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News Release

Hong Kong

JLL urges government to review the assessment of land premium

Sharp increase in marketing cost has yet been reflected in assessment


HONG KONG, 25 June 2015 – JLL urged the government to review marketing costs for residential projects, one of the parameters in assessing the land premium amount. This amount should reflect the change in property marketing practices​. The government should significantly increase the proportion of sales and marketing costs to the sales proceeds. We believe it will be easier for the government and developers to reach an agreement on the land premium amount if the government revises the parameter for the assessment of the land premium. Consequently, this will help increase new housing supply.

JLL carried out a survey regarding the sales and marketing of 30 residential projects that our firm has handled over the past five years, to monitor the change in marketing costs. We found that the marketing costs of new residential projects, including the agents’ commission, have risen sharply in recent years. Currently, the marketing costs for general residential projects range between 5.5% and 9%. The smaller the scale of the project, the higher the marketing costs as a percentage of the sales proceeds to be expected.

Joseph Tsang, Managing Director at JLL Hong Kong, said: “The demand-management measures introduced by the government and the Residential Properties (First-hand Sales) Ordinance—which took effect in 2013—have affected the marketing of new residential units in recent years. Developers have become more reliant on the services of real estate agencies and have had to raise the commission fees following the increase of new housing supply. Also, they have had to invest resources and human resources to fulfil the requirements of the Ordinance. The requirements on​ sales arrangements include issuing sales brochures, creating a website, releasing and updating information about the project, setting up various kinds of show flats, and arranging flat viewing/flat selection, etc. Developers have not been able to cut the budget for traditional advertisements (such as newspapers, magazines, TV and radio); this has boosted the marketing costs significantly.

Lau Chun-kong, Head of Valuation Advisory Services of Asia at JLL, said: “Previously, developers would not argue marketing costs with the Lands Department during the assessment of the land premium. But following the sharp increase in marketing costs, the Lands Department did not address necessary changes for this parameter. Based on market information, the difference in marketing costs was one of the major reasons that developers and the Lands Department failed to reach agreement in land premium amount.

According to data of the Development Bureau, a supply of 4,000 flats was by way of land exchange or lease modification procedure of private lands during the fiscal year of 2011/12. The number supplied through this channel, however, started to decrease dramatically afterward. In the fiscal year of 2012/13, there were only 700 flats. It dropped to only 90 flats in the fiscal year of 2013/14. For the last fiscal year to January this year, the new housing supply from land exchange/modification was only 100 flats.

Although the government has lowered the forecast on new housing supply from land exchange/modification procedure over the last few years, the actual housing supply from this procedure in recent years was at least 83% less than the government’s forecast. It was also less than the average supply of 2,700 flats over the past ten years.

Tsang said: “If there are fewer residential projects that reach the land premium agreement, it will dampen the new housing supply in the long term.”

JLL suggests the government review the parameters in assessing the land premium amount. The government should increase the proportion of sales and marketing costs to 6% of the sales proceeds in general with adjustments for development scale of the new projects. We believe it could help both parties to reach land premium agreements and increase the new housing supply as a result. It will ease the problem of housing shortage overall.

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