Land bonds can still be easy as ABC

Editorial | Mary Ma 1 Aug 2018

A proposal by University of Hong Kong academics for land bonds to be issued in exchange for privately-owned rural sites is similar to a successful land exchange scheme used in the past.

That was commonly known as Letter A/B and used between 1960 and 1983.

The scheme enabled the then-colonial government to assemble packets of land quickly for new town developments.

It was a genius idea, allowing recovery of plots from landlords with payments deferred. Most amazingly, the letters, which were redeemable vouchers, were well received by society and landlords at the time.

To a large degree, it helped the authorities meet the pressing need for land, allowing public and private housing to be built at an unprecedented speed. Development of Sha Tin New Town, for example, began in the 1970s.

Although Chau Kwong-wing, director of HKU Ronald Coase Centre for Property Rights Research, insisted the former Letter A/B and the land bonds proposed by the center aren't the same, both are based on the principle of land swap.

In the case of Letter A/B, the government had a development plan conceived for the sites prior to issuing the letters to land owners. The owners could redeem the letters later, either for cash or government land.

However, in practice, very few letter holders opted for cash because the documents were far more valuable in the market. Developers bought the letters from their owners and used them to bid for government sites at auctions.

As land premiums increased, so did the value of the letters.

Letter A referred to those issued to landlords of mature sites, which offered an exchange ratio of one to one, meaning one square foot of future buildable land for one square foot of current building land.

Letter B applied to farmland, setting the ratio at two square feet of future buildable land for five square feet of existing farmland.

The practice was suspended in 1983 after immediate housing demands were met. Another reason was to avoid tapping too much into future potential to make it a heavy burden for future generations, as the letters would have to be redeemed one day.

Chau said his bonds differ in the sense that the administration doesn't have a development plan drawn up before offering land bonds to assemble the sites. But this would still be tapping into future potential to immediately free up available plots, like in the case of Letter A/B.

So does it mean what was a practical procedure in the past will be similarly successful now?

Society has evolved to become more complex these days. If fears of collusion weren't a concern in the past, they're now a political taboo.

At any rate, it would be a mistake to reject the idea outright - the fears must be overcome. Instead of stepping backward, the government may propose a mechanism based on transparency and fair principles to convince the skeptical public.

It may be old wine in new bottles, but what does it matter if the wine tastes just as good?

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