999-year leases - Hong Kong v. London

U.K. properties advertisements on Hong Kong newspapers always sell the 999-year leases. That sounds almost as good as perpetuity, particularly for we the people of the People's Republic of China. It appears that the usual length of "land use rights" granted in China is 70 years. In Hong Kong, new leases (by new I mean after we waved goodbye to British Hong Kong) shall be granted for a term of 50 years. Conventional wisdom in Hong Kong has it that investments in landed properties are sure-win in the long run. That is necessarily premised on the assumption that leases shall, upon expiry, be extended by the Hong Kong Special Administrative Government. Yet the Government has in fact been declaring, loud and clear, that one can make no such assumption. The policy proclaimed by the Government is that:-

Non-renewable leases (i.e. those fixed term leases containing no right of renewal), may, upon expiry, be extended for a term of 50 years without payment of an additional premium but subject to payment of an annual rent from the date of extension at 3% rateable value as for new leases in (i) above. The extension of such leases is wholly at the discretion of the HKSARG; for instance, if the land is required for a public purpose or is no longer being used for the purpose for which it was originally granted, then the lease is unlikely to be extended. (emphasis added)

These days, one must be very courageous to rely on "the discretion of the HKSARG". The reality is that I may well spend 25 years to repay the mortgage loan to "buy" a property subject to a 50-year lease, only to realise that the "HKSARG" is already on my doorstep. But thanks to the Colonial Government, there are leases for 999 years granted back in the 19th century in the City. David Webb has a copy of the "Report from the Hongkong Land Commission 1886-1887 on the History of the Sale, Tenure, and Occupation of the Crown Lands of the Colony", which summarises the leased lots as at 25 December 1886, including Marine Lots, Inland Lots, Quarry Bay Marine, Aberdeen Marine, Aberdeen Inland, Apleechow Marine, Apleechow Inland, Sowkewan Lots, Kowloon Marine and Kowloon Farm, which were subject to 999-year leases. The total annual rental in Hong Kong was $159,520.66. These are very good leases for the leasees.

Few participants in Hong Kong properties market care about the land leases (presumably they have trust in the good judgment of the "HKSARG") whereas the big four hongs (Hutchinson, Jardine Matheson, Swire and Wheelock) have been milking these long leases for a century. I would rather bet on the good old long leases, particularly when I do not have to pay much more for such de facto freehold.

The 999-year leaseholds in England look very familiar at first sight. But the big landlords in that country are the freeholders - who quite often are the developers or their associates. The leases granted by such freeholders are very different from those granted by the British Hong Kong Government in the 19th century. Leasees in England contract to pay ground rent and service charges. Mundane stuff eh? The Guardian and The Telegraph explain what these could mean to leaseholders.

By the way, banks and building societies alike in England do not normally grant mortgage loans in respect of properties subject to leases which remaining term is less than 70 years.