The head of the Heung Yee Kuk, Kenneth Lau, on Friday said the government's land premium policy is "out of touch" with the market situation and makes large projects unattractive for developers.

In a spring reception speech, the rural leader said the government recently had to reclaim six sites under the land exchange agreement for the Northern Metropolis, after developers and the authorities failed to agree on prices.

"The land premium for housing plots is out of touch with the reality of the current market supply and demand situation, causing some developers to hesitate and even consider not taking part in development projects," he said.

"When flour is more expensive than bread, who would have the motivation and interest to make bread? Therefore, the SAR government must provide a good business environment and adopt a more flexible policy when it comes to land premium, so as to stabilise market confidence."

Lau also said the success of the Northern Metropolis will rely on the support and cooperation of residents and indigenous inhabitants of the New Territories.

On planned Basic Law Article 23 legislation, the rural leader said society would only fall into chaos and the economy would stagnate if national security wasn't safeguarded.