Following the Chief Executive of Hong Kong, Donald Tsang’s latest policy address, this legal update considers the impact of the policy address on the infrastructure, real estate, and hospitality and leisure industries.

Real Estate and Housing

It will be of no surprise to anyone that the hot topic of the policy address was housing. Tsang identified the need for 20,000 new residential flats each year for at least the next 10 years (although this appears to be quite conservative given that the average annual uptake over the last 20 years was 18,500 units). Tsang promised to resolve the difficulties in the industry whilst minimising intervention in the property market.

Temporary changes to the Capital Investment Entrant Scheme were approved to remove property as a category of eligible investment. The scheme is, of course, a means of obtaining permanent residency in Hong Kong through investment. However, given the low value of such investment as a proportion of property investment as a whole, it appears to be of limited consequence to the industry. The removal is "temporary", although how temporary remains to be seen.

Tsang announced changes to the land auction system so that the government can auction land on its own initiative in addition to waiting for bids from developers to initiate auctions. As the land auction system is often cited as one of the reasons for the lack of land availability in Hong Kong (and the correspondingly high prices) this is welcome.

Tsang rejected a reintroduction of the Home Ownership Scheme. Instead he promised a new scheme to be known as the 'My Home Purchase Plan'. The plan will assist first time purchasers raise an initial down-payment. The scheme will offer fixed-rate tenancies over a period of up to five years and the tenants will then be entitled to a refund of half of their rent contributions during the period to go towards a deposit for the purchase of a flat. The first units for the scheme will not be completed until 2014 and the number of such units is low (1,000 in 2014 with a further 4,000 to follow). Sites include Tsing Yi, Diamond Hill, Sha Tin, Tai Po and Tuen Mun.

The Chief Executive discussed legislation to regulate sales in the primary market, including mandating that advertising of flats be by reference only to the net floor area. However, he failed to commit to such changes. Instead, legislation will only be introduced if the existing regulation through the Lands Department’s Consent scheme and the guidelines of the Real Estate Developers Association of Hong Kong prove inadequate.

New Regulation for Buildings

Tsang committed to tackling the long term maintenance of sub-divided buildings following the collapse in Ma Tau Wai Road earlier this year, including possible new legislation. Tsang also focussed on the management and regulation of older buildings. He indicated that the government may introduce legislation to mandate owners to appoint property management companies.

Licensing of property management companies may also be in the works and Tsang indicated a forthcoming public consultation with a decision to be made in the first half of 2011.

Tsang commented on further environmental requirements for buildings in Hong Kong as well as contemplating the tightening of green floor-area concessions.

Tourism Sector

In a single paragraph of his address, Tsang undertook to "step up regulation" of the tourism sector. The proposed regulation seems to be a direct consequence of recent problems with mainland tour groups in Hong Kong. As the government-issued summary put it, the government is set to review "the operation and regulatory framework of the entire tourism sector".

New legislation is proposed to regulate the role, powers, responsibilities and operation of the Travel Industry Council of Hong Kong, as well as its working relationship with the Travel Agents Registry. As noted in a previous legal update, the government is also consulting on forthcoming legislation on time-shares and long-term holiday products (http://www.mayerbrown.com/hospitalityleisure/article.asp?id=9759&nid=12167).

Infrastructure & Logistics

Unsurprisingly, the government has reaffirmed its commitment to ten major ongoing infrastructure projects (for more details see http://www.policyaddress.gov.hk/10-11/eng/pdf/projects.pdf). The projects include the Hong Kong leg of the national high-speed rail system and ongoing MTR projects.

Expenditure on such projects has risen to an estimated HK$49.6 billion this year and will exceed HK$50 billion in each of the next few years (without allowing for any overspend). As Mr. Tsang noted, these projects represent a clear boon for the construction industry.

The government also announced new sites for "logistics clusters". The first of these will be a site in Tsing Yi and was put up for tender in September.

Non-specific improvements of Hong Kong’s port facilities were also discussed.

The airport has been promised additional aircraft stands and apron facilities and a new passenger concourse. Works will begin next year for completion in 2015. The new cargo terminal, expected to be completed in 2013, will increase cargo handling capacity by 50%.

Tsang announced a goal of switching away from coal to natural gas and imported nuclear energy which will provide, respectively, 40% and 50% of our power by 2020 with the remainder supplemented by coal and renewable energy.

More general goals such as the ongoing work with the Shenzhen government in relation to the development of the Qianhai region were also touted.

Concluding Comments

In summary, Tsang has identified numerous difficulties and current issues faced by these industries and proposed high-level, constructive solutions. However, Tsang was immediately attacked in the media for not going far enough.