The disposal of the Hong Kong land stock under the Sino-British Joint Declaration

Abstract

Land supply in Hong Kong was restricted to 50 hectares (ha) per annum according to the Sino-British Joint Declaration in 1984. Such restriction was in force until the handover of Hong Kong to China in June 1997. This study examines the implications of such restriction on government land sales policy over the period when the restriction was in place. Using analytical tools for the depletion of an exhaustible natural resource, we can estimate an 'optimal control path' for land disposal in Hong Kong. This can then be compared to the 50 ha limit. Our analysis suggests that the 50 ha limit is far below the optimum. This implies serious dissipation of wealth, which is not in the interest of the Hong Kong government and the central government of China. The implication is that the Hong Kong government will try to minimize wealth dissipation by adjusting its land sales policy. Given the 50 ha restriction, this can be achieved by (a) selling land lots with higher development density and (b) negotiating with the Sino-British Land Commission to relax the 50 ha limit from time to time. Both implications are consistent with empirical observations. The increase in the planned land supply when the 50 ha restrict was removed in mid-1997 further confirms our analysis.