to the Airport Core
Project.
Whilst it is said that the developers are then being penalized on any increase in land value
owing to an improvement to the land they hold under lease, their normal profit in the
development activities is already sufficient incentive. As a matter of fact, the continual
According to Consumer Council (1996), the land costs of Letters A and B tendered sites generally
constituted 10-20% of the price of a unit, whereas the land costs for publicly auctioned land amounted to
30% to 50% of the price of a unit (p.3-8).
149
Table 24
Examples of Residential Developments on Land Acquired through Land

Exchange/Lease Modifications with the Government
Date
Development
Area of new Lot

(ha)
Premium paid
($ mil)
1976/1977
Discovery Bay
Lot No. 385 in DD 352
615
61
1979/1980
Marina Cove
Lot No. 526 in DD 210,
Ho Chung
24.8
45
1982/1983
City Garden
ML 321, 526 & 702,
Electric Road
2.55
108
1986/1987
Harbour Heights
ML 2770 Ext., ML 281 &
Ext.. IL 1395 E x t ,
North Point Shell Co. Depot
34.76
87
1987/1988
South Horizon
Ap Lei Chau IL 121
15.5
623
Laguna City
NKIL 6055, Cha Kwo Ling,
Kwun Tong*
8.84
360
Rhine Garden
DD 390 Lot 261, Sham Tseng
17
250
1995/96
Siu Lek Yuen. Sha Tin
18
200
1995/96
Cheung Muk Tau
20
200
1990/1991
Part of an inter-related transaction involving the relocation of Shell Oil Depot to Tsing Yi with Cheung
Kong Group. HK Electric and HK United Dockyard
Source: Rita Lai (1993), p.77 (for year 1976-1991)
2.1.1996. Hong Kong Economic Times (for year 1995-96)
150
upward pricing of the property market has generated substantial profit to developers. It
has been estimated that land value at the time of disposal of the finished units is much
higher than the time when bidding or assessing the land premium 40 . Figure 6 (see ch.3)
shows the land price being 60-70% of the residential property price at the same time.
From bidding of land to the actual development of the site, the developers profit is the
residential property less the land cost being the land value pertaining 2-3 years ago and
development costs. Take the case of Cheung Kong Holdings' Ltd.'s land exchange deal
with the Government for the development of South Horizons in Ap Lei Chau, the land
cost was only $2,400 per s.m.41 per gross floor area in 1987. The value of the residential
units are $43,000 p.s.m. (gross) as at the second quarter of 1993 which is equivalent to
a land value of $20,000 p.s.m. of gross floor area. Property development is perceivably
a very ludicrous business.
5.4
Land Sales Revenue

While there is no confirming evidence that a 'high land price' policy is adopted by the
Government, the revenue generated from land sale by type of disposal is indeed
substantial (Tables 25 (a)-(c) refer). Table 25 (a) shows that in the past 10 years, the
actual revenue generated from land sales had exceeded the anticipated revenue, indicating
that the developers are willing to out-bid the reserve price set by the Government in
anticipating that subsequent development on that parcel of land would be able to generate
Rita Lai (1993), p.40.

Figures from the HK Property Market Vol. 11 - Company Analysis published by Baring Securities in April
1991, in Rita Lai (1993), p.40.
151
'windfall' profit.
The 'bandwagon' behaviour of the developers is a key contributing
factor in pushing land prices to a high level. Table 25 (b) reveals a notable trend for a
considerable drop in the revenue from auctions/tenders and private treaty grants in recent
years, while there is a substantial increase from exchanges/modifications.
This can be
explained by the fact that development of new areas will be subject to various constraints
such as planning approval or the limited supply of land, redevelopment of land already
held by the developments via lease modification can save time and capital outlay and
therefore prove to be more beneficial from a business point of view.
It is thus not
surprising that greater revenue has been generated from exchanges/modifications in recent
years than is from auctions/tenders. Moreover, Table 25 (c) shows that in the past 22
years, land sales has been an important source of Government revenue, representing some
20% of total income. Moreover, it is also calculated that the total revenue from land sales
in 1974-90 accounts for 55% of the total land-related expenditure. In this connection,
though no evident facts support the claim that the Government is upholding a 'high land
price' policy,
the Government
will no doubt welcome the substantial
revenue
generated and may be somehow inadvertent in encouraging a high land price.
152
being
Table 25 (a)
Revenue generated from Land Sales Programme
Financial Year
Land sales
programme (ha)
1985-86
58.8
1986-87
Actual area sold
Anticipated
Revenue ($b)
Actual
34
1.7
3.6
33
"64.2
3.4
3.9
1987-88
62.5
'74.9
4.8
5.2
1988-89
32.3
27.3
8.0
11.68
1989-90
28.6
25.7
7.94
13.2
1990-91
77
27
5.8
1991-92
24.07
'59
4.07
13.8
1992-93
29.67
24
8.6
11.51
1993-94
24.93
21
9.345
17.96
1994-95
28.21
25.21
18.385
31.35
Remarks:
4.04
The land sales programme only included auction, tender and exchanges
* Total land sold or granted
Source: Lands and Works Department, reported in 18.6.95, South China Morning Post
T a b l e 25 (b) L a n d Sales R e v e n u e from L a n d Disposal by T y p e 1 9 9 4 / 9 5 - 1 9 9 5 / 9 7
Disposal Type
1994/95
1995/96
1996/97
% change on
last year
Auctions/
Tenders
12,776
23,876
13,017
^45.5
Private Treaty
Grants
7,342
16,402
13,647
116.8
Exchanges/
Modifications
11,239
4,603
9,234
Tl00
Total
31,357
44,881
35,898
i 20
Source: 17.5.1996, South China Morning Post.
153
Table 25 (c)
Fiscal Year
Recurrent & Capital Revenue from Land & Buildings

Recurrent Revenue
($ million)
Capital Revenue
($ million)
Total Revenue
($ million)
(Recurrent +
Capital Revenue)
% of Total Revenue
1973
439.7
671.5
4,988.0
22.28
1974
440.2
319.6
5,305.8
14.32
1975
524.1
289.3
5,973.1
13.62
1976
466.7
346.4
6,724.6
12.09
1977
368.3
557.5
7,575.8
12.22
1978
442.1
1,831.3
10,232.6
22.22
1979
694.9
2,018.6
12,557.0
21.61
1980
1,415.6
2,856.0
16,796.1
25.43
1981
2,420.0
10,784.1
30,290.3
43.59
1982
3,564.9
9,676.5
34,312.9
38.59
19S3
2,956.9
5,048.1
31,097.6
25.74
1984
4,555.9
5,423.8
38,511.1
25.91
1985
4,240.5
5,590.6
43,695.3
22.50
1986
2,955.6
3,809.5
48,602.7
15.96
1987
4,502.8
5,698.7
60,876.9
16.76
1988
7,877.2
5,459.1
72,658.5
18.35
1989
9,901.5
5,675.9
82,430.2
18.90
1990
10,031.2
6,179.8
89,523.8
18.11
9,981.2
1991
9,286.1
114,699.9
16.80
1992
6,244.5"
13,676*
135,310.9
14.72
1993
6,726.6"
18,239.9"
166,602.2
14.99
1994
7,259.5"
13,107.4"
174,998.4
11.64
Average
20.29
Source: Rita Siu-Fun LAI (1993) and Hong Kong Annual Digest of Statistics 1995
154
Remarks:
Data for 1973-83
1)
Ng M.K.. 1992, "The Changing Politics of Planning in Hong Kong. Whether the Role of Planners^" p.9.
Working Paper No. 54, Centre of Urban Planning and Environmental Management, University of Hong
Kong.
2)
Hong Kong Government, Commissioner of Inland Revenue, Annual Reports. Hong Kong Government
Printer, various year.
Data for 1984-91 Director of Accounting Services Annual Reports.

1)
Recurrent revenue consists of rates, properties and investments and way leaves fees
' 2)
Capital revenue consists of revenue from disposal of land by auction/tender, modification of leases,
exchanges of land and stamp duty on conveyances of land and buildings.
3)
Figures in brackets are adjusted figures to include capital revenue from land transactions completed after
27.5.1985 and interest which are not credited to the general revenue but transferred to the 'Suspense
Account' of the Capital Works Reserve Fund in the first instance pending sharing with the future HKSAR
Government pursuant to arrangement under the British Joint Declaration. These figures therefore reflect
the true income received from land transactions.
(Extracted from Rita Siu-Fun LAI (1993), Table 17, p.83.)

Data for 1992-94 Hong Kong Annual Digest of Statistics 1995.
#
Recurrent revenue consists of rates and properties & investments, whereas capital revenue consists of stamp
duties and land transactions.
Note ' 3) above also applies.
155
5.5
5.5.1
Government Housing Strategy

The Government has what it describes as a 'private sector-led housing strategy' 42 . This
means that the Government estimates housing demand and supply, but the private sector
decides how much and when to supply residential property through its purchases of land
and land entitlements. The Government aims to meet the remaining housing requirement
through public sector housing. The public housing sector in Hong Kong is currently one
of the largest (58% of total housing stock) in the developed world43. It is therefore vital
that the private sector has sufficient land supply and that the market is fully competitive
to ensure land is converted into available housing units as efficiently as possible, at
affordable prices 44 .
5.5.2
Public Housing Sector

The public housing programme started as early as the 1950s subsequent to the Shek Kip
Mei fire in 1953 and was formally embarked in the 1970s with the launching of the 10
Year Housing Programme. As the demand of urban land for economic development was
ever on the rise, the new town programme accompanied the 10 Year Housing Programme
in which early resettlement estates and low-cost housing had been 'decentralized' to the
Andrew Wells, Deputy Secretary for Housing, at 'Housing a Quality of Life' Forum 6 May 1996. Extracted
from Consumer Council (1996), p.4-5.
Larger for example than the public housing sector in Japan, the US and the UK. Extracted from Consumer
Council (1996), p.4-5.
156
then urban fringe to serve as handy pools of cheap labour to service the industrial
establishments.
The new town programme was also launched opting the opportunity of
more land and less total development cost in the New Territories. The semi-voluntary
move of public housing tenants into new towns has been strategic to attracting commercial
and industrial developments to these areas and no less a catalyst to private residential
developments.
The Housing Authority is responsible for the building of public housing. The land grant
to the Housing Authority has been a producer subsidy in land and land cost, though the
terms of land grant for public housing changed in the course of time.
At the very
beginning when the resettlement programme was in the inception, land was granted at
one-third of the land cost to the Housing Authority. With the New Hong Kong Housing
Authority being set up in 1973, land was granted to it at '/, of its value. It was only
after the financial year of 1977 that land was made available free-of-cost to the Housing
Authority.
Similarly, land was first granted at full market value for Home Ownership
Scheme flats. With rising land costs and interest rates, it was found that the flats priced
to take account of land costs were out of reach of the families for whom the scheme was
designed. A decision was only then taken to grant land at nominal premium (so far as
the domestic portion is concerned)'15.
Rita Lai (1993), p.51.

157
Before the implementation of the Housing Strategy production target in 1988, public
rental constituted almost 75% of the total public housing supply. But started in the 90s,
more Home Ownership Scheme (HOS) flats were built and the HOS production has thus
been increased to about 50% of the total public housing supply46. A stable production of
public housing of meeting demand is therefore a crucial balancing force to the private
housing production.
5.5.3
Private Housing Sector

Owing to the positive non-interventionist stance, the private housing market has largely
been left in the hands of the supply and demand of the free-market.
While the
Government lays heavy emphasis on the principle of private property rights, its subtle
control over the private housing market is enforced and tightened through its various
legislative and administrative measures to monitor the scale and type of development, the
sales/purchase and the use of private domestic premises 47 . The private residential market
had been left to operate on its own subject only to negative regulatory measures of
development control, rent control and protection of tenure for tenants.
As it is explained in Chapter 3, there are shortfalls/supply lags in private housing

production in the markets.
According to Consumer Council (1996), the discrepancy
between estimated between and actual private housing supply does not seem to be caused
by a shortage of total residential land supply.
46
47

Kam(1992).
158
In fact two factors are at play:
First,
disposal of housing land and development control on private development are controlled
by Government.
Second, the number of flats to be released onto the market and the
timing of delivery of flats to be released onto the market and the timing of delivery of
flats are determined by the developers. 'It has been suggested that Government knows
the development potential of the sites that have been sold, and how long it would take the
private sector to convert those sites into units. The problem could then be due to the
slowdown in private sector production rates.
Developers, however, pointed to the
complicated development control process and delays as the main reasons' 48 .
In a market with effective competition, the cost of land would make developers want to
convert it into a saleable commodity (housing units) as soon as possible. The prices of
units would go up and down as for any commodity as supply responds to demand. In
theory, under an uncompetitive market, where the supply of land is restricted by
Government or held by a limited number of developers, developers could control the rate
of production knowing that few other developers would have the capacity to fill the
supply gap. Thus, they could be more confident of future price rises likely to offset the
cost of holding undeveloped land (in the case of land held under Letters A and B
entitlements or unrestricted leases) or seek to slow development of land subject to
building covenants 49 .

159
5.6

As previous sections have expounded, land disposal and the leasehold system is not
responsive enough and may have lagged behind the short term market demand, thereby
cannot effectively and promptly address the current high housing price. Couple with the
vigorous bidding behaviour of the developers in land sales, the high land price is the
major cost factor leading to high housing price. Moreover, the high housing price and
the high cost of credit (it is difficult for the first-time home buyers a large sum of
downpayment - Chapter 4, section 4.4) has dampened the quest for home ownership. It
is in this context that the alleged 'High Land Price' Policy attracts mounting criticism.
However, it should be noted that the land disposal and leasehold system has guaranteed
the Government stable revenue from the land (through land sales) and housing markets
(through taxation).
The high land price has assured that the Government, as a main
provider of public housing, will have adequate resources to be expended on the provision
of public housing. In this connection, a redistribution of wealth within the society to cater
for the lower income groups can be achieved. One may therefore regard that, to a certain
extent, the private housing sector (i.e. the private developers) is actually cross-subsidizing
the public housing sector in Hong Kong through the alleged 'High Land Price' Policy.
Enough has been said about the alleged high land price policy. It is noted from various
research that the high land price is rather a phenomenon than fact while there is no
concrete evidence to substantiate such allegation. This high land price phenomenon in
160
fact is attributable to (i) the land disposal system and (ii) the land lot size being disposed.
The existing land disposal system provides the conditions for high land price because land
is auctioned or tendered to the highest bidder whereas premium of land exchange/lease
modification is assessed at market rate.
As regards the lot size, for many small
developers, the scale of Government sales sites is often too large, requiring huge up-front
capital investment. According to Consumer Council (1996), in the period 1993-95, 45
land sites were put for sale. Over 50% were of a lot size over 5,000 m2 or more and 17
sites over 1 ha.
Most of these large land lots were purchased by major developers.
About 70% of residential units were built on these large land lots50. In monetary terms,
11 land sites commanded a land premium over $1 billion each. In terms of development
potential, 11 land sites were large scale developments that were able to produce 500 units
or more 51 .
These show that Government land sales sites were large in lot size and
required huge capital investment.
As a result, with the emphasis on large scale
comprehensive and co-ordinated development, only major developers are generally able
to bid - and willing to bid high in order to reassert their market dominance and influence.
Therefore, the value of land is maintained at all time high even it may not be originally
intended by the Government.
Perhaps it would be fair to see Government's land sales behaviour as a revenuemaximizer, just like any ordinary business operating in an open market. As Tse (1994)
has pointed out that the revenue-maximization in land sales is based on the concept of

161
opportunity cost minimization, but is not equivalent to high land price policy, and his
analyses has lent support to this argument 52 .
In fact, Government as a public body
should have a responsibility by selling lands to the highest bidder to maximize the land
revenue, which ultimately goes to the pockets of the tax-payer. Land revenue actually is
a form of indirect taxes which is first collected in the most efficient way and then
redistributed fairly to society. The land market would be inefficient only if the number
of developers is few. who are likely to form a cartel at an auction of land and snap up
tracts of prime real estate at prices well below market value. While the formation of a
cartel in the land market will certainly reduce its competition, developers' joined forces
can also be viewed as a commercial decision of risk sharing in the auctioneering process
because of dampened market sentiment.
Yet, as long as land auction is open to
competition, there is no great worry of developers making excessive profit from property
developments because the Government gets its share in the form of a land premium. As
long as such a tax is extracted according to the principle of efficient allocation of
resources, there is no reason to argue that land revenue maximization policy should not
be carried out53.
In view of the above constraint, the Government's main interests in forming land disposal
policy have been to ensure sufficient supply of land; to raise revenues from land sales;
and to honour past commitments (e.g. land exchange entitlements).
As regulator, the
Government controls, through approval procedures, the three stages of the development
Tse(1994), p. 187.
Tse (1994), p. 187.
162
process (planning, land and building) and some stages of the sales process so as to ensure
contestabihty in the housing market. In carrying out these functions it aims to ensure land
sold to developers is converted into residential buildings; to promote building safety and
a healthy environment; and to discourage excessive speculation 34 .
5.7
Conclusion
From the above discussion, the following conclusions can be drawn:
Land availability is mostly a 'number game". The land supply system in Hong
Kong inherits the 'inherent conflict' between the planners' concept of 'need' and
the builders' concept of 'demand'. The existing disposal system is responsive to
the effective market demand in the short (and medium) term by means of the sale
of new land and by granting approval to development.
In the long term, by
zoning and rezoning of land (subsequent to approval of development) under the

planning system can help meet Government's objective of the land policy - to
optimize the use of land within the framework of land use zoning and
development plans.
Land supply is constrained by the lengthy process of land conversion from 3-4
years for private housing development to 7 years for public housing development.
54

163
The existing leasehold system constrained the way and timing of development on
the part of the developers but may ensure supply of new units to the market.
The existing land disposal system provides the conditions for high land price land is auctioned or tendered to the highest bidder whereas premium of land
exchange/lease modification is assessed at market rate.
Land supply relates to housing provision since the revenue generated from land
sales will be expended to the public housing sector. This may regard that it is the
private housing market (i.e. the private developers) cross-subsidizing the public
market, and therefore securing a high land price seems not unreasonable.
The Government, as a public body, should ensure that land is sold to the highest
bidder to maximize the land revenue, which ultimately goes to the pockets of the
tax-payer. As long as land auction is open to competition, there is no great worry
of developers making excessive profit from property developments because the
Government gets its share in the form of a land premium so that the wealth in the
society can be redistributed and expended to cater for the needy.
From the perspective of the Dissertation, an increase in the supply of land will
encourage market competition, expedite land conversion and
development
programme, and ultimately the supply of housing units to the market. This can
be done by means of land use allocation and the planning application system under
164
the existing planning framework of Hong Kong. Therefore, an increase in land

supply through the planning system can help bring down high housing price,
thereby improving the provision of affordable housing for the home seekers in
Hong Kong in the long run.
It is from this perspective that the implication of land supply and housing price on urban
planning will be discussed in ensuing chapter.
165
Chapter 6
Implication of Land Supply and

Housing Price for Urban Planning

Chapter 6
Implication of Land Supply and Housing Price for Urban Planning
The empirical literature in Chapter 3 discerns that (i) the existing planning system is restricting
the total quantity and location of housing land and the way and timing of residential development,
and (ii) the demand for application is derived from the demand for housing but has been heavily
constrained by land availability. The result is the spatial mismatch of housing demand and supply
between the main urban areas and the New Territories thereby pushing up housing price. Chapter
4 concludes that the high housing price, in the long run, may be addressed by the land supply and
planning system. It is concluded in Chapter 5 that in view of the restrictive land supply and its
peculiar leasehold system, the volatile and concentrated housing market together with a high land
price phenomenon, an increase in the supply of land will encourage market competition, expedite
land conversion and development programme, and ultimately the supply of housing units to the
market - this can be done through the planning system in the long run. In the light of the above,
ensuing sections consists of (i) a recapitulation of the relationship between and how the planning
system affects land supply/housing price; (ii) a discussion of the spatial mismatch resulted from
the existing land supply/housing price/urban planning framework, (iii) the implication for future
housing price, (iv) the implication for future housing production and (v) the implication for urban
planning, which is a recommendation of how the existing system could be improved in order to
achieve the study objective to bring down the high housing price and to improve the provision
of more affordable housing for the home seekers in Hong Kong. As the effects of urban planning
on land supply and housing price has been noted in the preceding chapters, this chapter will have
greater emphasis on the recommendations for improving the planning system in order to achieve
the study objectives.
166
6.1

According to the literature review and empirical study, land use planning affects the
supply of land in Hong Kong by restricting the range of choices available to landowners
in terms of total quantity and location of housing land, and the way and timing of housing
development. It should be noted that the effect of urban planning on land supply is more
direct and readily discerned than would be on housing price - the effect of which will be
more subtle and indirect. Planning through the process of land use allocation can readily
affect land supply in terms of quantity - by increasing or reducing the designated housing
land (as shown on the town plans and in Tables 2 (a)-(f) and Table 3), and location - to
date, the bulk of residential land is allocated in Hong Kong Island (17.18%), Kowloon
(20.59%), North East New Territories (20.98%) and North West New Territories
(25.58%), comprising a variety of 'R(A)' to 'R(D)' residential zonings. As for the way
and timing of development, they will be more related to the planning application system.
The zoning itself already denotes the maximum development intensity and the way that
development should provide (e.g. car parking, noise mitigation measures or set-back
requirement), whereas the time needed from submitting planning application, obtaining
planning approval, applying for land exchange/lease modification, actual implementation
of the development proposal (i.e. the land conversion process) to the developer's decision
to finally release the housing units to the market (by batches) has been metered by years.
Moreover, it is pointed out in the literature review that the planning system has
increasingly been forced to the short-term market pressures - it is applicable to the case
of Hong Kong in view of the surge and flooding of planning applications since the 1990s.
167
Planning applications are indeed derived from effective market demand but the relative
high rate of rejection suggests that the planning system is not responding in parallel with
the market demand and therefore exacerbates the market volatility and fuels the price
surge.
Though the planning system does not directly take market demand into account because,
as it is pointed out by Sarah Monk (1991), 'planning
implies almost by definition the
setting of some kind of relatively stable long-term framework

operate',
within which the market can
house prices and housing supply are in the long run determined by costs of
production - including land - which involves structuring long-term decisions based on

forecasts and estimates of demand and market process.
It is therefore expected that
supply of housing land via the planning system should be more in line with the expected
demand and aspiration of the market in the long run. As discussed in Chapter 5, the land
disposal system in Hong Kong has guaranteed high land price and since land is the 'single
biggest cost element' in housing price, the resultant housing price is high.
In this
connection, the planning process directly affects the quantity and location of land and the
way and timing of housing development,
and indirectly affects housing price, which is
further engineered by market demand and the pricing strategy of individual developers.
As land supply is highly constrained by the planning system in Hong Kong and as land
price and housing price are strongly related, in the ultimate, it is the planning system that
governs land supply/land price and finally housing price. It is therefore discerned that an
increase
in housing
land supply through
168
land use allocation
under the
existing
planning framework
is possible, it will encourage greater competition
in the housing
market, thereby resolving the current near-cartel of the big developers and therefore a
more reasonable
supply and pricing of the housing units can be achieved.
In this
respect, it is in line with the research theme that the planning system can help bring down
housing price and improve the provision of affordable housing.
6.2

As preceding chapters show, the restrictive land supply for housing development may not
be those desired by the developers, therefore, results in a widening spatial mismatch
between housing demand and supply and ultimately has pushed up housing rents and
prices.
The widening mismatch since the late 1980s was due to a number of
circumstances: (1) shift of residential construction to new towns in New Territories, (2)
shift of employment from manufacturing to service sectors, and (3)
insufficient
transportation infrastructure between the new towns and the urban centre'.
Since 1980 eight new towns have been set up in New Territories to accommodate the
rising population in Hong Kong. Increasingly more new residential constructions were
located in those new towns. As Figure 12 shows, annual completion of housing floor area
in New Territories jumped from about 15% of the total in the seventies to over 40% on
average in early 1980s and steadily increased to over 50% in early 1990s. The number
of households in New Territories more than doubled to 645,684 between 1981 and 1991,
Yuming Fu (1995), p.279.

169
Figure 12
Structural Change in Employment and Housing Supply
170
while that in urban areas increased only slightly. In 1970s and early 1980s manufacturing
employment accounted for over 40% of the working population, and the government had
initially expected that at least a quarter of the new towns population wold work in local
factories. Consequently, little more than minimal transportation linkage to central urban
area were provided to these new towns.
The lack of infrastructure investment was
reflected in the low share of non-building construction in gross domestic product (GDP)
since 1985.
But those manufacturing jobs that were expected to move to the new towns moved,
instead, to China. Since 1987 about 445,000 manufacturing jobs in Hong Kong have been
lost to Southern China. The share of manufacturing in GDP (Figure 12 refers) dropped
from about 22% in early 1980s to 11.4% in 1993. Meanwhile the importance of Hong
Kong as an international financial centre has significantly increased, boosted by its
position as an entrepot for business with China. The employment in the trade, transport,
and financial sectors has grown rapidly, creating about 580,000 new jobs since 1987.
Those service jobs have largely remained in central urban areas.
Consequently,
increasingly more residents in New Territories have been travelling to central urban areas
to work.
The increasing commuting traffic as well as goods traffic from China have
resulted in serious road congestion, which further increases the cost of journey to work
for new town residents.
As the demand for, and the cost of, journey to work in central urban areas increased, the
171
demand for housing started to shift in favour of urban areas, especially those convenient
locations in Kowloon and Hong Kong Island. Figure 13 shows the trend in residential
vacancy rates in different areas. During 1980s, despite the rising share of housing supply
in New Territories, the vacancy rate there was actually declining, reflecting a good match
between housing supply and demand. The situation has changed since 1991, when the
vacancy rates in New Territories started to rise quickly but those in urban areas went
downward.
Not coincidentally, the decline in average road travel speed had begun in
1991, according to the statistics shown in the report of the Working Party on Measures
to Address Traffic Congestion released in late 1994.
The shifting locational preferences for housing resulted in widening differential land rent
between Hong Kong Island, on the one hand, and New Territories, Kowloon and New
Kowloon, on the other. In a competitive land market, differential land rent would rise to
compensate for differential site attributes and transportation cost. The rising transportation
cost for people to go to work would increase the differential land rent with respect to the
distance to employment centre. Figure 14 shows the trends in differential housing rents.
The rents would closely reflect differential land rents as land value usually accounts for
over three quarters of the value of flats. Up to 1987, the differential rent between Hong
Kong Island and New Territories narrowed, reflecting improving commuting conditions,
especially due to the double-tracking and electrification of the Kowloon-Canton Railway
in the early 1980s. The differential rents began to widen for New Territories and New
Figure 13
Residential Vacancy Rates by Area
Source: Yurrnng Fu (1995), in The Other Hong Kong Report 1995, ch. 14, p.281.
173
Figure 14
Differential Rent for Mass Housing Flat by Area
Source: Yumjng Fu (1995), in The Other Hong Kong Report 1995, ch. 14, p.282.
174
Kowloon after 1987 and for Kowloon after 1991 2 . It is also noted that the
differential
rent was highest for New Territories and lowest for Kowloon, reflecting their relative
distance to the main urban area.
The differential land rents would be reflected in differential land prices. Figure 15 shows
that the trends in differential housing prices, though more volatile, generally followed the
trends in differential housing rents. In summary rising cost of journey
by both the increasing
concentration
of employment
to work, caused
in the Main Urban Areas and
increasing road congestion, resulted in a shift in housing demand away from new towns
where housing supply is more abundant and towards urban areas where housing supply
is limited*. This mismatch in housing demand and supply contributed to housing price
inflation in urban areas. There area two alternatives to ease the mismatch problem. One
is to build more transport links between the new towns and the central urban areas so as
to reduce the cost of commuting. The second alternative is to decentralize employment
by developing secondary business centres in New Territories.
The latter part of this
chapter will look at the implication of this mismatch for land supply, housing price and
urban planning.
:
5
Yuming Fu (1995), p.282.

Yuming Fu (1995), p.283.
175
Figure 15
Differential Price for Mass Housing Flat by Area
Note: Data represents annual average of quarterly pnce ratio, where quarterly ratio is
calculated as the average of the pnce ratios for class A. B, and C flats respectively.
S o u r c e : Y u m i n g Fu ( 1 9 9 5 ) , in The Other Hong Kong Report
176
1995, ch. 14, p . 2 8 3 .
6.3

According to a report by Credit Lyonnais in January 1996", the key areas to benefit from
all the infrastructure development, namely, the Route 3 (under construction), the Airport
Railway (under construction), the Mass Transit Railway and its planned extension to
South Kowloon, Tseung Kwan O and Ma On Shan, and the Kowloon Canton Railway,
which will due to outperform those of the rest of Hong Kong, are Tsing Yi (SWNT) and
Tuen Mun/Yuen Long (NWNT). The report made use of the relationship between per
square foot values of small and medium-sized residential units to the time it takes to get
to Central 5 in order to illustrate the attraction of the respective recommended key growth
areas.
A graphic presentation is shown in Figure 16. By taking into account all the
committed planned infrastructure development, it is concluded that prices of residential

flats in Yuen Long, Tuen Mun/Castle Peak Road and Tsing Yi will take off when the
travelling times to these places are significantly reduced.
As shown in Figure 16, by
taking the November 1995 property price as the base growth level, the property price per
sq.ft. (by ascending order) in Yuen Long, Junk Bay, Tsing Yi, Ma On Shan (with the
extensive rail network by the year 2001) and Sha Tin in the New Territories will rise to
a range of $2,200-55,400.
6.4

According to the latest Property Review 1996, completions of housing units in 1995
amounted to around 22,620 units with the New Territories accounting for the bulk. The
4
s
Report by Credit Lyonnais, report in 22.1.96, SCMP.

This is a correlation examined at major cities elsewhere around the world as there is normally a strong link.
177
Figure 16
Price/Travel Index along Major Road and Rail Links
Source: Credit Lyonnais, reported in 22.1.1996, South China Morning Post.
178
largest concentrations were in Yuen Long and Fanling (i.e. NWNT and NENT). In 1996.
completions are expected to number 19,090, whereas completions are expected to rise to
26,800 by 1997. A detailed breakdown of the expected supply of housing units is shown
in Table 26.
It is not difficult to find out that in the past five years, the number of
housing units supplied in the New Territories far out-numbered its counterparts in Hong
Kong, Kowloon and New Kowloon by 2.5, 12.4 and 5.6 times respectively. In the New
Territories, Yuen Long and Tai Po stand out to be the main supply of housing units. The
current pattern and trend of housing supply to be concentrated in the NWNT and NENT
can largely explain the relative abundant land bank of the major developers in these two
sub-regions as well as the 'drying-up' of urban development land. The trend in 1997 is
in the main in line with the current situation, except that Sai Kung and Sha Tin will tend
to out-perform Yuen Long in terms of housing production. This can largely be explained
by the near occupation of the Tseung Kwan O new development in Sai Kung as well as
the Ma On Shan new development in Sha Tin. It is also noted that a notable provision
of housing units will be in Hung Horn, Kowloon, which is attributable to the completion
of the Hung Horn Reclamation, the redevelopment in the area and the harbour related
development.
6.5

Dr. Mayo remarked that:
'Hong Kong's housing conditions lag behind its level of economic
development,
with people having to pay extraordinarily high prices
179
Table 26
Housing Supply in 1996 & 1997 (by district)

1996
Hong Kong
Completed Units
1.225
(1) Mid-Levels
809
(2) North Point
1,038
(2) Sheung Wan
238
(3) Southern
213
660
Total
4,274
av. of past 5 yrs
7,035
1,987
1,073
247
(1) Hung Horn
(2) Mong Kok
156
(2) Yau Ma Tei
604
(3) Yau Ma Tei
83
(3) Ho Man Tin
590
507
av. of past 5 yrs
Total
2,559
1,389
(1) Wong Tai Sin
588
(1) Shek Kip Mei
580
(2) Cheung Sha Wan
475
(2) Cheung Sha Wan
444
(3) Shek Kip Mei
New Territories
Total
(1) Hung Horn
Total
New Kowloon
Completed Units
(1) Mid-Levels
(3) Western
Kowloon
1997
28
(3) Kwun Tong
42
Total
1.095
4,315
(1) Sai Kung
5,589
(2) Tai Po
1,903
(2) Sha Tin
3,813
(3) Tsuen Wan
1,416
(3) Yuen Long
3,698
Total
1,100
av. of past 5 yrs
3,102
(1) Yuen Long
Total
13,214
av. of past 5 yrs
17,287
Total
(1), (2) & (3) the top 3 districts supplying completed housing units
Source: Property Review, various issue, reported in 15.5.96, Hong Kong Economic Times.
180
21.157
for cramped living quarters of very low space standards. '"
According to a World Bank study 7 , it is noted that in 1990, the price of a median housing
unit about 30 m" large in Hong Kong costs more than seven annual incomes of the
median household, whereas the corresponding figure in Washington was less than four.
Moreover, housing choices are limited because the land zoned for new residential
development is mainly concentrated in the NWNT and NENT (Table 3 refers) while
existing commercial activities, to a large extent, are still concentrated in the main urban
areas. Without effective transport infrastructure linking the residential areas in the New
Territories and the main urban area, it does not allow easy interchanging. Consequently,
despite the flexible characteristics of Hong Kong's economy, the rates of residential
mobility ranged between 6 to 8% only, compared with 20% in the United States and
Canada. According to Dr. Mayo, the people's inability to move homes to where they
work on changing jobs, is a major contributing factor to Hong Kong's transport problem.
It is evident that the failure of trunk infrastructural links to serve the rapid expansion
of new towns has caused many applications for residential
commercial
developments
and mixed
there to be rejected on transport grounds.
residential-
Moreover,
the
restriction on the quantity and the slow pace of the disposal of Government land also
means a long lead time for development,
which further
adds to the 'supply lag' of
This is the concluding remarks by Dr. Mayo regarding Hong Kong's housing situation during his visit to
the Territory for the Housing the Million: The Challenges Ahead in May 1996.
The World Bank study was cited by Dr. Mayo during his visit to Hong Kong for the Housing the
Million: The Challenges Ahead. It is reported in a SCMP column on 25.5.1996.
181
bringing any projects to the market.
These constraints, therefore, explains why house
prices in Hong Kong rise faster than income-growth because people's expectation for
better housing is not met by a steady supply. In examining the implication of land supply
and housing prices on urban planning is, therefore, a need to identify and provide a
steady and sufficient supply of suitable land for housing development, together with the
basic infrastructure.
In essence, it is to keep the development process, including
planning, land formation, provision of infrastructure and compliance with environmental

standards, as short as possible, and to maximize the efforts of housing production.
6.5.1
Review of the Existing System

The existing system that governs land development is the definitive land use zones as
shown on the OZPs and DPA Plans and the notes attached to these statutory plans,
specifying for each zone the uses which are always permitted (Column 1 uses) and uses
which may be permitted by the Town Planning Board upon application (Column 2 uses).
It is stipulated in the Town Planning Ordinance that the Town Planning Board will give
a decision within 60 days on submission of the planning application. Since almost all
new developments include Column 2 uses, if the applications are rejected, resources will
be expended in reviews, appeals and lobbying, increasing the cost and time of the
development. On the other hand, in aspects of objection to the draft town plans, rezoning
application (probably will take up 90 days on submission to make a decision) or
application for lease modification/land exchange to the Lands Department will have no
statutory time limit. The land conversion process therefore has been substantially lengthy,
182
together with the 2-3 years normally take up for implementation of new developments,
the completion and supply of new housing units will lag behind the market demand. The
"supply lag' has reinforced the surge of housing price.
As regards the planning application system, it is considered the main way of the planning
process which demand may be expected to influence planning and that it is this part of
the process that the planning system is seen as essentially responsive to the initiative of
developers. As demand for planning applications is derived from the demand for housing
but heavily constrained by land availability, the outstanding stock of permissions would
have a negative effect on this demand, and hence help bring the high housing price down
the line. In view of the relative high rate of rejection for the planning applications in
Hong Kong, the granting of planning approval may increase the supply of housing land
in the attractive locations and will help encourage market competition - the high housing
price can be brought down in the long run. However, it should be emphasized that the
granting of approvals should not comprise the need of environmental protection.
In echo with the Task Force Report (1994), in order to fast-track development and to
increase the housing supply, a priority system should be established within Planning
Department to speed up its deliberation of applications especially residential development
(it is understood that the 'Housing Project Action Team' has been set up to deal with the
issue). The Town Planning Board should also be given more information and advice to
developers to assist them in meeting its requirements in order to avoid futile attempt on
183
the part of the developers and delay on development. Moreover, it is felt that there is no
overall monitoring of the progress of individual projects across departments, thus an interdepartmental task force comprising the senior officials of Planning Department, Lands
Department and Building Authority to monitor the progress of individual projects and
enable a more accurate forecast of supply should be established. It is also important to
conduct a comprehensive review of the scale and composition of housing demand in both
the public and private sectors to provide realistic targets to aim over the short, medium
and long terms. The establishment of a land inventory system detailing the sites which
are available, which will become available for disposal, and which may become available
subject to completion of certain infrastructure is also required8. Since the Town Planning
Ordinance is currently under comprehensive review, caution is needed over amendments
which may increase uncertainty and lengthen the lead time of housing developments.
6.5.2
Increased Supply of Redeveloped Land

Wong (1993) pointed out that the feasibility of increasing the supply of new land is much
more difficult than increasing the supply of the labour force and because labour's share
in the economy is twice as large as that of land, therefore, to increase the supply of
housing without having to increase the supply of new land is to redevelop existing
properties in the urban areas so that the effective supply of housing can be increased
through the provision of more new units to replace existing ones 9 .
It is noted that
redeveloped land accounted for approximately 2/3 of new private housing since 1990s but
8
9
Task Force Report (1994).

HKCER Letters, January 1993.
184
the full potential of the redeveloped land in Kwun Tong and other areas has not been
realized because of the existing zoning restrictions, lack of infrastructure, environmental
improvements and land resumption costs' 0 .
In order to facilitate urban renewal,
contractual arrangements should, therefore, be put in place to ensure the redevelopment

process is not hampered by these problems. It is noted from Hong Kong Urban Renewal
1996 that 'Priority Redevelopment Area' has been designated in Tsuen Wan (80,342 m2
of gross site area), Kowloon" (566,772 m2 of gross site area), and Hong Kong12
(168,274 m2 of gross site area). It is noted that should all these 'Priority Redevelopment
Area' be redeveloped as scheduled, it will substantially boost the supply of land (both
housing and commercial) in the urban areas, in particular, Hong Kong and Kowloon.
6.5.3
Appropriate Rezoning/Upzoning of Land

It is suggested that rezoning open space, G/IC and industrial sites which are not required
will increase the potential sites for housing development 13 .
According to Professor
Chan, the land supply from rezoning and urban renewal was as much as 100 ha a year,
which was four or five times the amount of new land available 14 . In the public housing
10
"
12
13
14

Including Tsim Sha Tsui (31,588 nr of gross site area), Yau Ma Tei (26,022 m2), Mongkok (179,458 nr).
Sham Shui Po (125,228 m2), Hung Horn (133,376 m2), San Po Kong (27, 014 m2), and Kwun Tong
(566,772 nr). (Data extracted from PELB (1996), 'Hong Kong Urban Renewal', Planning Environmental
and Lands Branch, June 1996, Annex C)
Including Central and Western District (63,443 m2 of gross site area). Wan Chai and Causeway Bay (63,350
m2), North Point (18,829 nr), Shau Kei Wan (9,157 nr) and Kennedy Town (13,495 nr). (Data extracted
from PELB (1996), Annex C)
Task Force Report, p. 19.
23.3.1994, South China Morning Post.
185
sector, the Hong Kong Housing Authority has since September 1994 launched the
programme of putting additional housing blocks in the existing PH estates on some the
existing vacant "G/IC sites which are originally designated as school 15 .
As for the
private housing, the scope for reusing land for residential purposes has not reached its full
potential with a considerable number of industrial buildings or sites lying empty in Kwun
Tong, San Po Kong, Tsuen Wan and other areas.
In addition, the debasing of the
manufacturing sector in Hong Kong and the relocation of the airport in the near future
could enable more land in urban areas to be modified for residential use. This would
relieve pressure on new land, addressing the mismatch demand and supply and attracting
investment which helps rejuvenate these areas. The main obstacles to the use of these
areas for housing, however, are zoning restrictions, land resumption costs and the need
for
infrastructure
(roads, water and
sewerage)
or environmental
improvements
(landscaping of degraded areas) at some site. Nonetheless, appropriate rezoning of these

area for residential purposes to reflect Hong Kong's changed economic base and housing
need.
On the other hand, the private housing sector depends on private initiatives to boost the
supply of housing units through planning applications for rezoning and upzoning. For
example, the China Dying Factory in Tsuen Wan has been developed by New World
Development and Hong Kong Resort to provide 1,120 units from phase 1 of this
The release of these vacant sites is made possible because the demand for school in one estate can be
accommodated by the existing schools in neighbouring estates. Additional housing blocks has been
built in the public housing estates such as Choi Wan, Fung Tak, Wang Tau Horn and Tsui Wan, which
will supply a total of about 2,000 units (Source: HKHA Bimonthly Journal, August 1994).
186
development. Similarly, the San Miguel Brewery Site in Shum Tsen, Tsuen Wan, will
be developed by Wheelock Development to a residential development. The approval for
rezoning/upzoning of former industrial site to residential use is able to boost housing
supply in locations which is preferred by the developers - in turn it can also help
addressing the chronic shortage of residential land in the main urban areas.
The
emergence of large scale private residential development such as Laguna City and
Sceneway Garden in Kwun Tung among the industrial premises will be good cases in
point.
In this respect, it goes some way to address the current mismatch of housing
supply and demand. Moreover, in view of the massive relocation of industrial activities
to the Mainland, the rezoning/upzoning of the T site to residential or 'CDA' zone can
greatly improve the environmental quality and alleviating the 'I/R' interface problems in
the locality in terms of visual amenity, air quality, traffic and noise impact.
6.5.4
Expedite Projects in the Pipeline

Moreover as most property development and construction projects often take at least two
to three years to complete, the lagged supply response can be met by a speeding up by
an average of two months the processing of lease modifications and land exchanges' 6 .
It is estimated that this will improve housing productivity by 10% to 15% which is
equivalent to 2,000 additional flats a year17. Moreover, projects that are already in the
pipeline should be accelerated in order to produce more flats within a reasonable time
span. It is understood that many large scale commercial/residential/office development
16
17
Task Force Report (1994).

Policy Commitment, p.67.
187
projects of the big developers such as Cheung Kong and Henderson Land have been
accorded priority for land exchange/ lease modification as well as for the premium
assessment.
In addition, in speeding up the processing and completion of residential projects, lease

modification should be in the form of modification letters rather than surrender and
regrant, since it can reduce the processing time by up to 3 months from the time of
application to execution 18 .
Whereas, modifications and exchanges for residential
development should include a building covenant which specifies the completion date of
the development in order to ensure that completion of 100% of the residential units
specified19.
6.5.5
Review of Development Intensity

In view of the lack of developable land in Hong Kong, the Town Planning Board should
be more flexible in determining the plot ratios in the urban areas and examine carefully
whether or not some land in the New Territories should continue to have a ratio of as low
as 0.4 or even less20. The Metroplan has stated clearly that the intention is to 'thinning
out' the urban area, and in this connection, extra population in-take has to be in the New
Territories.
In view of the recent row on the massive reclamation of the Victoria
Harbour, it is considered that plot ratio control in the New Territories, especially the non
18
"
20

Residential development with 0.4 plot ratio normally equivalent to 'R(C)' development in the rural
OZP, whereas the lower plot ratio of 0.2 mainly refers to the existing 2-storey rural housing.
188
built-up rural New Territories, can be relaxed for more intensive development with plot
ratios higher than 0.4. In addition, the plot ratio and the aviation control on building
height in the Kowloon areas should be relieved subsequent to the relocation of the Kai
Tak Airport, which will then release a large site for development. In this connection, the
increase in ready developable land in the main urban area will go some way to address
people's preference for urban location residence.
6.5.6
Capitalizing on Private Initiatives

The Secretary for Housing pointed out that one 'must not fall into the trap of waiting for
the provision
attempting
of near-perfect
infrastructural
to meet genuine housing needs'2'.
facilities
and transport
systems
before
The Malaysian example 22 of requiring
private developers in some states to include in their building plans the production of at
least 30% of public sector flats, could facilitate the implementation of the Government's
development plans which ensures private housing development as well as boosting public
housing supply concurrently. It is felt that the use of private capital in the early phase
of any development of land can benefit the community at large since the development
programme can be implemented in a timely manner. As in the case of Hong Kong, the
development of the Tseung Kwan O new town, which is largely a venture of the
Government and the private developer, Henderson Land, is one good example. It is felt
that the use of private initiatives could help shorten the land conversion process, which
can increase the provision of housing units and cause housing price to down the line.
21
22
In the same conference. Housing the Millions, (25.5.1996, SCMP).

The Malaysian example was cited by Mr. Wong in the Conference.
180
Provision of Transport Infrastructure

As it has been discussed, the root of the spatial mismatch between housing supply and
demand is the restrictive land supply which severely limits the provision of residential
land and the consumer's choice. As shown in Tables 3 and 20, the bulk of residential
land is allocated in the NWNT and NENT with the new comer in Lantau Port owing to
the new airport at Chek Lap Kok and Tseung Kwan O new town.
As the supply of
residential land is concentrated, which may be desirable from an overall planning and
design points of view, it should have parallel and comparable infrastructural development
so that the provision of road network, transport facilities and other public utilities can tie
in with the land development without causing unnecessary delay.
Among these
infrastructural facilities, transport provision has stood out as the principal determinant.
It is noted that majority of the planning applications to the Town Planning Board under
the planning application system has been rejected on transport grounds, whereas the
approved developments often include additional proposals such as road improvement, road
widening and the provision of lay-by and traffic lights. Often, the developers will initiate
to implementation of part of the Government's Public Works Project in the vicinity of
their application site as a planning gain in order to gain planning approval.
The importance of accessibility has been discussed and it is found that developers have
accumulated substantial land bank along the major transport route and that the housing
price will raise accordingly. The location of the existing private housing estates as shown
in Figure 17 (a) lent support to the fact that housing land tends to locate along major
190
Figure 17 (a)
Existing Major Private Housing Estates in Hong Kow
27
28
29
30
31
32
33
34
37
38
39
40
35
36
47
41
42
43
44
4S
46
48
50
49
Tsuen Wan
Tucn Mun
Yuen Long/Tin Shui Wai
Shu Tin-Ma On Shan
Fanling/Sheung Shui
Tseung Kwan O
Island
Discovery Bay
Finery Garden
Serenity Park
Fan ling Centre
Sheung Shui Centre
Sunshine City
City One Shatin
New Town Plaza
Villa Athena
Kingswood Villas
Fail-view Park
Palm Springs
Tuen Mun Town Plaza

Hong Kong Gold Coast
Sun Tuen Mun Centre
Miami Beach
Luk Yeung Sun Chuen

Riviera Garden
Sun Kwai Fong Garden
Tsuen King Garden
Wonder Land Villas
Green Field Garden
Belvedere Garden
Sea Crest Villa
Whampoa Garden
Whampoa Estate
Mci Foo Sun Chuen
Villa Garden
Pare Oasis
Beacon Heights
Laguna City
Sceneway Garden
Amoy Gardens
Telford Garden
17
18
19
20
21
22
23
24
25
26
Kowloon
limiting Estate
8
9
10
II
11
13
14
IS
16
Ref. No.
1 *i l.wi Shing
Kornhill
f.ei King Wa
City Garden
Bedford Garden
Park Terrace
Pacific Palisades
South Horizons
Aberdeen Centre
Heng Fa Chuen
New Jade Garden
Beverly Hill
Chi Fu Fa Yuen
Baguio Villa
Dynasty Court
Hong Kong Parview
Hong KODf
Lot**..
191
H K Resort/New World Dev
Henderson
Sino Land/China Overseas

Henderson
Henderson
Henderson Land
Henderson/ SHK/ CK/ N W D
Sun Hung Kai
Sun Hung Kai
Cheung Kong
Canada Overseas Property
Sun Hung Kai
Sino Land
Hong Kong Land
Sun Hung Kai
Sino Land
Hong Kong Land

New World & Catei
Sun Hung Kai & M T R
Sun Hung Kai
Sun Hung Kai & Henderson
Sun Hung Kai
Cheung Kong
Sun Hung Kai
Hutchison Whampoa
Hutchison Whampoa
New World Dev
Tai Koo Dev
Wheelock
Tai Koo Dev
Cheung Kong
Cheung Kong
Hang Lung
Telford Dev
Tai Koo Dev

Hang l.ung
Tai Koo Dev
Cheung Kong
Wing Yick Dev Entr
New World Dev
Sino Land
Hutchison Whampoa
Hutchison Whampoa
M T R & Kelly Group
Sun Hung Kai
Henderson Land
Hong Kong Land
New World Dev
Sun Hung Kai
Kiu Fuk
De.eloper(s)
transport route such as the existing KCR in NENT, Light Rail Transit (LRT) in NWNT
and MTR in the urban areas. New housing supplies as shown in Figure 17 (b) is also in
close proximity to the existing transport network. As shown in Table 27, the housing
prices of the main housing estates in the NWNT, NENT and in the metro area are all on
the rise.
The rate of increase ranges from last September ranges from 15% for
Kingswood Villas to 37% for Pare Oasis, whereas the rate of increase from January this
year is in a range of 8% for Scholastic Garden and Royal Palms to 16% for Pare Oasis
and Pare Royale. It is noted that the offer price per sq.ft. is highest for those housing
estates which are located in NENT in proximity to the KCR route. It can, therefore, be
concluded that housing price will be affected by its accessibility. It is reasonable that the
more convenient the location is, the greater is the attraction to the people, consequently,
the greater demand will push up the housing price.
According to the Railway Development Strategy by Transport Branch in December 1994,

3 major corridors for mid-term development and some options for long term development
have been proposed, namely, (i) the West Rail (from the border via Kam Tin to the urban
area); (ii) the Eastern Corridor (comprises a MTR extension to Tseung Kwan O and an
East Kowloon Route which is an improved rail system serving the NENT and East
Kowloon, using the existing KCR mainline as its backbone); and (iii) Hong Kong Island
Lines (consist of three lines - (a) the South HK Island Line, (b) the North HK Island Line
and (c) the West HK Island Line).
The Long-term Options include (a) the 'Outer'
Western Corridor comprises the links to connect Tin Shui Wai, Tuen Mun, Yam O and
192
Figure 17 (b)
Newly Completed Private Residential Housing Estates in Hong Kong
Source: 27.3.1996, South China Morning Post
193
Table 27
New Projects on the Rise
Project
Latest offer price

($psf)
% change from
January 1996
% change from
September 1995
Kingswood Villas
2,552
T 11
t 15
Pare Royale
5,019
T 16
t 29
Pare Oasis
7,001
t 16
t 37
Flora Plaza
3,700
t 13
t 34
Royal Palms
2,600-2,800
Laguna City
5.500-5,600
t 10
6.567
T 8
Scholastic Garden
Pare Versailles
4,500-4,600
194
t 25
Green Island; and (b) the second Port Rail Line to the Lantau Port.
These are 'high
priority' infrastructural development which are scheduled to be implemented by the 2001

(Figure 18 refers).
From the planning point of view the improvement in the transport
infrastructure will be the one of the key factors (besides increasing the supply of housing
land) to resolve the current mismatch between housing demand and supply, and will
enable the provision of more affordable housing in the ultimate.
6.5.8
Increased Land Supply in Suitable Location

By taking into the 'high priority' transport infrastructure and in view of the major truck
road in NWNT - Route 3 is currently under construction, it is expected that the NWNT,
NENT (Tai Po and Ma On Shan in particular) and SENT (Tseung Kwan O in particular),
will be the key growth area.
Tai Po
As shown in Figure 19 (a), the area is served by the KCR and the
Tolo Highway. The convenience and direct accessibility of Tai Po has made it becoming
an established residential area with new home developments. Similarly, the Government
has also planned to increase land or public and private housing development in the area.
Most of the big developers are actively engaged in projects in the district. To date, the
housing supply includes: Richard Park, Wheelock Properties's 328-unit project, Riviera
Lodge, Classical Gardens, Pare Versailles, Serenity Park, and Villa Coast, whereas the
land bank of the major developers include Henderson Land's $500 million site, Palibury
Development's $335 million site, as well as Sun Hung Kai Properties' land bank in Wong
195
Figure 18
Proposed Railway Development in Hong Kong
196
Figure 19 (a)
Key Growth Area: Tai Po
197
Yi Au, Tai Po. If fully developed, Tai Po will be a major residential area in NENT.
Ma On Shan
As shown in Figure 19 (b), the major players in Ma On Shan are
Nan Fung Development's Ma On Shan Centre, SHK Properties' Villa Athena, Cheung
Kong's Bayshore Towers and Henderson Land's Sunshine City. The future urban rail link
from Ma On Shan to Tai Wai District in Sha Tin will improve accessibility of the area
which will then able to take-in more overspill population from the main urban areas.
Tseung Kwan O
Tseung Kwan O new town is a major residential area with
substantial private and public housing development which is in accordance with its
planned new town development programme. The MTR extension to Tseung Kwan O will
further improve the accessibility of the area and help attract more resident population.
As shown in Figure 19 (c), the Tseung Kwan O Industrial Park is being planned along
with the residential districts. It is expected that the area will be developed into a selfcontained new town. It is noted that Henderson Land Development, SHK Properties and
Chinachem Group have acquired substantial land bank in the area. The Government also
planned to release land in Tseung Kwan O to resume the outstanding Letters A and B
Exchange Entitlements in the land market before the 1997 sovereignty change-over.
6.5.9
Administrative Aspect
The followings are worthy of consideration in resolving the mismatch between
Figure 19 (b)
199
Key Growth Area: Ma On Shan
Figure 19 (c)
Source:
Key Growth Area: Tseung Kwan O
Information extracted from Tseung Kwan O Outline Zoning Plan No. S/TKO/3
200
land/housing supply and demand 23 and to help achieve the objective to increase land
supply thereby bringing down housing price in the ultimate:
(i)
Hong Kong must try to speed up the pace of release of land for urban
development. The 50-hectare a year ceiling on land supply, introduced after the
signing of the Sino-British Joint Declaration, must be reviewed as soon as possible
after the handover in 1997. As it is only a political and administrative decision
lest the British Government gaining windfall benefits from land sale prior to the
return of sovereignty to China, it is not unreasonable to repeal this limit when the
SAR Government assume governance of Hong Kong.
(ii)
Secondary market facilities should be developed to give banks engaged in housing

financing greater flexibility. (Though it may be regarded as a fiscal measure, it
is complementary to the overall planning strategy for the housing sector.)
(iii)
Inter-departmental co-ordination between planning and infrastructural development

officials should be enhanced to solve problems over spatial distribution of housing
developments.
(iv)
Housing policy should be in favour of giving away or charging only nominal

prices instead of revenue generation because it is better to have a bigger private
25.5.1996, South China Morning Post.

201
housing market.
6.6
Conclusion
The mismatch of the housing demand and land/housing supply is the result of the existing
land supply/housing price/urban planning framework.
In the long term the planning
system, can help to increase the availability and supply of housing land, to bring down
the current high housing price and, in turn, to improve the provision of more affordable
housing by improving its existing framework through (i) increased the supply of
redeveloped land, (ii) appropriate rezoning/upzoning of land, (iii) expedite projects in the
pipeline, (iv) review of development intensity, (v) capitalizing on private initiatives, (vi)
provision of transport infrastructure, (vii) increased land supply in suitable location, and
(viii)
co-ordinating
different
government
administration regarding housing development.
department
to
improve
the
existing
In the process, it is expected that the
planning system will be able to help improve the process of land conversion, encourage
positive competition among developers and water down the current market dominance by
the few developers and bring down housing price by the provision of more affordable
housing. One should, however, bare in mind that it is an on-going process and should be
viewed from a long term perspective.
The closing chapter in Chapter 7 will highlight the major findings of the subject study and
the insights gained from the process will be discussed.
202
Chapter 7
Conclusion
Chapter 7
Conclusion
The subject study attempts to examine three broad issues - land supply, housing price and urban
planning and trys to correlate the relation among the them. Owing to the fact that most studies
are concerned with each of the three issues quite separately, it may be difficult to devise a
conclusive and overriding result. Nonetheless, the findings of this Dissertation are the best effort
of the student and it is admitted that such findings may have only untapped part of the whole
picture:
It is noted that the collection of data is a major problem for the subject study. Though
the literature on land supply and housing price is immense and the data available have
been abundant, it has taken time to aggregate the information for the purpose of the
subject study. Moreover, owing to various reasons, some data on land supply and land
sales have not been available, which may distort subsequent analysis. Nonetheless the
constraint on data collection is not insurmountable and it is hoped the best have been
made from the existing data.
From the literature review, land supply affects housing price, restricting the supply of land
will raise both land and housing price. Housing prices are determined by both supply and
demand but in the short run, demand is very much more responsive, whereas in the long
run, the costs of production, which include land, would determine the supply of housing
units. On the other hand, planning affects both the extent of land supply and the extent
to which supply can respond to changes in price. In this connection, it is expected that
203
an increase in land supply by means of the planning system may help bring down high
housing price and the provision of more affordable housing.
The empirical literature on land supply, housing price and urban planning in Hong Kong
reveals that land supply is restricted in Hong Kong through the existing land use
allocation, the peculiar leasehold system and the land disposal method. The constraint on
land supply is evident from the bulk of planning applications in areas not specifically
designated for residential use and the relative high level of rejection. It therefore leads
to a mismatch between the housing demand and supply and pushes up housing price.
Planning has, in the long run, governs land supply and may help bring down the high
housing price and the provision of more affordable housing by an increase of housing land
supply. The empirical literature is largely in line with the general literature on the three
issues but there are certain unique characteristics in Hong Kong that help explain the
specific Hong Kong context and help devise the appropriate recommendations for the
Territory.
The analysis on the housing market of Hong Kong reveals that the private housing market
is concentrated and largely lies in the hands of several major market players, who governs
the timing for release of the housing units and influences their prices. Moreover, the
developers are eager to building up their own land reserve and willing to participate in
land sales with the hope to maintain their market dominance.
Housing price in Hong
Kong is high and so the quest for home ownership by the home seekers have been
dampened.
204
The analysis on land supply in Hong Kong reveals that there is the 'inherent conflict'
between the planners' concept of 'need' and the builders' concept of 'demand'.
Land
supply in Hong Kong is therefore restrictive through the peculiar leasehold and land
disposal system which precipitate high land prices, together with the market conditions the cost of credit and the quest for home ownership has led to resultant high housing
price.
There is, however, no inherent ills in having high land prices since the stable
revenue can indeed expend to the provision of public housing for the lower income
groups. In this respect, it looks to the urban planning system with a view to improving
land use allocation and the provision of affordable housing for the home seekers.
The mismatch between housing supply and demand can be resolved by the improvement
of the transport infrastructure and an increase in the provision of housing land under the
planning framework.
It is expected that by improving the existing planning system in
terms of (i) increased the supply of redeveloped land, (ii) appropriate rezoning/upzoning
of land, (iii) expedite projects in the pipeline, (iv) review of development intensity, (v)
capitalizing on private initiatives, (vi) provision of transport infrastructure, (vii) increased
land supply in suitable location, and (viii) co-ordinating different government department
to improve the existing administration regarding housing development. In the process,
it is expected that the planning system will be able to help improve the process of land
conversion, encourage positive competition among developers and water down the current
market dominance by the few developers and bring down housing price by the provision
of more affordable housing in the long run.
205
LIST OF APPENDICES
Appendix 1
Residential Land Sales - Land Auction
(1985/86-1995/96)
Al-(l)
LANDS DEPARTMENT
HEADQUARTERS
Tel:
2843 2722
^ax-
2501 4042
OurRef- (36) i n LD 3/1010/82 II

Your
Ref:
28 June 1996
M i s s CHEUNG Y u k - y i ,
Alice
Dear Madam
Code on Access to Information
Re : Application No. 14/96
I refer to your application dated 22 June 1996 seeking access

to information relating to the sale of residential land by auction
from 1960 to May 1996.
I regret that not all of the very detailed information you
have requested is available in our records, nor do our available records
extend over the thirty six year period.
I attach herewith photocopies of our records on this subject
and trust the information supplied will be useful. Should you require
any clarification please communicate with the undersigned.
If you are not satisfied with the above response, you may
ask the department to review it by writing to the Director of Lands
at 4/F, Murray Building, Garden Road, Hong Kong. Alternatively, you
may complain to the Commissioner for Administrative Complaints, whose
address is6th floor, Hennessy Centre
East Wing, 500 Hennessy Road
Causeway Bay
Hong Kong
Telephone
Fax
2805 7569
2882 8149
Yours
faithfully
(G M Ross)
for Director of Lands
GMR/j c
2 / F . MURRAY BUILDING. GARDEN ROAD. HONG KONG
Al-(2)
age No.
5/06/96
Residential Sites Sold 3y Govt. Land Auction
( 1985/86 - 1995/96 )
Al-(3)
Page No.
25/06/96
Residential Sites Sold 3y Govt. Land Auction
( 1985/86 1995/96 )
Al-(4)
'age No.
15/06/96
Residential Sites Sold By Govt. Land Auction
C 1985/86 1995/96 )
Appendix 2
Letter from Lands Department dated
30 July 1996
A2-(l)
LANDS DEPARTMENT
HEADQUARTERS
Is
Tel:
2848
Fax:
2501 4 0 4 2
2722
Our Ret- ( 4 4 )
i n LD 3 / 1 0 1 0 / 8 2
I]
Your Ref:
30 J u l y 1996
Ms CHEUNG Yuk Yi Alice
Dear Ms CHEUNG
Code on Access to Information
Application No. 14/96
I refer to your letter dated 10 July 1996 and am endeavouring

to obtain the necessary information for you.
It may not, however, be
possible to provide you with fully comprehensive details.
Yours sincerely,
(I J MacNaughton)
for Director of Lands
IJM/jc
# *
f t m & *
PI *
& -
2/F . MURRAY BUILDING. GARDEN ROAD. HONG KONG
BIBLIOGRAPHY
BIBLIOGRAPHY
Bristow, Roger. Land-use Planning in Hong Kong: History, Policies and Procedures.
Kong: Oxford University Press, 1984.
Bristow, Roger. Hong Kong's New Towns: A Selective Review.
Press, 1989.
Hong
Hong Kong: Oxford University
Brnaud Bertrand. Affordable Housing and Housing Sector Performance: the Housing Price-toincome Ratio as Summary Indicator, the World Bank (I.B.R.D.), Washington D.C., October 1989.
Churchouse F.P., 1987, 'Role of Private Sector in Housing", Paper presented at the Housing
Conference, 1987, Housing for People - The Way Ahead, Institute of Housing, Hong Kong
Branch.
Cullen Matthew & Woolery Sharon (ed.), World Congress on Land Policy, J 980, Lexington
Books. 1982.
Consumer Council, How Competitive
Council, July 1996.
Don Lyons, "Mortgage
Morning Post.
is the Private Residential Property Market?, Consumer
war teaches happy buyers new alphabet", in 5.5.1996, South China
Gerald Eve, Chartered Surveyors with the Department of Land Economy, University of
Cambridge, The Relationship Between House Prices and Land Supply, Department of the
Environment Planning Research Programme, London: HMSO, March 1992.
Hadland B.J., "Land Policies in Hong Kong" in Wong, L.S.L. (ed.), 'Housing in Hong Kong: A
Multi-Disciplinary Study', Hong Kong, Heinemann.
Harvey Jack, Urban Land Economics, Macmillan Education Ltd., 1992 (3rd ed.).
Hang Seng Economic Monthly, "The Residential Property Market", May 1992.
Hang Seng Economic Monthly, "Residential Property Market Review", July 1993.
Hong Kong Government. Comprehensive Review of the Town Planning Ordinance. Hong Kong:
Government Printer, 1991.
Hong Kong Census and Statistics Department.
Government Printer, 1995a.
B-l
Monthly Digest of Statistics,
Hong Kong:
Justice and Peace Commission, The Land of Hong Kong: so precious, A Reflection of the Hong
Kong Justice and Peace Commission on the Problems of Land in Hong Kong, August 1979.
Kam C.K., The Development and Management
Chinese Press, August 1992 (1st ed).
of the Property Market of Hong Kong, the
Kenneth Ko, "High land prices at Government auctions the major cost, Building cost remain
minor project factor", South China Morning Post, 12.4.95.
Kleinwort Benson Research, "Hong Kong Property: After The Storm", in 23.8.95, SCMP.
Kwok Kwok-yuen, "New pattern of demand emerges: redevelopment of old areas and fast links
to new towns urged", South China Morning Post, 14.6.95.
Kwok R. Yin-Wang, "Land Sales and Government in Hong Kong 1976-81", Centre of Urban
Studies and Urban Planning, HKU, April 1983.
Lands Administration Office, "Land Administration
Department, Government Printer, March 1993.
in Hong Kong", Buildings and Lands
Lai Siu-Fun Rita (1993), Housing Price and Government Land Policies, M.Sc. (Urb.Plan) 93L
Thesis, HKU
Lai W.C. Lawerence (1994), "The Property Price Crisis",in The Other Hong Kong Report, edited
by Donald H. McMillen and Man Si-wai. Hong Kong: The Chinese University Press, 1992,
ch.ll.
Law, Cheung-kwok, "The State of the Economy." in The Other Hong Kong Report 1992, edited
by Joseph Y.S. Cheng and Paul C.K. Kwong. Hong Kong: The Chinese University Press, 1992,
pp. 149-62.
Monk Sarah, Barry Pearce and Christine Whitehead, "Planning, Land Supply and House Prices A literature review, Monograph 21,", Property Research Unit, Department of Land Economy,
University of Cambridge, 1991.
Monk Sarah, "Planning, Land Supply and House Prices, The National and Regional Picture,
Discussion Paper 33,", Property Research Unit, University of Cambridge, Department of Land
Economy, 1991.
PELB, 'Hong Kong Urban Renewal',
Government Printer, June 1996.
Planning Environmental and Lands Branch, Hong Kong
Peng Ruijue and Wheaton C. Willian, "Effects of Restrictive Land Supply on Housing in Hong
Kong: An Econometric Analysis", Journal of Housing Research - vol. 5, Issue 2, Fannie Mae 1994.
B-2

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Title

Land supply and housing price of Hong Kong: implication for

Cheung, Yuk-yi, Alice.; .

The author retains all proprietary rights, (such as patent rights)

LAND SUPPLY AND HOUSING PRICE OF HONG KONG:

Alice Yuk Yi CHEUNG

Submitted in partial fulfillment of the requirements for

Goals and Objectives of the Study

Methodology of the Study

Structure of the Dissertation

Housing Land Supply

Land Price Determination

Housing Price Determination

Land Price and Housing Price

The Effects of Planning on Land and House Prices

EMPIRICAL LITERATURE: LAND SUPPLY, HOUSING PRICE AND

Land Supply and Housing Price

Land Price and Housing Price

The Pricing Mechanism of the Land Resources

Land Price and Construction Costs

The Land Factor in the Pricing of Flats

Planning System in Relation to the Supply of Housing Land

Total Quantity of Housing Land

Location of Housing Land

Uniqueness of Hong Kong's Housing Market

Government's 'High Land Price' Policy

Land Bank Accumulated by the Private Developers

Conclusion: The Analytical Framework

THE HOUSING MARKET OF HONG KONG

The Hong Kong Housing Market

The Property Cycles

The 1973-83 Property Cycle

The 1983-90 Property Cycle

Property Booms in the 1990s

The Renewed Upsurge in 1993

Government Intervention in 1994

The Market in the Making: behind the Price Changes

Income and Savings

Degree of Home Ownership

Vacancy and Take-Up

Effects of Land Price and Housing Price

Prevailing Conditions of the Housing Market

The Quest for Home Ownership

Concentration and Manipulation of the Housing Market

Land Supply in Hong Kong

The Concept: From the Perspective of the Dissertation

Existing Land Supply

Sino-British Joint Declaration

Land Sales Revenue

Land Supply and Housing Strategy

Government Housing Strategy

Public Housing Sector

Private Housing Sector

A Reappraisal of the 'High Land Price' Policy

IMPLICATION OF LAND SUPPLY AND

Effects of Urban Planning on Land Supply and Housing Price

Spatial Mismatch between Housing Demand and Supply

Implication for Housing Price - The Future Trend

Implication for Housing Production - The Future Trend

Implication for Urban Planning

Review of the Existing System

Increased Supply of Redeveloped Land

Appropriate Rezoning/Upzoning of Land