If you pay attention to advertisements of real estate agents, you will often see a note which says “land premium has been paid” for HOS flats listed as on offer for sale. What is the premium? Why should a homebuyer pay attention to this issue of whether  land premium for an HOS flat has already been paid or not? What does it take to calculate the land price that needs to be paid?

1. What is land premium?

The original intention of the Housing Authority’s Home Ownership Scheme is to provide public housing tenants or eligible applicants with the opportunity to join the so-called  housing ladder or queue for flats priced below market prices.  They are given a chance to purchase a flat at a price that does not include the land cost. (For instance, new HOS flats in 2019 were offered at a 50 per cent discount relative to market prices). In order to curb property speculation, HOS flat owners have been required need to pay land premiums to the government before they can sell for sale their units in the open market.

2. Can a sale and purchase agreement be concluded before applying to the Housing Department for an assessment of premium?

If the unit is within the five-year alienation restriction period, the owner may enter into the sale and purchase agreement only after his/her application to the Housing Department for premium assessment and after an acknowledgement letter are received.

If the owner enters into an agreement for sale and purchase before the HA’s acceptance of his/her premium application, the agreement that is entered into will be rendered void.

In the case of flats in which the 5-year alienation restriction period has expired, a flat owner may enter into an agreement for sale and purchase before making an application for premium assessment. But the  land premium must be paid to the Housing Authority within 28 days from the signing the agreement.

3. Can I just pay the land premium  without selling the unit?

A flat owner can pay the premium without selling his/her flat. Upon payment of the premium, the owner will be issued a Certificate for Removal of Alienation Restrictions, which will then enable the owner to sell, let or otherwise alienate his/her flat freely in the open market.

4. How is the premium calculated?

 The premium is assessed with reference to the following factors and formula:

 (1) the market value at the time of application for premium;  (2) the full market value of the purchased property; and, (3) the original property price.

Premium = (Prevailing Market Value – Purchase price)/Initial market value

Assuming a flat’s prevailing market value is HK$5.1 million when the owner applies for land premium assessment. The flat’s initial market value stood at HK$5 million, and the owner is required to pay HK$3.5 million. The land premium payable will amount to HK$1.53 million.

The formula is as follows: HK$5,100,000 x (HK$5,000,000 –HK$3,500,000)/HK$5,000,000= HK$1,53,000.

If the premium has not been paid or if the Housing Department’s permission has not been granted, the owner cannot mortgage the unit.

The owner can sign a mortgage deed through a lawyer or bank on the day the Certificate for Removal of Alienation Restrictions takes effect.

5. What is the difference between the valuation  of the land premium for an HOS flat as against the valuation of a private housing flat covered by a mortgage?

The land premium for an HOS flat is determined by the Housing Department or a bonafide surveyor firm. When applying for a mortgage for an ordinary private flat, the bank will entrust to a surveyor firm the determination of a flat’s  value. However, the validity of the valuation of land premium for an HOS flat is only good for 2 months, and the valuation will become invalid after the deadline, forcing the owner to reapply and pay the handling fee.

6. Can someone object to the Housing Department’s valuation?

A flat owner who disagrees with the prevailing market value assessed by the Housing Department or its appointed surveyor may lodge an objection in writing with the Support Services Section (4) of the Housing Department or its appointed surveyor within 28 days from the date of the Notice of Premium Assessment.

The flat owner may also lodge a formal appeal to the Lands Tribunal within 28 days from the date of the Notice of Premium Assessment.

7. After lodging an objection with Housing Department or an appeal with the Lands Tribunal, can the flat be sold, let or mortgaged?

Before an objection or appeal is concluded, a flat owner may sell, let, mortgage or otherwise alienate the flat in the open market after payment of the premium within the time limit specified in the Notice of Premium Assessment. However, upon conclusion of the objection or appeal and if the assessed

premium is reduced, the reduced amount will be refunded to the owner. On the other hand, if the assessed premium is increased, the owner will be required to pay the increased amount to the Housing Authority.