Debunking Hong Kong's Land Supply Dilemma

Is Hong Kong really short of land supply for residential development or does the problem lie more with how available land is being used. It's time to step back and review all options before getting drawn into the swirl of debate.

August 10, 2018

Housing issues have long plagued Hong Kong. City dwellers are left with a limited choice of flats that are small yet pricy. Hoping to drive prices down in terms of simple supply and demand, the city has looked at ways to boost land supply, which has led to an ongoing debate over land reclamation and other options.

Official figures from the Hong Kong 2030+ study show that over the next 30 years the city will need more than 4,800 hectares of land supply. With 3,600 hectares currently allocated for planned developments, this means that Hong Kong will face a shortage of at least 1,200 hectares running up to 2046, an area sixty times the size of Victoria Park.

But Joseph Tsang, our Managing Director for Hong Kong and Macau questions whether the problem really lies with land supply or how the available land is being used.

"Perhaps it is time to take a step back and review the proposition behind this overheated debate, before we are led to the wrong direction," he argues. "Is Hong Kong really short of land supply for residential development?"

Among a range of short-to-long-term solutions recommended by the government's Task Force on Land Supply is further land reclamation. 490 hectares of new land supply could be generated from reclamation along coastal areas of the New Territories and Lantau Island, including Lung Kwu Tan, Siu Ho Wan and Sunny Bay, Ma Liu Shui, and Tsing Yi Southwest.

While land reclamation does not have a major impact on existing land uses, its major drawback is that only the city's next generation will be able to reap the benefits. "It takes 20 years on average to complete land reclamation works," says Tsang. "On top of that time is needed to have the land prepared for residential and community development."

As a more effective development option, Tsang points to the brownfield sites scattered close to Hong Kong's northern border, in the New Territories. While 540 hectares of brownfield sites have already been put under urban planning for residential purposes, there are another 760 hectares of smaller and scattered clusters of private brownfield sites that can be earmarked for urban planning.

"Brownfield sites are a faster option than land reclamation, and are more likely to generate land supply within the current Government's up-to-10-year term of office," says Tsang.

Another alternative is developing land now allocated for private entertainment purposes. Around 40% of Hong Kong's 66 recreational sites belong to private sports clubs, which could yield a total of 341 hectares of land.

Relocating other institutions away from Hong Kong Island could also free up space for housing, suggests Tsang. "Sites such as the Hong Kong Police College site in Wong Chuk Hang could be translated into 18 hectares of land to provide 13,000 600 sq. ft. flats."

Meanwhile, Hong Kong has a huge reserve of stock in its secondary market, but government measures—introduced in 2009 to cool the city's red hot prices—have resulted in high upfront costs that mean they are inaccessible to the majority of buyers. Now home-buyers are funneled into the primary market where transaction costs are significantly lower. 

With external factors such as a potential U.S.-China trade war looming, the cooling measures could only worsen any downturn, resulting in a market freefall if the market turns. "Although the market is still healthy, the Government should ease some of its cooling measures to avoid any irreversible aftermath," says Tsang.