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Weekly snippet | New land premiums pilot scheme’s implications for investors and developers

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The Development Bureau introduced a two-year pilot scheme, which has started imposing land premiums at standard rates for the redevelopment of industrial buildings built before 1987 on 15 March. The scheme will accelerate the redevelopment of old industrial buildings, and further stimulate investment market sentiment for industrial assets. This echoes to our recent Colliers Flash that the industrial sector will continue to attract investment this year. Hear from Freddy Wan of Capital Markets & Investment Services and Rosaline Fu of Valuation & Advisory Services, to find out the implications of the pilot scheme for investors and developers respectively.

Implication for investors

Whilst the COVID pandemic has shaped the retail market to focus on local consumption again, some investors have already started to acquire retail properties in some domestic districts to catch the potential rebound of the retail market. Most of the transactions are of smaller lump sum below $200 million rather than any sizeable properties.

For some investment funds, they are still quite cautious on investing in the retail and the office markets. They now shift their focus to industrial properties, such as cold storage, logistics facilities and data centres. There are five major industrial transactions completed over the past two months, with transaction volume around $3.6 billion. Together with the latest pilot scheme for charging land premiums at standard rates for redevelopment of industrial buildings, it is of our opinion that industrial properties would be one of the main focuses of 2021.

Implication for developers

The Development Bureau has recently introduced a pilot scheme to charge land premiums at standard rates for lease modifications for redevelopment of pre-1987 industrial buildings (IBs). The scheme will run for two years starting on 15 March, along with the provision of a Practice Note. This marks another milestone of fostering industrial redevelopment following the implementation of the Revitalisation of Industrial Buildings schemes in 2010 and 2018. The new scheme provides simple and clear standard rates for five geographical regions in Hong Kong and three types of uses involved in lease modifications for IBs, namely industrial/godown, commercial/modern industrial and residential uses after redevelopment. Developers who are keen to redevelop IBs will now have an additional option to assess their land premiums and identify the most cost-effective plan.

The implementation of the new scheme is expected to further accelerate the redevelopment of old IBs. In the past 10 years, over 60 applications were received of which 14 successfully completed the lease modifications and around 40 obtained planning permission.

Given the current unstable economic conditions, we believe the scheme could help foster the development of residential and industrial sectors throughout the coming two years. Although transacted prices have slightly decreased in Q4 2020 (factory prices fell by 0.7% QoQ; industrial offices prices decreased by 0.5% QoQ), these sectors have shown strong resilience compared to the retail and office sectors throughout the pandemic. It is believed that this scheme will build on the past momentum and provide confidence to the market in the short to middle term and stimulate these sectors’ growth. This will further boost industrial market development driving the competitiveness of property acquisition.


Related Experts

Freddy Wan

Senior Director

Capital Markets & Investment Services

Hong Kong

Freddy Wan is a real estate expert with over 15 years’ experience in commercial property investment. Prior to joining Colliers, Freddy built a successful track record on a range of transactions on commercial asset such as retail property, hotels, development sites to luxury residential properties.

 

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Rosaline Fu

Manager | Advisory

Valuation & Advisory Services

Hong Kong

Rosaline specialises in consultation and advisory projects in all types and sectors. She has been involved and demonstrated her capabilities in conducting real estate market and feasibility studies relating to industrial, data centre, residential, office and retail sectors.
Prior to working at Colliers, she provided Environmental, Social and Governance (ESG) consultation services to listed and non-listed companies in various industries including property developers, manufacturers, service providers across Hong Kong, PRC and South East Asia.
With her years of exposure to the ESG industry, Rosaline adopts an innovative approach to blend ESG insights into her projects relating to retail, residential,  industrial and data centre development research and advisory services.

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