Hong Kong Adds National Security Clause to Land Sales, Leases of Government Buildings

The Hong Kong government is defending its right to require bidders in land auctions to meet undefined national security criteria, with the city’s chief executive insisting the policy “has no relevance at all” to developers’ bidding decisions.

John Lee’s comments followed reports came after the city’s Lands Department had included a national security provision to the terms and conditions in the tender for a site in Kowloon’s Mongkok Area stating that the government has the right to disqualify a bidder on the grounds that it may have engaged in offenses endangering national security.

“The introduction of national security factors in our sale of lands is an obvious thing that is in accordance with our responsibility in protecting national security,” Lee said during his weekly press briefing on Tuesday. He added that the provision has been in place for a while and that land sales have occurred since its introduction.

“So this factor is an actual factor that I think has no relevance at all to any decision by any businesses who are interested in bidding for sales of land and will basically consider it from their business angle,” Lee said.

The new requirements echo the sweeping national security legislation that Beijing decided to insert into Hong Kong’s Basic Law in May 2020, following a year of anti-government protests.

Sweeping Language

A government spokesperson told the Hong Kong Economic Times that the government’s internal guidelines for procurement were updated to include security law requirements last August, while the new language was first included in its tender for a Kai Tak site in November. CK Asset Holdings picked up the residential development site in question, New Kowloon Inland Lot No. 6649, for HK$8.7 billion ($1.1 billion) in December.

Virtually all land in Hong Kong is owned by the People’s Republic of China, with the city government disposing of land by granting leases, generally with a 50-year term. Land premiums and stamp duties accounted for a combined 35 percent of government revenue in the fiscal year 2021 to 2022.

The relevant clause in the tender for Kowloon Inland Lot No. 11273 states that the government reserves the right to disqualify a tenderer on the grounds that the bidder, or its parent company or principal, “has engaged, is engaging, or is reasonably believed to have engaged or be engaging in any acts or activities that are likely to cause or constitute the occurrence of offences endangering national security or otherwise the disqualification is necessary in the interest of national security, or is necessary to protect the public interest of Hong Kong, public morals, public order or public safety.”

There has been no further announcement or policy document from the Hong Kong government regarding the new land auction clause. The Lands Department did not respond to an inquiry from Mingtiandi by the time of publication.

“The passage of the national security law is the cause and the inclusion of additional clauses in land auctions is the result,” Gary Ng, economist for Asia Pacific at Natixis, commented to Mingtiandi. “Therefore, the recent change itself will not make too much of a difference to investors’ sentiment.”

Ng added: “The lingering concern is that it is increasingly difficult for firms to plan investment in Hong Kong as they can face more and more requirements in the future, which can add costs to business plans. As a result, firms will continue to reassess geopolitics and policy predictability in Hong Kong, and what is uncertain to companies remains uncertain.”

Several of Hong Kong’s property tycoons in mid-2020 expressed support for the new national security law, which increases mainland control over the city, including CK Hutchison Holdings founder Li Ka Shing, as well as the chairmen of Sun Hung Kai Properties, New World Development, and Henderson Land Development.

Leases Also Affected

The new requirements also appear to apply to leases of government property. The Foreign Correspondents’ Club said in November that the government had added national security clauses to its new three-year tenancy at the historic Old Dairy Farm Depot at 2 Lower Albert Road in Central district.

The new lease contains provisions allow the government to terminate the lease at any time with three months’ notice, or immediately if in the interest of national security, FCC said, adding that these provisions are now standard in all government leases.

Underscoring weak demand for land in Hong Kong at present, MTR Corporation ended a tender for a HK$10 billion ($1.27 billion) project in northern Lantau island on Monday after rejecting three bids for the commercial and residential site. The terminated tender marked the third failed land sale in the city so far, as rising interest rates, economic challenges in mainland China and geopolitical tensions feed into pessimism among developers.