As a new initiative to encourage the revitalisation of industrial buildings (IBs) in Hong Kong, the Development Bureau introduced a pilot scheme on 4 March 2021 to charge land premiums at standard rates for lease modifications for IB redevelopment. We set out below some brief Q&A for easy reference.

Q1: When Will it Start?

The scheme will run for two years starting from 15 March 2021.

Q2: What IBs Are the Scheme's Targets?

The scheme applies to IBs constructed before 1987 (the year when the Fire Services Department tightened fire safety requirements).

Q3: Will the Scheme Affect the Existing Conventional Mechanism?

No. According to a Government spokesman, it will run parallel (as an alternative) to the conventional mechanism for premium assessment.

If lease modification applicants do not find it attractive to have land premiums calculated at standard rates, they may opt to have their cases processed using the existing conventional approach for land premium assessment.

Q4: What Are the Standard Premium Rates?

Standard rates are promulgated for five geographical regions in Hong Kong and three types of uses involved in lease modifications for IBs.

IB owners can readily compute the premium payable based on the uses and gross floor areas (GFA) before and after the lease modification:

Region

 Before use After use
Industrial/godown Commercial/ 
modern industrial		 Residential
Hong Kong Island  HK$40,000/m2  HK$75,000/m2  HK$130,000/m2
Kowloon East  HK$40,000/m2  HK$65,000/m2  HK$100,000/m2 
Kowloon West  HK$35,000/m2  HK$60,000/m2  HK$110,000/m2 
New Territories South  HK$35,000/m2  HK$50,000/m2  HK$75,000/m2 
New Territories North  HK$20,000/m2  HK$30,000/m2  HK$55,000/m2 

 

Quick example: For an applicable IB in Hong Kong Island, with a GFA of 8,000 m2 for industrial/godown use before the lease modification and a GFA of 6,000 m2 for residential use, the premium payable will be:

Standard Rate (After Use) × GFA (After) - Standard Rate (Before Use) × GFA (Before)

= HK$130,000/m2 × 6,000 m2 - $40,000/m2 × 8,000 m2

= HK$460 million

Q5: Are More Detailed Guidelines to Follow?

Yes. A Practice Note will be published on 15 March 2021 to provide further operational details of the new scheme, such as:

  • How lease modification applicants may exercise the right to opt for calculating land premiums by standard rates;
  • The transitional arrangement applicable to lease modification cases under processing; and
  • The calculation of GFA.

Originally Published by Mayer Brown, March 2021

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