Paying for Hong Kong’s mass transit railway

by | Dec 12, 2025 | Articles, Commentary, Progress Magazine

Motion blur of a high speed train

By Andrew Purves

Growing up in Hong Kong in the 1970s, I remember the noise and disruption of the Mass Transit Railway (MTR) construction. Cut-and-cover tunnelling tore up roads, while new property developments rose above the stations. These developments would reshape Hong Kong’s urban landscape — little did I know that I would be writing about it fifty years later.

By the late 1960s, the British administration recognised that a dense, growing metropolis needed underground rail to ease traffic and spur investment. The state-owned Mass Transit Railway Corporation (MTRC) was established in 1972, and the first 8km line opened in 1979. Today, MTR operates ten lines across 271km, including 99 stations and 68 light rail stops. It also manages rail operations in the UK, China, Sweden, and Australia. Remarkably, it achieved this without subsidy from general taxation. In 2024, MTR reported revenue of HK$60bn (AU$12bn) and profit of HK$15.8bn, with two-thirds of that from property development. The model was simple: land values around stations rise when new railways are built. Instead of letting private leaseholders pocket the uplift, MTRC was empowered to acquire land at pre-railway values.1 It was deemed crucial that the price paid would take no account of the coming railway in the valuation or compensation process. This was set out in the Ordinances that established the powers granted to MTRC:

‘ The Governor may by order direct that any land within the railway area shall be resumed for the purposes of and incidental to the railway.’ Part I, 4. (1) Mass Transit Railway (Land Resumption and Related Provisions) Ordinance 1974.

‘In the assessment of compensation, no account shall be taken of any increase or decrease in the value of land to which, or to the building works on which, the compensation relates which is attributable to (a) the delineation thereof under section 3 as part of the railway area; or (b) the construction or operation of the railway.’ Part II, 3. Mass Transit Railway (Land Resumption and Related Provisions) Ordinance 1974.

Once acquired, land could be used as security for bonds to fund construction, repaid later from fare and property income.

While researching my book on Hong Kong2, at a meeting with Sharon Liu, Chief Town Planning Manager of MTRC, she confirmed to me that when a new project is proposed, the first question is:

“How much land do we need to cover the cost of building the railway?”

This principle was tested with the 1998 Airport Railway, a 34km line requiring tunnels, a road-rail bridge, and large land holdings. Some of that land became a new town, Tung Chung, now planned for 370,000 residents, and enabled further development such as Hong Kong Disneyland and the Sunny Bay interchange. Rural sites often yielded the greatest value uplift. In England, residential land can be worth up to 93 times more per acre than agricultural land.3 Before the bridge and railway, Lantau Island was only accessible by ferry and was largely used for agriculture and recreation purposes.

MTRC often leases or sells sites to developers, of which there are many in the market, creating competition while reducing its own risk. On undeveloped land, it installs basic infrastructure before auctioning plots with planning approval, capturing the uplift. Above stations, retail is usually retained for steady rental income. In some cases, MTRC keeps entire towers, such as the 88-storey International Finance Centre above the Airport Express station, home to financial tenants, a luxury hotel, and Hong Kong’s largest Apple store.

It is prudent to retain ownership of some buildings together with their rental income streams to provide for ongoing maintenance of the railway, which is seldom fully covered by fare revenue. In fact, this property income offers an opportunity to keep the cost of fares accessible, and in suburban contexts makes a move from the city centre to other locations more attractive, especially where the commuting time is low.

I am not familiar with the details of Australia’s proposed high-speed lines, but I assume they will be faster than the uncomfortable, non-air-conditioned overnight trip I took from Sydney to Brisbane in the humid summer of 1980! I would hope the proposed new line to Newcastle (and beyond) will provide the opportunity to develop new settlements for the projected population growth on the East Coast.

Using this Transport Oriented Development model can significantly reduce the financial burden on the Government for such a project, while sharing the development value equitably with potential development partners.4

This article appeared in the 2025 edition of Progress. You can rest of the journal here.

  1. All land in Hong Kong is owned on a leasehold basis, while the Government retains the freehold, an arrangement similar to that operating in the Australian Capital Territory. ↩︎
  2. Purves, A. (2015). No debt, high growth, low tax: Hong Kong’s economic miracle explained. Shepheard Walwyn. ↩︎
  3. https://iea.org.uk/housing-vs-farmland-how-to-get-the-balance-right/ viewed 1/5/25. ↩︎
  4. Cervero, R. and Murakami, J. (2008). ‘Rail + Property Development: A model of Sustainable Transit Finance and Urbanism’. UC Berkeley Center for Future Urban Transport, Berkeley. ↩︎