The Development Bureau announced today two new measures to accelerate industrial development: a three-year “Pay for What You Build” pilot scheme, and an arrangement to grant tenancies of up to 21 years.

The changes will reduce initial capital outlays and financing costs, thereby enhancing investment incentives.

Pay for What You Build

The “Pay for What You Build” pilot scheme, which will start accepting applications on June 1, is applicable to all lease modification and land exchange applications for non-residential developments across Hong Kong.

It allows lot owners to carry out phased development, provided that the gross floor area (GFA) under the initial phase of a development amounts to at least 60% of the total permissible maximum GFA for the whole development and that the initial phase is completed on time. The land premium will be assessed based on the market value of the GFA under the initial phase only.

The bureau highlighted that under the new arrangement land premium assessment will be based on how developers plan to use the land rather than on the maximum possible market value.

Developers can decide whether to take forward the remaining portion of the total permissible maximum GFA after completion of the first phase. If they choose to do so, they must make a lease modification application within 10 years, and will be required to pay land premiums based on the prevailing market value at the time.

Moreover, the entire site will be subject to alienation restrictions for 10 years after the completion of the initial phase, unless approval is obtained from the Lands Department, through a lease modification application, to develop the remaining portion of the permissible maximum GFA.

These restrictions are imposed because different owners, under fragmented ownership, might fail to reach a consensus on whether to proceed with the remaining development, the bureau explained.

If a developer does not apply for lease modification upon expiry of the 10-year period, the Government may, on application from other lot owners, allow unused development potential from the site to be transferred to other sites in the same area.

Tenancies of up to 21 years

The bureau is also introducing a more flexible arrangement for government tenancies. For sites provided through short-term tenancies, the Lands Department may, with policy support from relevant bureaus, provide tenancies with a total tenure not exceeding 21 years.

To break this down, upon expiration of the first fixed term, which may be up to seven years, tenants can exercise the option to renew. There will be a maximum of two renewals, each of up to seven years. In other words, the longest possible tenancy arrangement is “7+7+7” years.

The length of an individual tenure may be adjusted based on the needs of a specific industry.

Rent review will take place only when a tenancy is due for renewal, and the rent could increase or decrease.

The bureau said that compared to the current fixed tenancy term of a maximum of seven years only, the new arrangement provides greater certainty. Meanwhile, the lengthened payback period facilitated by the new arrangement is conducive to industry investment.

The bureau added that it will work with relevant policy bureaus to identify which government sites are suitable for adopting the new arrangement.