Hong Kong Budget 2022-23 – Key Real Estate Updates | Bryan Cave Leighton Paisner
[co-author: Veronica Ma]
The 2022-23 budget was presented by Paul Chan, the Financial Secretary of the Hong Kong SAR Government (the “Government”) on February 23, 2022, amid the rapidly worsening fifth wave of the COVID-19 pandemic in the Territory. In a bid to stabilize the economy and maintain public confidence, the government is proposing to roll out fiscal policies to spend more than HK$170 billion on countercyclical measures and other infrastructure projects. The main updates on the real estate sector are presented below.
1.1 Moratorium on Rent Enforcement for Small and Medium Enterprise (“SME”) Tenants
To help ease the immediate pressure on Hong Kong’s SMEs amid an extremely unfavorable business environment, the government is offering a short-term form of rent relief for SMEs in “specified areas” to defer the payment of rent for three months, but this can be extended to six months from January 2022. The government will introduce new legislation to prevent landlords from breaking the lease or failing to provide services to these SME tenants for not having paid the rents on time, or to initiate relevant legal proceedings against these tenants for the prescribed period. The legislation will automatically lapse after six months.
There are concerns about the plan’s implementation, including whether landlords have enough cash to pay their mortgages and interest costs during the deferral period, or whether tenants can pay rent in installments after the period.
A few days after the announcement of this new plan, the government clarified that this policy would only target commercial landlords and leading property developers, and not small landlords. The government is also proposing to offer interest-free loans to homeowners with cash flow problems. The government will provide rent advances of up to three months to landlords on behalf of tenants, subject to a cap of HK$100,000. Landlords will then reimburse the government once they have collected rents from tenants. The Hong Kong Monetary Authority will issue guidelines for banks to handle mortgage repayments flexibly, in case homeowners’ ability to repay is affected by the new policy.
The government is also calling on land developers to assume their social responsibility by offering rent concessions to SME tenants, while the government will speed up the process of drafting the Rent Deferral Bill.
Similar rent moratorium programs were introduced in the UK and Singapore in 2020. Landlords and tenants will know this is no panacea. This reduces financial pressure for some while potentially increasing financial pressures for others. Implementation details are not yet known and will need to be carefully considered. Please note that this is a targeted approach for specific types of tenants and landlords rather than a blanket benefit for all tenants. The intent is to encourage landlords and tenants to conduct reasonable negotiations to establish appropriate payment terms.
1.2 Tax deduction for national rental charges
Beginning with the 2022-23 tax year, the government introduced tax deductions for domestic rental expenses, capped at HK$100,000 for that tax year. The proposed deduction is available to taxpayers who do not own household properties to ease their burden of renting private property.
1.3 Modification of the rules for first-time buyers
To stimulate demand for larger, more affordable homes, the government has further eased the ceiling on mortgages to help first-time homebuyers and families looking for a self-contained “apartment for flats”. Mortgages available on homes with an 80% loan-to-value ratio will increase from HK$10 million to a maximum of HK$12 million. For first-time home buyers, mortgages available on homes with the highest loan-to-value ratio of 90% will now increase from HK$8 million to a maximum of HK$10 million. However, interested buyers should be aware of the stricter income requirements under the stress test to qualify for the higher loan-to-value ratio. Buyers should also consider their ability to service debt repayments given that interest rates are of course expected to rise several times this year.
1.4 Reform of the domestic property rating system
The government will introduce a graduated rating system in 2024-2025 for domestic properties to reflect the “affordable users pay” principle. Currently, fares are charged at a flat rate of 5% of the assessed value. Depending on the annual taxable value of the household good, the revised rates will increase from 5% to 8% and then to 12%.
The government also proposes to grant the concession of future tariffs only to natural persons and on a single residential property in that person’s name. Owners of multiple properties will not be entitled to multiple rate concessions, and businesses that own properties will not be able to request these rate concessions.
The government expects the progressive rating system will not have a big impact on landlords, and middle-class properties are unlikely to be affected by the reform.
1.5 Land offer
1.5.1 Short term supply
The land sales program for 2022-2023 will include 13 residential sites and 4 commercial sites. Combined with MTR, URA and private development and redevelopment projects, the land supply is expected to have a capacity of 18,000 residential units.
1.5.2 Mid-term supply
The government plans to secure about 103 hectares of land in the next 5 years for the production of 57,000 units. However, this number excludes the URA and other private land development projects which are expected to result in an average completion of 19,000 units per year over the next 5 years, with accelerated numbers reaching new highs over the next few years. next 3 years.
1.5.3 Public housing supply
The government has identified 350 hectares of land for around 330,000 social housing units to meet demand over the next 10 years. It is expected that approximately 1/3 of these units should be completed within the next 5 years and the rest within 2n/a five-year period.
1.5.4 Longer term land supply
See section 1.6 below on Metropole du Nord and Lantau tomorrow.
1.6 Northern metropolis and Lantau tomorrow
Interestingly, these two megaprojects continue to be highlighted to create longer-term growth in land supply in Hong Kong. The budget goes on to commit HK$100 billion from the Future Fund to establish a dedicated fund to accelerate the implementation of infrastructure works related to land, housing and transport in the northern metropolis. Studies are also underway regarding the proposed Lantau Tomorrow project, so this project continues to move forward. The government intends to consider financing options such as bond issues and PPP approaches for these large-scale developments.
1.7 Rationalization of statutory procedures
The government is proposing a much-needed overhaul of land use planning legislation. There are plans to streamline procedures to speed up the time needed to “create land”. Obviously, this will include land reclamation works and the creation of new development areas. Consider whether this will also create tension with the government’s goals of building ‘green cities’. Let’s see how this evolves.
2 END NOTE
The implementation schedule and details of the proposed measures have yet to be worked out. Our team in Hong Kong will continue to monitor legal developments around these issues and will provide further updates on these points as they become clearer.