2024-04-26 Squarefoot Editor
In recent years, people have been discussing the ‘2047 land lease’ issue. Some worry that their property ownership will be affected, while others express concern that the the government will eventually repossess land following property lease expiration.
According to the Development Bureau, by June 2025, about 50 land leases will expire first. By 30 June, 2047, about 300,000 general land use leases will expire, many of which are shared ownership lots and involve a large number of titles, complexifying the situation.
In addition to the large number of lots to review, the Development Bureau proposes to streamline the lease renewal process, by allowing the lease to be renewed for 50 years at no premium. During the period, a government rent of three per cent of the land rent’s rateable value will be paid annually. Only a small number of serious breaches of the lease will be gazetted and not renewed, but the titleholder can still appeal.
What exactly is a land lease? Land titles in Hong Kong can be divided into "freehold" and "leasehold", where the Government owns the land and leases it out to the developer. The term of the lease is the period of time for which the land is leased to the developer.
The term of the land lease is defined by the leaseholder. Land lease terms have been been set since the former British Hong Kong government and there are three main types of land leases, namely 75 years, 99 years, and 999 years. There are currently 15 housing estates in Hong Kong with 999-year leases, mainly on Hong Kong Island, including one of the top blue-chip housing estates, Taikoo Shing.
Why are 999-year leasehold estates so rare? The reason is that during the colonial era, the government granted a large number of 999-year leases. However, the colonial government later felt that it would lose its long-term control and thereby stopped granting 999-year leases. Following this, the lease term was changed to 75 or 99 years.
When a land lease expires, there are three possible scenarios. Firstly, the lease can be renewed automatically by paying an annual rent of 3 per cent of the rateable value without paying a premium; secondly, the lease can only be renewed by paying a premium.
The third option is for the Government to repossess the land and not to accept renewal of the lease. Of these, repossession is the most extreme option and will likely arouse social opposition. Subsequently, it is less likely to happen. Although the Government has not yet enacted legislation, according to the Development Bureau's advice, it is believed that the Government will generally choose the first option, which is convenient and quick, to deal with renewal matters.
The maximum repayment period for a residential mortgage is 30 years. If the land lease of the flat that a buyer intends to purchase expires in 2047, only 24 years from now, and they wish to take out a 30-year mortgage, how will banks approach this situation? Will this affect the buyer’s approved mortgage term?
Fundamentally, this does not require special handling and does not affect the approval process. Although the uncertainty of the land lease issue will increase the banks’ lending risk, the Government has already stated through the HKMA that banks do not need to adjust their mortgage policy due to the 2047 expiry date, and that the Government has the right to grant renewed land leases.
In a long-term, low-interest environment, many buyers tend to extend their mortgage repayment term to the maximum of 30 years. Whether the bank can grant a 30-year mortgage will vary depending on factors such as age, building age, property type, transaction type and mortgage percentage.
In addition, as the renewal of the land lease remains undecided, some banks will include an insurance clause in the mortgage deed, stating that the bank reserves the right to adjust the mortgage terms if the land lease is not renewed successfully. Borrowers should also pay attention to the relevant terms if they pay off their mortgage early.
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| Property Type | Price | Ads Period |
|---|---|---|
| For Sale Property | ||
Normal Listing Typical One | HKD:1000 (or Hsemoney:1000) | Valid:90 Days |
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| Rental Property | ||
Normal Listing Typical One | HKD:1000 (or Hsemoney:1000) | Valid:80 Days |
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