addis ababa, yu-hung hong - building market institutions for transacting public leaseholds

8/6/2019 Addis Ababa, Yu-Hung Hong - Building Market Institutions for Transacting Public Leaseholds

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Building Market Institutions for

Transacting Public Leaseholds

World banks Urbanization Knowledge Platform

Addis Ababa, June 24, 2011

Yu-Hung Hong

Senior Fellow, Lincoln Institute of Land policy

Visiting Assistant Professor, MIT


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The presentation is not about thechoices between freehold and

leasehold.

It is about building institutions to

secure land tenure and facilitate

transactions of leasehold rights

for urban development.


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Leasing Public Land: Policy

Debates and InternationalExperiences edited by Steven

C. Bourassa and Yu-Hung

Hong


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Analytical Framework

Coases Theory of Transaction costs

Four types:

Delineation and Assignment Costs

Negotiation Costs

Enforcement Costs

Public Monopoly Costs (added by Hong

specifically for public leasehold system)


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How should leasehold rights be assigned?

Two situations:

Land is unoccupied and still in the hands of

the state.

Land is occupied by informal settlements.


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Assigning Leasehold Rights of

Unoccupied Public Land

Public auction Ensure the "efficiency"

of allocating land

and raise public funds.

Private treaty grant Encourage industrial

development by

leasing land to industry

with premiums at below

market value.

Facilitate the provision

of affordable housing by

granting land to housing

agencies with either no or

concessionary premiums.


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Assigning Leasehold Rights ofOccupied Public Land

A selectively used idea called:Land Readjustment/Pooling


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Before After


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How Should Leasehold Payments Be Structured?

Initial payment Up-front payment.

Land rent Annual payment

Change whenever the

government reestimates

property values.

Modification Additional payment for

premium lease modifications

(100% of the estimated

increase in land value

due to the modification).

Lease renewal Imposition of a new land

premium or rent rent for renewable lease.

Additional premium at full

market value is required

for non-renewable leases.


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Major Revenue Sources of Hong Kong Government: 2008/2009

Other Revenue

10%

Duties

2%

Bets and Sweeps Tax

4%

General Rates

2%

Utilities, Fees, andCahrges

5%

Land Fund, Properties,

and Investments

16%

Stamp Duties10%

Land Premium

5%

Salaries Tax, Personal

Assessment, and

Property Tax13%

Profit Tax

33%

Source: Hong Kong Yearbooks, 2009.


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Significance of Lease Revenue in Hong Kong: 1997-2010

0%

50%

100%

150%

200%

250%

300%

350%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Percent of Total Revenues Percent of Total Expenditures Percent of Expenditures on Public Works


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Potential Risks of Collecting a Lump Sum

Lease Payment at the Beginning of theLease Term

Lead to high land and property prices?


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Source: HKSAR, Rating and Valuation Department http://www.rvd.gov.hk/en/publications/pro-review.htm


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Potential Risks of Collecting a Lump Sum

Lease Payment at the Beginning of theLease Term

Lead to high land and property prices?

Hurt Hong Kongs competitiveness.

Create dependency on the performance of the

real estate sector, and industrial development

has not been diversified.

Fiscal dependence on lease reveunes


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How Long Should Lease Terms be?

It should depend on the land use:

For residential: 75-99 years

For industrial and commercial:

Footloose industrieslong-term lease

Location specific industriesshort-term lease

Most importantly, all lease should be renewable.


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Negotiation Costs

The transfer of leasehold rights should not berestricted.

Leasehold records should be public information.

Official leasehold deed search with liens and

legal description must be available.

Auction prices of land use rights should be

publicly available.

Trained professionals in real estate appraisal

and contract law are needed to facilitate

negotiation.


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Negotiation Costs

There should be a title insurance-like system to

safeguard unexpected claims on leasehold

ownership to smooth transaction.


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Enforcement Costs

Disputes over the possession of leasehold

rights and compensation for public expropriation

of leased land rights should be settled by a land

tribunal.

Public education about the pros and cons of

public leasehold systems is critical for their

acceptance.


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Public Monopoly Costs

Create a quasi public agency to manage land

leasing and development.

It will be a custodian of public land working with the

government at arms length.

Its prime objective is to maximize lease revenues

and land development potential.

Its director will be accountable to a committeecomposed of professional groups from the public and

private sectors.


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Canberra The

Netherlands

Sweden Finland Israel Hong

Kong

Raising public

funds

No Yes Yes Yes No Yes

Reserving

land for public

development

Yes Yes Yes Yes Yes Yes

Regulating

land use

No No N/A N/A N/A No

Facilitating

urban

redevelopment

No N/A N/A N/A N/A No

Promoting

industrial

development

N/A N/A N/A N/A N/A Yes

Achieving Public Policy Goals under Different Public Leasehold systems


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Open Discussion

addis ababa, yu-hung hong - building market institutions for transacting public leaseholds

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