Legislative Council meeting Members’ Motion: Motion of Thanks (4th debate session – Liveable City)

MR CHAN CHUN-YING (in Cantonese):

Deputy President, the focus of the 2018 Policy Address is housing policy, which is a long-standing problem of Hong Kong. In recent years, the persistently high property prices in Hong Kong are way beyond the public’s affordability and have gradually become a social problem. The main reason for the high property prices in Hong Kong is insufficient land supply, which has also seriously restrained our economic development.

The Policy Address has put forward a number of short-, medium- and long-term measures to boost land supply in Hong Kong, such as introducing the Lantau Tomorrow Vision, studying the construction of artificial islands through reclamation, developing brownfield sites in the New Territories, introducing the public-private sector development policy as manifested in the Land Sharing Pilot Scheme and providing transitional accommodation through revitalization of industrial buildings. The most important among them is of course the implementation of the Lantau Tomorrow Vision which involves conducting reclamation studies for boosting land supply in the long run. If this major measure can go ahead, it will bring in hundreds of billions of dollars of investment and become a new economic growth point in Hong Kong.

In fact, over the years, Hong Kong has the experience of reclaiming a total of 7 000 hectares of land, and its technical and safety levels in reclamation are undisputed. For a project to construct an artificial island through reclamation, it only has to go through one review of the environmental impact assessment (“EIA”), one exercise of traffic planning and one lawsuit or otherwise. It can achieve twice the result with only half the effort. However, if the few hundred buildings on the artificial islands are constructed on the agricultural land and brownfield sites of the New Territories, 10 buildings here and eight buildings there, the Government will have to face a few dozen EIA reviews, lawsuits and traffic projections. This protracted process will slow down the pace of building construction, thus ending up getting half the result with twice the effort.

Deputy President, according to the Secretary for Development, concerning the proposed reclamation of 1 700 hectares of land under the Lantau Tomorrow Vision, the Hei Ling Chau proposal with 700 hectares of land is still visionary without a timetable for implementation, while the Kau Yi Chau proposal with the artificial islands of 1 000 hectares is more concrete, a proposal well thought out by the Government after tremendous efforts, and Kau Yi Chau is an ideal site for reclamation.

In regard to the financial analysis on the reclamation proposal, there are projections respectively made by the experts supporting the proposal and those opposing it. Based on my more than 20 years of banking experience related to project loans and syndicated loans, I would also like to do some calculations to the public.

According to the projection of the Government, excluding the infrastructure cost, the reclamation cost is estimated to be between $1,300 and $1,500 per square foot, very close to the cost of resuming land at $1,350 per square foot. According to the estimation of Our Hong Kong Foundation earlier, the additional infrastructure cost for reclamation will be about $650 per square foot. In other words, taking into account the infrastructure cost, the total cost of reclamation will be about $2,150 per square foot at a maximum. In order to avoid confusing the public with the calculations based on today’s value and on the value after a decade, all my calculations will be based on the value of 2019. The total reclamation cost of 1 000 hectares of land will be about $231.4 billion.

During a media interview, Secretary Michael WONG said that on this reclaimed land of 1 000 hectares, more than 100 hectares might be allocated for commercial development, providing a floor area of 40 million sq ft. According to the estimation of Our Hong Kong Foundation, 9% of the 1 000 hectares of reclaimed land, based on the plot ratio of 5, can provide a floor area of 48.45 million sq ft for private residential development.

I shall take reference from the accommodation value of a commercial site at $13,000 per square foot and the accommodation value of a private residential site at $17,776 per square foot at Kai Tak in May this year. If I take 40% off from the above value, my projection on the proceeds from land sales will be as follows: For commercial sites with a total floor area of 40 million square foot available for sale, the price will be about $7,800 per square foot and the proceeds from land sales will be $312 billion. And for private residential sites with a total floor area of 48.45 million square foot available for sale, the price will be $10,666 per square foot (this level is similar to the price of the cheapest residential site at Kai Tak which was sold in December 2016 at $10,220 per square foot, and the discount rate is 74% when compared with a runway site sold yesterday at $14,500 per square foot) and the proceeds from land sales will be $516.8 billion.

In other words, excluding the public housing sites and the proceeds from land sales for all the industrial land sites on the reclaimed land and only taking into account the proceeds from land sales for the floor areas of commercial and private residential sites, the Government can reap $828.8 billion. Nevertheless, the proceeds from land sales cannot be materialized till 2030 at the earliest. Assuming that the inflation rate is 3% per year, the proceeds from land sales should be adjusted to $598.7 billion when discounted to the value of 2019.

We can thus understand that if we compare in present value, the total cost of 1 000 hectares of reclaimed land will be $231.4 billion. If we only take into account the proceeds from the floor areas of commercial and private residential sites, the Government can get back $598.7 billion, with a net profit of $367.3 billion. The revenue will be 2.59 times of the total cost, with a break-even point at 38.65%. That means when we calculate at 40% off the peak accommodation value of the site at Kai Tak, the project will only be loss-making with a further drop of over 61.35% in the value.

Nonetheless, as we also learn that many large-scale infrastructural projects experienced cost overruns in recent years due to various reasons, cost overrun should also be taken into consideration in the projection of the project. Assuming that the reclamation project is over budget by 50%, the total cost will increase from $231.4 billion to $347.1 billion, but there will still be a net profit of $251.6 billion. With that $251.6 billion, I also have to take into account the implementation of the reclamation project for the other 700 hectares of land and possible cost overrun. When the total cost is adjusted to $243 billion, it is still below the net profit of $251.6 billion. From the above figures, we can see that the revenue generated from the reclamation of 1 000 hectares of land alone is enough to cover the cost of reclaiming 1 700 hectares of land and a possible cost overrun of 50%.

If the financial aspect is the main worry of society concerning the Lantau Tomorrow Vision programme, the above estimations can explain its financial feasibility. As pointed out in the community, full investment from the Government is not the only option, there are many other options to resolve the funding issues, such as issuing bonds for public subscription, and even listing of the project.

It is simply unthinkable for those against the reclamation under the Lantau Tomorrow Vision to liken it to pouring money into the sea. The total cost of reclamation is projected to be $231.4 billion. If this sum of money is not used in reclamation for islands but is put into the Exchange Fund for generating some interests, calculating with an annual yield of 5%―it is in fact optimistic to have a yield of 5%, because with an exceptionally good performance of the Exchange Fund last year, the rate of fee payment in respect of the fiscal reserves is only between 4.6% to 5% this year, and the annual yield is merely 2% after the deduction of 3% inflation―by 2030, this sum of money can only generate an income of $56.3 billion for us.

By comparison, the socio-economic benefits from the investment in reclamation for islands under the Lantau Tomorrow Vision are conspicuous and indisputable. Singapore, a familiar place to Hong Kong people, has been engaging in nonstop reclamation projects over the past 50-odd years and 14 000 hectares of land have been reclaimed, which is eight times of the 1 700 hectares of land under the Lantau Tomorrow Vision. If reclamation projects are like pouring money into the sea, why is the Singapore Government still doing it untiringly and persistently?

I would like to emphasize that reclamation land has a value which is much higher than its cost and more than enough to cover all the infrastructural expenditures. As the land value in Hong Kong is generally rather high, the Lantau Tomorrow programme developed by the Government will not lose any money but may bring substantial financial benefits to the Treasury. It is estimated that the total cost of reclaiming 1 000 hectares of land will be paid in at least five annual instalments (some Members also guessed earlier that it would be paid by 10, 20 or 30 annual instalments), and only $46.3 billion will be needed each year. Financially speaking, this will not impose a heavy burden on the SAR Government.

The Lantau Tomorrow programme is actually a vision that spans over the coming 20 to 30 years. In addition to resolving the housing and land supply problems of Hong Kong, it can also provide a quality living environment to the general public and create numerous business opportunities for the sustainable development of the Hong Kong economy. Its implications are far-reaching.

First of all, it will provide the land needed for housing development. The ever-increasing residential property prices over the years in Hong Kong have already gone beyond the affordability of the public. Although the Government, in both last term and the current term, has been making strenuous efforts to increase land supply through short- and medium-term measures, it is out of its wits in dealing with the problem of increasing land supply in the long run. The target of supplying about 18 000 private housing units each year is now basically attained, but in terms of public housing, the public housing projects in the coming five fiscal years can only provide about 97 500 housing units, far below the original target of 140 000 housing units. After these five years, the production may even be lower. In terms of demand, as at the end of June this year, the number of public housing applications already reached 268 500, and an applicant generally needs to wait for more than 5.3 years before being allocated a flat, deviating from the Government’s target of three years.

Facing a keen demand for housing but a shortfall in land supply, is there any good solution to the problem? The Policy Address puts forward the Lantau Tomorrow Vision, under which some artificial islands can be built for the planned construction of 260 000 to 400 000 residential units, 70% of which will be public housing, amounting to 182 000 to 280 000 public housing units. This measure can provide the land needed for the construction of public housing units urgently needed by grass-roots citizens.

Besides, this measure can also help break through the bottleneck of land supply in Hong Kong, and provide land to various trades. In recent years, residential development is not alone in facing insufficient land supply, this problem has also been seriously affecting the development of other different trades. If the Lantau Tomorrow Vision can be materialized, apart from developing residential buildings in East Lantau Metropolis, we can also develop commercial buildings with a total floor area of 40 million sq ft, which can be Grade A offices as well as premises for various purposes like education, creative industries, convention and exhibition industry, health care, innovation and technology industries, and also sports. When the land demand in these aspects can be greatly relieved, new energy will be injected into the economy and society of Hong Kong.

Besides, this measure can also improve the living environment of all people Hong Kong and enhance our economic efficiency. All along, Hong Kong has been well-known for its high density development, with only 24% of its gross land area being developed land, and a high population density of 27 400 people per square kilometer of developed land, doubling that of Singapore and London. Compared with other cities, the living space and community area per capita in Hong Kong are relatively low, with only 170 sq ft of living space and 76 sq ft community area. The living environment is rather poor. The direct impact of a dense population is the increasingly serious traffic congestion problem. Since people have to spend more and more time on transport, especially during morning peak hours, the efficiency of economic operation will be seriously affected. Therefore, if East Lantau Metropolis is developed, more space will be available to Hong Kong, and the infrastructural investment in railways and roads will also help improve the living environment and enhance the efficiency in commuting.

Finally, the Lantau Tomorrow Vision can bring new opportunities to various trades. From the blueprint of the Lantau Tomorrow Vision, we learn that if the Government goes ahead with various artificial island, railway and highway projects under East Lantau Metropolis development in the future, not only will it have to invest hundreds of millions of dollars in land formation and infrastructural works, but it will also have to develop tens of thousands of housing units, a large number of Grade A commercial buildings, emerging industries, as well as community facilities. From the study stage to its completion, the Lantau Tomorrow Vision will involve mega investment and development projects worth hundreds of billions of dollars, tens of thousands of employment opportunities, especially professional positions, and will bring new opportunities to all sectors.

With these remarks, Deputy President, I support the Motion of Thanks as well as the Lantau Tomorrow Vision.