Housing is a serious problem in Hong Kong. Many people are living in a substandard environment. According to some estimates, there are more than 200,000 people residing in the "sub-divided" units, which is, a single apartment divided into mini rooms with separate bathrooms. On a parallel side, there are long queues of people for public housing, with the current number of applications over 200,000. Clearly the demand for public housing is big, and the government is aware of the situation. Nevertheless, the major obstacle to fulfilling the demand for public housing is a lack of land.

The government is keen to explore new sources of land supply. Recently a property tycoon suggested the idea of donating lands to the government, so it can build more housing to cater to the needs of the people. In particular, the tycoon said the apartments can be priced at HK$1 million enabling young people to buy their own property.

This idea of donation should be welcomed by society, but the reality says different. The idea was criticized by many, a measure of the public sentiment of Hong Kong.

The aforementioned land donation clearly demonstrates a mistrust of property developers among the Hong Kong public. Citizens believe developers are making too much profit from properties and that its perpetrators are fat cats who care only about profit, with no sense of corporate social responsibility. As soon as the idea of land donation hit the headlines, it generated a wave of mistrust.

The negative views take the form of three shared opinions. First, the public think the developer is actually negotiating a better deal with the government. The pieces of land being discussed for donation are located in remote areas with no public infrastructure. If government accepts such land, it must invest heavily in public infrastructure to make the land habitable. That in turn helps the developer increase the value of land on land. Therefore, rather than being donations for the greater good, the gesture is a government 'bait'. With the advent of infrastructure, the developer can seek greater profits developing adjacent land.

Second, critics think the developer is actually negotiating a land premium with the government. Under the current system, the owner of arable land needs to pay a land premium to the government if the land use changes for residential purposes. Ironically, the developer has much arable land in the New Territories. With this land donation, critics say government will be lenient in the negotiation process. The amount of the donation will be recapped from gains in the savings of land premium.

Third, and most imaginative, critics contend the developer donates the land as an inducement for government to build housing. Then, the developer will build shopping facilities nearby, thus earning huge profit through shop sales, as well as operating shopping malls and controlling the provision of necessities for residents. This line of thought implies that the donation of land is a speculative investment capable of yielding large benefits in the future.

No matter which view one takes, the lesson is that Hong Kong people share a general mistrust of developers. Citizens will tend to believe stories about the potential business subtext of land donations. Negative sentiment towards the rich developers wasn't created overnight. Clearly the government needs to handle the land donation issue with extreme caution. In the longer term, property developers should also think about their position in society. It is not a matter of doing business in a legal way, it is about how the stakeholders think. Modern corporations need to engage various stakeholders. Managers do not have an easy task at all.

The author is dean of the School of Business at Hang Seng Management College.

(HK Edition 04/25/2013 page9)