For discussion FCR(97-98)8
on 25 April 1997

ITEM FOR FINANCE COMMITTEE

CAPITAL WORKS RESERVE FUND
HEAD 701 - LAND ACQUISITION

New Subhead "Redemption money and interest payable thereon in respect of land exchange entitlements under the New Territories Land Exchange Entitlements (Redemption) Ordinance"

Members are invited to approve the creation of a new subhead with a commitment of $2,400 million for the payment of redemption money and of interest payable thereon in respect of land exchange entitlements under the New Territories Land Exchange Entitlements (Redemption) Ordinance.



PROBLEM

We need funds to pay for the redemption of land exchange entitlements under the New Territories Land Exchange Entitlements (Redemption) Ordinance (the Redemption Ordinance), which will come into operation shortly.

PROPOSAL

2. We propose to create a new subhead with a commitment of $2,400 million for the redemption of the land exchange entitlements.

JUSTIFICATION

3. On 4 December 1996, the Legislative Council passed the Redemption Ordinance. The ordinance provides that after it comes into operation on a day to be appointed by the Secretary for Planning, Environment and Lands, any outstanding land exchange entitlements can only be redeemed in cash rather than land. The ordinance also provides for the payment of redemption money in accordance with the rates set out in the Schedule to the ordinance, and the redemption money at these rates will bear interest from the commencement date of the ordinance until the date of payment thereof. We aim to bring the Redemption Ordinance into operation in June 1997.

4. The rates of redemption money set out in the Schedule to the ordinance (see Enclosure 1) are the monetised values of the land exchange entitlements effective from 1 October 1996. We update and determine these monetised values once every six months, having regard to the movement of property prices in the New Territories. On 14 March 1997, we published in the Government Gazette the updated monetised values in respect of the land exchange entitlements effective from 1 April 1997 (see Enclosure 2). In respect of building land, the average of the fixed rates of the monetised values effective from
1 April 1997 ($8,891.6 per square foot) is about 15% higher than the average of the rates of redemption money payable under the Schedule ($7,764.3 per square foot) . To ensure that redemption money payable to the owners of the land exchange entitlements reflect the most up-to-date rates before the Redemption Ordinance comes into operation, we need to amend the rates in the Schedule to the Redemption Ordinance to bring them to the 1 April 1997 levels. We will do so by the introduction of an amendment bill to Legislative Council shortly. We cannot wait until that amendment bill is passed before we put the current proposal to Finance Committee for consideration as we would not then have sufficient time left to complete the process before we bring the Redemption Ordinance into effect in June 1997.

5. Redemption of the land exchange entitlements, though not a land acquisition exercise, has arisen from land acquisition. We consider it appropriate to charge the redemption money and interest payable thereon to Head 701 Land Acquisition under the Capital Works Reserve Fund (CWRF). As consequential amendments to the Redemption Ordinance, the CWRF Resolution has been amended to include provisions for the payment of redemption money and interest payable thereon in respect of the land exchange entitlements. These amendments will take effect when the Ordinance comes into operation. For better financial management and control, we propose creation of a new subhead with an approved commitment for the purpose.

FINANCIAL IMPLICATIONS

6. We estimate that land exchange entitlements equivalent to about 2.41 hectares of building land are now outstanding. Assuming that the amendment bill to update the rates of redemption money payable to 1 April 1997 levels is passed, we estimate that we will require a total commitment of $2,400 million to meet the payment of redemption money, calculated as follows -

Outstanding land exchange entitlements (A)

2.41 hectares or

259 412 square feet

Average fixed rate per square foot of building land (as at 1 April 1997) (B)

$8,891.6

Portion of redemption money calculated using the average fixed rate (C) = (A) x (B)

$2,307 million

plus portion of redemption money calculated using face value and interest payable on redemption money (D)

$93 million

Total commitment sought (C) + (D)

$2,400 million

7. Since we cannot predict when the owners will come forward to redeem their outstanding land exchange entitlements, it is not possible for us to provide an estimated cash flow of the expenditure.

BACKGROUND INFORMATION

8. Between 1960 and 1983, we issued New Territories land exchange entitlements, commonly known as Letters A/B, to landowners in the New Territories for their land which the Government required for development. Holders of the entitlements were entitled to exchange them, as an alternative to cash compensation, for building land at the ratios of one square foot of building land for one square foot of building land and two square feet of building land for five square feet of agricultural land. We stopped the issue of the entitlements in 1983 because of increasing difficulties in meeting the commitment.

9. It has been the Government’s intention to redeem all the outstanding entitlements as soon as possible and over the years we have made available sufficient land for this purpose in our annual land disposal programmes. For the residual entitlements which are not traceable, it is not feasible for the Government to continue to provide land to redeem them because they are likely to be held in small packets. The best way to deal with this situation is by fixing through legislation the value of the remaining entitlements at a given date and ensuring that sufficient funds are set aside to enable that value plus interest to be paid on redemption. This is the objective of the Redemption Ordinance.

Planning, Environment and Lands Branch

April 1997


Last Updated on 5 August 1999