icon Hong Kong icon
  • China
  • >
  • Hong Kong
  • >
  • >
  • Will the expiration of the land lease in 2047 affect the mortgage?
Will the expiration of the land lease in 2047 affect the mortgage?
Jun 7, 2023
Will the expiration of the land lease in 2047 affect the mortgage? Hong Kong
By   28HSE Editorial Board 
  • City News
  • Property Information
  • Land Lease
  • Mortgage
Abstract: In recent years, more and more people are discussing the issue of "2047 land lease expiry", some people will worry about the impact on mortgage, some people will worry about the end of the lease term of the property, and eventually the government will repossess the land.

According to the Development Bureau, by June 2025, there will be about 50 lots of land leases will be the first to expire, and by June 30, 2047, there will be about 300,000 general purpose lots of land leases expire, many of which are common ownership lots, involving a large number of titles, very difficult to deal with.


Coupled with the large number of lots to be processed, the Development Bureau proposed legislative amendments to streamline the lease renewal process, allowing the lease to be renewed for 50 years without premium, during which 3% of the rateable value of government rent will be paid annually, and only a few serious violations of the lease will be gazetted as non-renewal, but the owners can still appeal.


What exactly is a land lease? In Hong Kong, land ownership can be divided into "freehold" and "leasehold", where the Government owns the land and leases it out to the developer. The term of the land lease defines the duration of the land leased to the tenant.


The term of the land lease was set as early as the former British Hong Kong Government, and there are three main types of land leases, including 75 years, 99 years and 999 years. At present, there are 15 housing estates in Hong Kong with 999-year leases, mainly located on Hong Kong Island, including the top ten housing estates Taikoo Shing.


Why are 999-year leasehold estates so rare? It is because in the colonial era, the government granted a large number of 999-year leases, but later the colonial government felt that it would lose long-term control, so it stopped granting 999-year leases, and since then the land granted has become 75-year or 99-year.

 Will the expiration of the land lease in 2047 affect the mortgage?

After the land lease expires, there are three possible scenarios: first, the land tenant does not have to pay the premium, but only needs to pay 3% of the rateable value of the annual rent, then the lease can be automatically renewed; second, the land tenant needs to pay the premium to renew the lease; third, the government resumes the land and does not accept the renewal of the land.


Among them, land resumption is the most extreme method, which is bound to cause social opposition and create an uproar, so the chance of occurrence is relatively low. Although the government has not formally legislated, according to the Development Bureau's proposal, I believe the government will generally choose case one, to deal with renewal matters, both convenient and fast, so we do not have to worry too much.


If a buyer intends to purchase a flat with a land lease that expires in 2047, only 24 years from now, and wants to take out a 30-year mortgage, how will the bank handle it? Will it affect the term of the mortgage granted?


Basically, this does not require special handling and does not affect the approval, even though the uncertainty of the land lease will increase the lending risk of banks, however, the government has long indicated through the HKMA that banks do not need to adjust their mortgage policies due to the 2047 deadline, and that the government has the right to grant renewed land leases.


In the long-term low interest rate environment, many buyers tend to amortize the mortgage repayment period to the upper limit of 30 years, and the bank mortgage can eventually grant 30-year mortgage is based on different factors such as the age of the person, the age of the building, the type of property, the type of transaction and the mortgage percentage, the term granted will be different.


In addition, due to the expiry of the land lease renewal program is not yet determined, so some banks will add insurance clauses in the mortgage deed, stating that if the land lease is not successfully renewed, the bank will reserve the right to adjust the mortgage terms, and does not exclude the borrower can be required to pay off the mortgage early, borrowers should also pay attention to the relevant provisions.

icon icon