Financial Secretary Paul Chan Mo-po recently said the Hong Kong government would grant land in the Northern Metropolis to private companies that bring new technology and job prospects to industries such as artificial intelligence (AI) and life sciences.
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His speech comes after the government announced the large-scale land disposal pilot scheme to expedite the Northern Metropolis’ development and last year’s memorandum of understanding signed by 85 enterprises expressing support for the project.
While the government is forging ahead with the large-scale land disposal scheme, we must keep in mind that this approach gives the government less control over the risks and returns on the land than conventional development models. The large-scale land disposal approach could result in less government revenue from taxes. Therefore, the government should strive to ensure that it is not giving away too much control and benefit at this early stage so the long-term interests of the Northern Metropolis are not undermined.
Over the years, Hong Kong has mostly adhered to a conventional development model. First, the Planning Department prepares zoning plans for a new area, and the Town Planning Board reviews them. Once they are approved, the government pays a contractor who wins the tender to build the project.
Afterwards, the government recoups the cost directly from the land sale and indirectly from future company profit taxes and employee salary taxes. This model lets the government control land use and also gives it flexibility to change aspects of the project throughout.
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Another model is the public-private partnership, which typically manifests in a long-term agreement between a private company and the government. The private company bears the initial capital cost of the project, and the government pays back the company with future revenue generated by that project. In Hong Kong, a popular variation of this model is the “build, operate, transfer” approach.