Keep land premiums for rail link at minimum or zero, urges CBRE

Themis Qi

Hong Kong should charge nominal or no land premiums for a new rail link to Shenzhen to attract more bidders as the city faces a huge funds crunch for the futuristic Northern Metropolis, says CBRE.  

The suggestion came as the government said it plans to look at innovative models to build the Hong Kong-Shenzhen Western Express Railway together with the neighboring mainland city and invite the international and local rail operators for tender in the second half.

Hong Kong’s sole rail operator MTR Corporation (0066) is estimated to need HK$165 billion over the next 10 years to develop multiple new lines and stations across the city.

Hannah Jeong, head of valuation and advisory services at CBRE Hong Kong, said the railway-plus-property model adopted by the MTRC may not be able to source enough funds for the substantial initial capital expenditure amid a weak real estate market. 

Therefore, the government should charge nominal or no land premiums to the winning operator, which would help them to sell land more easily to private developers and secure funds.

When asked about how this would impact government income, Jeong said a lower premium would boost the financial sustainability and confidence of the operator and secure the development of the project – and this was more important short-term gains in revenue.

Hong Kong recorded a deficit of HK$87.2 billion for a third consecutive year ended March, adding to funding pressures for the Northern Metropolis and other large infrastructure projects.

To plug the funding gap, CBRE also said the government could increase the proportion of private homes in San Tin Technopole to meet demand for housing and offer blocks of land rather than scattered plots under the existing plan to whet the appetite of developers.

CBRE also warned that the 45 million square feet reserved as logistic and industrial land in the Hung Shui Kiu/Ha Tsuen New Development Area may exceed market demand as it is more than double current storage space in the city.