Hong Kong and Singapore

American Journal of Economics and Sociology, The, Dec, 2000 by Sock-Yong Phang

The British government, on taking over Hong Kong Island in 1841, recognized immediately the importance of controlling land. In 1843, it proclaimed that all land belonged to the Crown and that the government would not allow any private ownership of land. [2] No freehold estates were to be granted. Leases for building land were to be for 75 years (the length of time considered necessary to induce tenants to erect substantial buildings) and other land for 21 years. Leases were sold at public auctions or granted directly for the payment of an annual rent. Unhappiness with the relatively short 75-year leases resulted in the British government relenting and allowing the extension of existing leases to 999 years in 1848. At that time, the practice of annual rents being fixed at auction was replaced with a system of nominal ground rent subject to the payment of a premium. For the next five decades, most land leases were granted for 999 years.

After the ceding of Kowloon Peninsula to the British in 1860, new leases for 999 years were granted to Chinese owners of land who remained in possession. Compensation was paid to owners of land who were dispossessed. In 1898, the Hong Kong governor was instructed by the British government to require new leases to be of 75 years duration and to stop the practice of granting 999 year leases. The resulting major protests resulted in a compromise where leases were to be of 75 years with a right of renewal for a further 75 years. Since 1898, 75 years became the standard duration of leases.

Land tenure arrangements in the New Territories differ from the rest of the colony. Hong Kong and Kowloon were relatively uninhabited when they were ceded to the Crown. When the New Territories were leased to the British, a large area of land was already held by Chinese owners and had been farmed for centuries. A land court was subsequently set up which granted rights to leases involving 354,277 lots after the completion of a survey. All unclaimed land in the New Territories was held by the Crown for disposal. The longest Crown leases in the New Territories expired three days before June 30, 1997.

A. Technical Provisions for Land Value Capture

There is no site-value taxation as such in Hong Kong. Owners of income-yielding land leases or buildings are charged a standard rate of 15 percent on the annual rental income of their properties. Rates are levied on landed property (whether income-yielding or not) and are 5 percent of the estimated annual rental value. Lease-owners of income-yielding landed property therefore have to pay both property taxes on the actual yield and rates on the annual value; however, rates may be deducted to arrive at "net assessable value" (actual rental yield minus rates paid and a 20 percent allowance for repairs and other outgoings on the balance). Government rent is payable from July 1, 1997, for all land leases granted on or after May 27, 1985, and on the extension of nonrenewable leases. The rent is equivalent to 3 percent of the rateable value. In 1996-97, receipts from property tax totaled HK $1.6 billion, while that from rates totaled HK $15.6 billion. [3] The government also collected $9.3 billion, amounting to abou t 5 percent of its total revenue, from investments and rents from government properties.