The Real Estate Law Review: Hong Kong

Introduction to the legal framework

i Ownership of real estate

In Hong Kong, land grants are made on a leasehold basis. The 'ownership' of the leasehold land is granted by way of a government lease or a government grant. The government grant will contain conditions, which, when satisfied, will lead to a government lease being deemed to be issued (the practice is that the government will not issue an actual government lease). The government lease or grant will usually specify the government rent, term duration, building covenants and user restrictions, the breach of any of which entitles the government to re-enter the land and determine the government lease or grant.

For multi-storey buildings, government leases are granted for the piece of land on which the building is erected. There are no separate government leases for the ownership of units in that building and all unit owners are 'co-owners'. A deed of mutual covenant governs ownership of each individual unit in a building by notionally dividing the combined land and building into a number of undivided shares and allocating a certain number of these undivided shares to each unit in the building. These undivided shares have attached to them the right to exclusive use and possession, and the purchase of a unit in a building is effected by way of an assignment of all the rights attached to those undivided shares for the remainder of the term of the government lease.

Following the change of sovereignty on 1 July 1997, all land in Hong Kong has become property of the People's Republic of China, and the responsibility for the management, use and development rests with the government of the Hong Kong Special Administrative Region of the People's Republic of China (Hong Kong). The Basic Law of Hong Kong provides that government leases granted prior to 1 July 1997 will continue to be recognised and protected under the laws of Hong Kong. All government lease terms are either granted or entitled to an extension for another 50 years or until 2047.

ii System of registration

Hong Kong operates on a system of document registration (as opposed to title registration) where instruments affecting real properties are lodged for registration with the Land Registry. The registered particulars and relevant documents are open to public inspection. Registration in the Land Registry confers priority on registered documents and serves as notice of registered instruments to anyone dealing with the particular property.

However, the document registration system in Hong Kong only determines the priority of registrable interests in real property. Under Section 2(1) of the Land Registration Ordinance, 'deeds, conveyances, and other instruments in writing, and judgments' affecting land are capable of being registered with the Land Registry. Consequently, a registered interest holder may be in competition with an unregistered interest holder of an unregistrable interest in real property. In these circumstances, priority is determined in accordance with common law principles.

All registrable instruments registered within one month after the date of execution will take priority from their execution date. All registrable instruments registered more than one month after the date of execution will take priority from the registration date.

Although the register maintained by the Land Registry does not establish title to the property, it does act as a record of transactions that can be relied upon in establishing the details of the title to a particular property.

The Land Titles Ordinance was passed by the Legislative Council on 7 July 2004, which provides for the gradual conversion from the existing deeds registration system to a title registration system. However, the Land Titles Ordinance is not yet in force, and it is unclear when preparatory work will be completed to enable the commencement of the Land Titles Ordinance for a title registration system in Hong Kong.

iii Choice of law

A contract may have a clause expressly providing the governing law applicable, which will generally be upheld by the courts, but formalities, including conveyance and securitisation of the property and registration of instruments in the Land Registry, will usually be governed by Hong Kong law.

Overview of real estate activity

i Activity levels in real estate market

Following a period of recession in 2020, the momentum of growth of the Hong Kong property market continued in 2021 as the local covid-19 pandemic situation improved and the Hong Kong economy recovered. The Hong Kong private home market prices hit a record high in July 2021.2 The previous record high was in May 2019 before the covid-19 outbreak and the anti-government movements. There are also signs of revival in the office market as net absorption of Grade A office space totalled 327,700 square feet during the three months ending 30 September 2021, the first positive take up since the same quarter two years ago, even though some corporate downsizing has been observed after the covid-19 outbreak. Leasing volume in Central district recorded a 69 per cent increase in the second quarter from the same period in 2020. The retail market leasing also continued to improve as domestic consumption was driven by the Consumption Voucher Scheme.3 It was also driven by the food and beverage sector in non-core retail areas in Hong Kong where dining out has become the main mode of entertainment for locals. However, the recovery of tourist districts is much slower as uncertainties remain over the target date for lifting travelling restrictions and the return of tourists to the region.

In the Chief Executive's 2021 Policy Address, various initiatives were proposed relating to the real estate industry, including the Northern Metropolis Development Strategy as a plan to foster Hong Kong's integration into the Guangdong Hong Kong Macao Greater Bay Area. The main policy goals are to increase land supply for the provision of housing and to support urban development and renewal in Hong Kong as the shortage of land and housing supply in the city has long been the most fundamental issue for years. It is believed that the two metropolises located in the north and south of Hong Kong would enhance the spatial layout of the city, complement each other, and therefore drive the future development of Hong Kong. The Hong Kong government also noted that the Lantau Tomorrow Vision, together with reclamation projects and other ongoing and planned large-scale projects, would be expected to produce land sufficient to meet the long-term shortfall.

In the second half of 2021, there were concerns over credit defaults of some property developers in China. The failure to meet financial obligations by such developers would impact the confidence of investors, financiers and creditors. Other countries may closely scrutinise the situation. The United States Federal Reserve has even flagged it as a potential risk to the American economy. It remains to be seen whether the central government would introduce policies to stabilise sentiments of the property market and restore confidence in those developers. In Hong Kong, although a few new developments, with construction in progress, required restructuring of the equity holders above the property holding level and refinancing, in general, the integrity of the system for presales of new development is not affected because investors enjoy a high degree of protection under the law and practice governing presales with sufficient construction costs secured to ensure completion of new developments.

In the 2020 Policy Address, the Chief Executive of Hong Kong announced the abolition of the double ad valorem stamp duty (Double AVD) on non-residential property transactions. The abolition of the Double AVD will reduce commercial property transaction costs and facilitate sales of commercial properties by businesses that are in liquidity needs.

ii Availability of finance

Regarding residential mortgage lending in Hong Kong, banks must comply with a 30 to 60 per cent loan-to-value (LTV) ratio guideline. Banks can only approve mortgage loans for over 60 per cent of the value of the property without incurring additional credit risk by joining a mortgage insurance plan provided by HKMC Insurance Limited (HKMCI). Under the mortgage insurance plan, banks can grant mortgage loans of up to 80 per cent LTV ratio for property valued below HK$6 million and up to 90 per cent LTV ratio for property valued below HK$4 million to eligible applicants. On 16 October 2019, HKMCI announced that, subject to an additional 15 per cent premium, the maximum property value eligible for mortgage loans of up to 80 per cent LTV ratio is increased to HK$10 million and eligible first-time homebuyers can take mortgage loans of up to 90 per cent LTV ratio for property valued below HK$8 million. The maximum debt servicing ratio of mortgage loans of a mortgage applicant who has more than one property ranges from 30 to 50 per cent, depending on the location from which the applicant's income is mainly derived. First-time homebuyers will still be eligible for mortgage loans of up to 80 or 90 per cent LTV ratio even if they cannot meet the stressed debt servicing ratio, subject to an additional adjustment to the premium based on relevant risk factors.

The Hong Kong Monetary Authority released a number of requirements on mortgage lending for properties transacted after 19 May 2017. First, the risk-weight floor (the lowest level of capital reserve that a bank has to maintain) has been raised from 15 to 25 per cent for new residential mortgage loans approved. Second, the applicable LTV cap will be lowered by 10 per cent for property mortgage loans involving borrowers or guarantors with one or more pre-existing mortgage loans, in addition to the existing requirement of lowering the applicable debt servicing ratio limit by 10 percentage points for these loans (i.e., a 20 per cent reduction in the LTV cap for borrowers or guarantors with one or more pre-existing mortgage loans). Third, the applicable debt servicing ratio will be limited by 10 percentage points for property mortgage loans extended to borrowers whose income is mainly derived from outside Hong Kong.

In August 2020, the Hong Kong Monetary Authority relaxed its LTV rules on mortgage lending for non-residential properties (i.e., commercial and industrial properties or car parks), raising the LTV caps by 10 per cent across all property security transactions. As a result, the current LTV caps range from 30 to 50 per cent, depending on the conditions of the underlying transaction, including, for example, whether the applicant's income is mainly derived in or outside Hong Kong.

The Hong Kong Financial Services Development Council (FSDC) states that the financial services industry is expecting the opening up of more business opportunities in relation to environmental, social and governance (ESG) for Hong Kong as an ESG investment hub. Consistent with this line of development, the real estate sector is placing an increasing focus on ESG by way of green financing. For example, a developer listed on the Hong Kong Stock Exchange issued a green bond worth over US$3 million for its Greater Bay Area projects. It has also issued further green bonds to raise money for the development of green buildings in Hong Kong.

Foreign investment

While there are generally no legal restrictions on foreign investors owning, selling, leasing and developing real estate in Hong Kong, it may be more difficult for foreign investors to obtain a mortgage in Hong Kong. In addition to the aforementioned new requirement by the Hong Kong Monetary Authority, mortgage insurance plans are generally unavailable to applicants whose income is mainly derived from outside Hong Kong, unless these applicants can demonstrate a close connection with Hong Kong. Furthermore, legal opinions may be required to confirm that the foreign corporate investor has legal power to enter into the transaction, to deal with and to execute the relevant documents involving the Hong Kong property; this may impact transaction costs.

Structuring the investment

The structuring of an investment in real estate in Hong Kong will likely be based on tax and accounting considerations of the investor. It is therefore prudent to obtain advice on tax and accounting implications for the investor in both the investor's own jurisdiction and in Hong Kong when investing in Hong Kong property. The availability of financing (and the LTV ratio) may also be a factor when determining the structure of the investment.

i Corporate entity

In Hong Kong, a company is a separate legal entity that can hold real estate assets and mortgage and charge the property it holds. It is not unusual for corporate special purpose vehicles (SPVs) to be set up to hold one or a portfolio of properties. Subject to the administrative requirements under Hong Kong company law, the investor may enjoy advantages of limited liability and tax advantages when realising the value and disposing of the real estate asset through a transfer in ownership of the SPV instead of through assignment of the property.

An investor may also make use of a corporate offshore SPV, depending on regulatory and tax considerations. Popular jurisdictions for setting up offshore SPVs include the British Virgin Islands, the Cayman Islands and Bermuda.

ii Partnership structures

When there is co-ownership and joint management of the real estate asset, a general partnership may be formed if the relation between parties is to carry on a business in common with a view of profit. When deciding whether the parties are partners, the law will look at the substance of the relationship. Partners in a general partnership are liable for each other's debts and liabilities.

The Limited Partnerships Ordinance provides for limited partners who would only be liable up to the amount of their investment. However, limited partners are subject to the restrictions specified in the Ordinance, including the limitation that limited partners are not allowed to participate in the active management of the partnership and the real estate assets held, which must be left to the general partners to manage.

iii Real estate investment trusts

Real estate investment trusts (REITs) are collective investment schemes constituted as unit trusts that invest primarily (at least 75 per cent of its gross asset value) in income-producing real estate assets and are listed on the Hong Kong Stock Exchange. The goal of REITs is to provide returns to investors derived from recurrent rental income. The Hong Kong Securities and Futures Commission has issued a 'Code on Real Estate Investment Trusts' (REIT Code) together with other guidance on the authorisation and operation of REITs. The REIT Code prohibits REITs from investing in vacant land other than in specific circumstances or engaging in property development activities unless certain conditions are satisfied and REITs are subject to a maximum borrowing limit of 50 per cent of their gross asset value. REITs have to distribute annually an amount not less than 90 per cent of their audited net income after tax to their investors as dividend.

iv Listed property company

In addition to investing in a REIT, investors may indirectly invest in Hong Kong real estate by acquiring shares in a Hong Kong listed property company. Many of the major developers and owners of residential, office, retail, industrial and hotel properties in Hong Kong are listed on the Hong Kong Stock Exchange. This method offers a ready and liquid form of investment as well as the regulated governance of a publicly listed company. Conversely, a listed company will be subject to regulatory and disclosure requirements that may hinder the company's strategies in property investment.

Real estate ownership

i Planning

The Town Planning Board is a statutory body established under the Town Planning Ordinance tasked with guiding and controlling the development and use of land and types of buildings suitable for erection, preparing new draft zoning plans, exhibiting draft plans for public comment, considering applications for planning permission, and submitting draft plans for approval by the Chief Executive in Council. Its executive functions are carried out by the Planning Department, which is responsible for creating plans on behalf of the Town Planning Board, providing technical services and enforcing zoning restrictions. The Town Planning Appeal Board hears appeals against the Board's decisions to reject planning applications.

In March 2021, the Development Bureau (DEVB) launched a two-year pilot scheme for charging land premiums at standard rates for government grant modifications on redevelopment of industrial buildings (IBs). This scheme is to encourage revitalisation of IBs. IBs constructed before 1987 would fall within the scheme. Standard rates are set for IBs existing in five regions in Hong Kong and three types of uses involved in lease modifications for IBs, which are for commercial, modern industrial and residential use after redevelopment. Therefore, IB owners are provided with an alternative to the conventional mechanism for premium assessment, to expedite revitalisation of IBs.

ii Environment

The environment is an issue of significance for town planning and land development in Hong Kong. Governmental supervision is generally by way of proper land use planning, along with appropriate controls at the source through licensing and enforcement of environmental protection ordinances. Environmental planning is an early consideration when the government scrutinises and considers approving land use plans. The government review focuses on the impact of the development on air, noise, water and waste pollution levels.

Development projects that have the potential to cause significant damage to the environment may be classified as Designated Projects under the Environmental Impact Assessment Ordinance and are required to follow the statutory environmental impact assessment process to obtain the requisite environmental permits before construction and operation commence.

iii Tax

Stamp duty on disposition of immovable property

There are three types of stamp duty that may be applicable to the sale of property in Hong Kong. The ad valorem stamp duty (AVD) is applicable to all dispositions of immovable property. The government has also introduced a special stamp duty (SSD) and a buyers' stamp duty (BSD) with effect from 20 November 2010 and 27 October 2012 respectively for the sale of residential properties. The SSD and the BSD were introduced with the aim of cooling the overheating residential property market.

The parties legally liable to pay AVD, BSD or SSD are defined under the laws of Hong Kong. However, it is customary for a contract for sale to stipulate that the purchaser will pay the AVD and BSD and the vendor will pay the SSD.

Effective from 27 October 2012, BSD is payable on a contract for sale or a conveyance on sale of any residential property. BSD is charged at 15 per cent on the consideration or the market value of the property (whichever is higher). The BSD is subject to specific exemptions, including the sale of the property to a Hong Kong permanent resident. Any residential property acquired and resold within certain holding periods, up to 36 months, will be subject to the SSD ranging between 10 to 20 per cent of the value and consideration of the property, depending on the timing of resale.

AVD for residential properties has been increased to a flat rate of 15 per cent on the consideration or the market value of the property (whichever is higher). Persons who qualify for a lower rate of AVD must satisfy certain exemption criteria stipulated by the Hong Kong government. Examples of this exemption are when the buyer is a Hong Kong permanent resident and is not a beneficial owner of any other residential property in Hong Kong at the time of acquisition of the residential property or the buyer has divested himself or herself of ownership of all other residential property in Hong Kong within six months.

On 11 April 2017, the Hong Kong government tightened up measures on the existing exemptions to the effect that, unless specifically exempted or otherwise provided in the law, acquisition of more than one residential property under a single instrument executed on or after 12 April 2017 will be subject to the proposed new AVD flat rate at 15 per cent. As mentioned in Section II.i above, the Hong Kong government abolished the Double AVD on non-residential property transactions effective from 26 November 2020, which means that non-residential property transactions will attract the same stamp duty rates as those residential property transactions who qualify for lower rates of AVD thereafter. The rates of AVD range from 1.5 per cent to 4.25 per cent, depending on the value of the non-residential property.

Stamp duty on transfer of Hong Kong stock

The acquisition or transfer of shares in a property holding company is not subject to the AVD, SSD or BSD. However, parties will still have to pay stamp duty at the following rates if the transfer directly involves Hong Kong stock:

Contract note for sale or purchase of Hong Kong stock0.1 per cent of the amount of the consideration or of its value on every sold note and every bought note
Transfer operating as a voluntary disposition inter vivosHK$5 + 0.2 per cent of the value of the stock
Transfer of any other kindHK$5

The parties legally liable to pay stamp duty on the transfer of Hong Kong stock are defined under the laws of Hong Kong. Customarily, the stamp duty is borne by the buyer and the seller in equal shares.

Rates and government rent

Owners of Hong Kong properties will also have to pay rates and government rent on their real estate assets.

Rates are a tax on the occupation, use or holding of property. They are charged at a percentage of the rateable value being the estimated annual rental value of a property at a designated valuation reference date, assuming that the property was vacant and to be let out. The rates percentage charge is determined by Hong Kong's legislature, the Legislative Council. For the 2021–2022 financial year, the rates percentage charge is 5 per cent.

The basis of the government rent is derived from the government lease or grant that provides that rent is payable to the government. The government rent is calculated at 3 per cent of the rateable value of the property situated on the land leased and is adjusted with any subsequent changes in rateable value.

Property tax (levied on rental income)

Property tax is levied on property owners on the rental income derived from Hong Kong property. The tax is assessed on the net assessable value of the rental income. The current property tax rate is 15 per cent.

Vacancy-flat tax

In April 2021, the Hong Kong government stated that a plan to introduce a private residential vacancy tax could be revived. The proposed tax, first introduced in 2018 as a way to deter developers of new residential buildings from hoarding residential flats, would only target developers to prevent housing shortages but not homeowners. First-hand homes that remained unsold for 12 months after issuance of an occupation permit would fall within the ambit of the proposed tax, although no timeline has yet been set for the proposal to revive the introduction of the private residential vacancy tax.

iv Finance and security

The financing of a real estate asset acquisition will usually involve the lender taking security over the property by way of a mortgage or a charge. The distinction between a mortgage and a charge is historical whereby the mortgagee has legal and equitable interest in the land subject to the mortgagor's right of redemption as compared to charge having certain rights, such as the right to sell, but legal and equitable interest still belongs to the chargor. Since 1984, a legal mortgage can only be created by way of a legal charge and the Conveyancing and Property Ordinance grants the holder of a mortgage by legal charge the same rights as a historical mortgagee.4 Other securities that are common include an assignment of sale proceeds, assignment of rental income and assignment of insurance proceeds. The security documents that effect property will constitute a registrable encumbrance on the property and should be registered with the Land Registry to establish the chargee's priority interest.

Leases of business premises

The parties to a commercial lease are generally free to agree to the terms and there is no specified form. With relatively few restrictions on lease agreements with all rules on security of tenure abolished, the law in Hong Kong is generally viewed as being more favourable to the landlord.

i Term

Subject to the remaining term of the government lease or grant, there is no limit on the term of the lease. In practice, the actual length of the term depends on the negotiations between landlord and tenant, taking into account a variety of factors, including location, price, use, their respective bargaining power and market conditions. Generally, the lease term for a residential property may be negotiated in ranges between one and three years, whereas lease terms for a commercial property range between two and six years and may be extended with option terms open to negotiation between the commercial lessee or lessor.

ii Registration

A lease or tenancy agreement for a term exceeding three years must be executed as a deed to create a legal estate in land. Furthermore, all leases, save for bona fide leases at market rent for any term not exceeding three years that are exempted,5 are required to be registered with the Land Registry to establish notice (against a bona fide purchaser) and the lessee's priority interest in the property. An option to renew should be registered at the Land Registry even if the original term of the agreement does not exceed three years.6

iii Rent review

Rent is usually fixed during the fixed term of the lease. Any provision or mechanism for rent adjustment is negotiable between the lessee and the lessor, and would usually be agreed before entering into the binding agreement. A typical provision for rent review in the lease is for the rent to be determined in accordance with prevailing market rent. Generally, an option to renew or extend the term of the lease usually triggers rent review in accordance with prevailing market rent.

iv Lessee's right to sell and change of control

The general practice is for leases to contain an anti-alienation provision prohibiting the lessee from transferring, assigning or subletting the lease or possession of the premises to others whether directly or indirectly. Although this may be subject to negotiation between the parties, it is quite unlikely that the lessor would concede this prohibition or control.

v Lessee liability and security for payment of rent and performance of covenants

A lease or tenancy agreement is a contract and constitutes an interest in land.

Under privity of contract principles, the original contracting parties to the agreement remain liable for the performance of the covenants, terms and conditions that are binding on them. Therefore, the lessor or lessee remains liable to each other, even if the lease is assigned by one party. If the intention is to safeguard the assignor from future liabilities arising from the contract, all parties to the original contract and the assignee should enter into a novation of the lease. If a novation is not signed, then the assignor may consider procuring an indemnity from the assignee. However, that does not affect the assignor's contractual obligations (as the lessor) towards the lessee under the lease, which includes the lessor's obligation to repay the lease security deposit at the end of the lease term.

Under privity of estate principles, covenants that touch and concern the land will bind third parties. Therefore, assignees are only bound by covenants in the lease if they touch and concern the land. Such covenants include repairing covenants, user covenants and covenants for quiet enjoyment. This is beneficial from a lessor's perspective because the lessor's assignee (in becoming the new owner of the property) would be obliged to perform or observe the covenants that touch and concern the land under the privity of estate principles, thus, releasing the lessor from his or her obligations.

vi Repair and insurance

Unless the parties agree otherwise, the lessee is obliged to maintain the premises in a good and tenantable condition and the lessor is usually responsible for structural repairs, such as concealed wires and pipes drainages. While there is no statutory or regulatory requirement to procure property insurance, it is prudent and advisable for both the lessor and lessee to ensure that there is adequate insurance coverage for the property. Some commercial leases stipulate that insurance coverage must be procured by the lessee for a minimum threshold on any single claim.

vii Termination

There are a number of ways in which a lease may be terminated, including expiry of term, by notice or through an express condition, power or option provided in the lease. A breach of a condition or a covenant with a proviso for re-entry will allow the lessor to terminate the agreement by forfeiture; however, the lessee may be able to apply for relief from the court. A lessee can also repudiate the lease and if the repudiation is accepted by the lessor, the lease will immediately terminate and the lessor will be entitled to sue for damages.

viii Security of tenure

In 2004, several sections of the Landlord and Tenant (Consolidation) Ordinance were amended with the effect of abolishing security of tenure of residential tenancies and leases created after 9 July 2004.

Developments in practice

i The Residential Properties (First-hand Sales) Ordinance

The Residential Properties (First-hand Sales) Ordinance came into effect in April 2013 and sets out detailed requirements in relation to the conduct and materials used for selling first-hand residential properties concerning, inter alia, sales brochures, price lists, show flats, disclosure of transaction information, advertisements, sales arrangements and mandatory provisions for preliminary sale and purchase agreements and formal sale and purchase agreements. Contravention of the requirements set out in the Residential Properties (First-hand Sales) Ordinance may attract criminal liabilities, the maximum penalty of which is up to a fine of HK$5 million and imprisonment of seven years.

To date, 12 land developers have been fined for violating the Residential Properties (First-hand Sales) Ordinance for lack of information in and transparency of the sales brochures, failure to include certain mandatory provisions in preliminary sale and purchase agreements and general malpractice. The total fines exceed HK$2.5 million.

ii Lantau Tomorrow Vision

In the 2018 Policy Address, the Chief Executive of Hong Kong proposed building artificial islands for the development of Lantau. In addition to building 260,000 to 400,000 residential units, it was proposed that new major transport infrastructures will link up the coastal areas of Tuen Mun, North Lantau, the artificial islands and the traditional business centre in Hong Kong Island North. In December 2020, the Hong Kong Legislative Council approved initial funding of HK$550 million to kick-start a feasibility study for the development, which would take 42 months to finish. In the 2021 Policy Address, the Chief Executive of Hong Kong said plans for Lantau Tomorrow Vision would continue and complement the new Northern Metropolis plan announced in 2021.

In Gloria Cho Man-yee v. The Chief Executive of the HKSAR,7 High Court Justice Anderson Chow (as he was then) dismissed an application for a judicial review of the Lantau Tomorrow project on the grounds that it was an abuse of the court's judicial review procedures with no realistic prospect of success and was manifestly without merit. Another similar judicial review application relating to the Lantau Tomorrow project was also rejected in Kwok Cheuk Kin v. The Chief Executive of the HKSAR.8

iii The Lands Resumption Ordinance

In the 2019 Policy Address, the Chief Executive of Hong Kong proposed to invoke the Lands Resumption Ordinance to resume three types of private land for developing public housing and starter homes. These include privately owned brownfield sites in the New Territories that may have development potential, private land that has been zoned for high-density housing development in statutory outline zoning plans but without any development plans yet and the urban private land located in three areas in Kowloon East. The government's approach of resuming land will require support from various sectors of the community, particularly developers. In this regard, the property development industry previously expressed that developers will not oppose such an approach.

iv Northern Metropolis Development Strategy

In the 2021 Policy Address, the Chief Executive of Hong Kong unveiled a plan to develop districts in the New Territories bordering the southern Chinese city of Shenzhen into a Northern Metropolis. The goal is that the entire Northern Metropolis can eventually accommodate a residential population of approximately 2.5 million and provide around 650,000 jobs. The Northern Metropolis plan is interpreted as a historic opportunity for Hong Kong to integrate the city into national development, integrate with neighbouring Shenzhen and solve the housing problem in the city. The development for the Northern Metropolis is planned to be completed within the next two decades from 2021. After the announcement, there have been reports of property price hikes in the region.

Outlook and conclusions

The year 2020 was difficult for Hong Kong's economy and real estate market, mainly due to the covid-19 pandemic and the continuing China–US tensions following the social and political anti-government movements in 2019. The year 2021 has been a year of recovery for Hong Kong. According to government statistics, the volume of overall property transactions in 2021 (up to November 2021) is around 85,000, which is approximately 16 per cent and 13 per cent increase from 73,000 in the preceding year and 75,000 in 2019, respectively. Hong Kong's residential, office and retail markets showed signs of revival and growth generally. Supply of new properties in Hong Kong will continue its growth in 2022. It is forecast that approximately 20,000 residential units in new developments will be completed and supplied to the market in 2022, with a contribution of around 60 per cent developed from land in the New Territories.

It is also forecast that the supply of commercial units will rebound from the dwindling numbers in 2020 and 2021, to 173,300 square metres. While no new supply of industrial units is expected in 2022, it is anticipated that the industrial market would be stimulated by the government's revitalisation scheme of industrial buildings, which was launched on 15 March 2021. To enable a steady supply of land for private housing development, the government aims to secure approximately 170 hectares of land in the coming decade, and make available to the market raw sites for developing around 100,000 units through direct land sales, or commercial or residential projects atop station hubs of the mass transit network.

These will also be significant developments along the Hong Kong's Victoria Harbour waterfronts in the foreseeable future. On 12 November 2021, the M+ museum opened as one of the major cultural facilities of the West Kowloon Cultural District. The West Kowloon Cultural District, located on the Victoria Harbour waterfront, is one of the largest cultural projects in the world, stretching across 40 hectares of reclaimed land. The Hong Kong West Kowloon Station, with a high-speed rail connection to mainland China opened in 2018, is also a landmark building in the West Kowloon Cultural District. While the Arts Pavilion, the Xiqu Centre, Freespace and the Art Park are already open to the public, the Hong Kong Palace Museum is due to open in mid-2022 at the western tip of the West Kowloon Cultural District and finishing works are underway. On 3 November 2021, the Hong Kong government announced that the tender for Site 3 of the New Central Harbourfront has been awarded to Henderson Land Development Company Limited on a 50-year land grant at HK$50.8 billion. The proposal is to build open spaces, a multi-functional building and two office buildings with a view to accentuating Hong Kong's image as Asia's World City. The project will be developed in two phases due to be completed by 2027 and 2032, respectively.

While consumer spending is improving, the stringent international travel restrictions in place in Hong Kong will continue to impact tourism and thus the related retail and services sectors. Looking ahead, the outlook for a full economic recovery and the real estate market would very much depend on the covid-19 pandemic development from a global perspective. The market will closely monitor the possible agreement between Hong Kong, Guangdong and Macau to relax the current travel restrictions and resume cross-border travel for these three close-knit regions, including the resumption of business travel visa applications in Guangdong province. A clear timetable for the reopening of borders among these three regions would improve the market outlook. Economic prospects in China, including the outcome of credit concerns of some Chinese property developers, over the next 12 to 24 months may influence the real estate property market in Hong Kong. Overall, there will be an increasing focus on town planning and new developments in the New Territories and in the Islands in light of the Northern Metropolis Development Strategy and the Lantau Tomorrow Vision, with a potential to alleviate housing shortage. The impact of these strategic and ambitious projects is not to be underestimated in the coming decades.


1 Dennis Li is the head of property at Slaughter and May in Hong Kong.

2 According to the Rating and Valuation Department of the HKSAR government, the price index of all classes of private domestic properties is 398.0 in July 2021. The price index is derived from the same data that are used to compile average prices and measures value changes by reference to the 'factor' of price divided by rateable value of the properties.

3 The Consumption Voucher Scheme was open for registration on 4 July 2021 with an aim to accelerate local economic recovery. Hong Kong permanent residents and new arrivals aged 18 or above on or before 18 June 2021 and residing in Hong Kong are eligible to register to be entitled to electronic consumption vouchers with a total value of HK$5,000 by instalments.

4 Conveyancing and Property Ordinance (Cap. 219) Section 44.

5 It is also possible, but not required for priority, to register bona fide leases at market rent for any term not exceeding three years. In practice, it is not uncommon to see leases for less than three years being registered at the Land Registry.

6 Markfaith Investment Ltd v. Chiap Hua Flashlights Ltd [1991] 2 AC 43.

7 [2021] HKCFI 1365.

8 [2021] HKCFI 2357.

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