• Thu
  • Jul 31, 2014
  • Updated: 11:21am

The scapegoats

PUBLISHED : Wednesday, 12 January, 2011, 12:00am
UPDATED : Wednesday, 12 January, 2011, 12:00am

In the course of Hong Kong's latest property bubble, officials have nurtured the myth of collusion between government and developers, because it allows them to use developers as scapegoats to pacify public anger. The myth is that the government is giving free floor area to developers and thereby enriching them. By pandering to the public, the government misses the point, which is: do Hongkongers want bulky buildings and to enjoy the benefits of the land revenues that go with them, or less bulky buildings, which means paying higher taxes and having fewer benefits?

This is the background to the ongoing controversy over green features and amenities in residential buildings. In recent months, headlines have focused on government grants of additional gross floor area (GFA) for including such features. The government's response has been to introduce new rules, which go into effect in April, capping the amount of bonus floor area to 10 per cent of the gross floor area of developments.

The process by which these new rules have come into being can only be understood in political terms. Through much of the past decade, activists have complained about the low quality of Hong Kong's urban planning and an obsolete building code. The Council for Sustainable Development has initiated two consultations on these issues, the most recent one focusing in part on the problem of bulky buildings that create 'wall effects'.

GFA incentives that were meant to promote green features are now seen as a principal cause of bulky buildings, and the public pressure has led to the Development Bureau's revision of the incentives. So, paradoxically, the result is cutbacks in measures that were intended to improve sustainability in the first place.

This farce reminds me of the Cantonese expression sik sei mao, or 'eating a dead cat', which means setting someone up as a fall guy, usually by planting evidence, a common theme in Cantonese dramas. Similar to a police officer resorting to illegal means to capture a suspect, the cutback of green features is a ploy to put the blame on developers when the real responsibility lies elsewhere. It is based on an intentional misunderstanding of the way land auctions work as well as poor public policy.

Let me first make it clear that I am very much in favour of sustainability. Not only that, but to some extent I helped to initiate the 'green features' policy. Ten years ago, in a meeting with Gordon Siu Kwing-chue, then secretary for planning and land, I complained about the proliferation of 'beehive' buildings where areas meant for bay windows were used to increase saleable floor area. I argued in favour of creating incentives for a more diverse architectural footprint. The idea was to reflect the demands of an aspiring middle class, as well as to continue to attract international talent to reside in Hong Kong by having better buildings. Siu reacted to this with administrative measures to promote green features.

The measures allowed a wide range of concessions in GFA. Balconies, for example, were granted a concession of up to 4 per cent of the usable floor area of flats, up to a maximum of 5 square metres. But come April, new rules will reduce the exemption to 2.5 per cent of usable floor space, up to a maximum of 3 square metres. The overall effect is to reduce the incentive by half. The problem with this should be obvious - it is a completely arbitrary measure designed to placate public opinion, and actually undermines the overall objective of sustainability.

Will the new measures have the desired result of eliminating 'wall effect' blocks? Clearly they will not. The most likely result will be a new generation of residential flats with tiny and unusable balconies, and it is just one of many examples of the nanny-state approach adopted by the Development Bureau in this exercise.

Worse, it is based on a misperception of how developers make money. The public view is recorded in the independent consultant's report on the Council for Sustainable Development's recommendations, which served as the basis for the government's revised policy. 'GFA concessions merely give developers more excuses to make money. The building costs are lowered as a result of the concessions, but the units are still sold at the full market price ... It seems that the government is dishing out money to developers,' the report says.

The fact is that the land auction process forces developers to build the full market price of all features - whether they are amenities, or green or mandatory features - into the bid price. Every developer participating in an auction knows full well that the low bid loses. So, to the extent that regulatory incentives are available, each bidder will reflect the 'full market price' of green and other features in its bid.

If you want to look for a 'dead cat', here it is. Nobody is more aware than the government of the process and market psychology involved in land auctions. If the green features are wrong - for whatever reason - they should be eliminated. The incremental and arbitrary approach that the government has taken instead is simply a sop to the activists and does not accomplish its goals.

The simpler solution is to reduce plot ratios. Developers would have to work within a smaller framework, but the public would get its views and fresh air. The government should be honest with the public by giving it this choice - as well as explaining the cost in terms of fiscal flexibility.

Sixteen of the Council for Sustainable Development's 51 recommendations were devoted to the GFA issue. Some of the basic principles are admirable - such as incentives for underground parking structures and mandatory setbacks, for example. But new rules that are arbitrary, and that reduce incentives designed to improve architectural and building quality, make little sense.

Christopher Cheng is chairman of Wing Tai Properties Limited and former chairman of the Hong Kong General Chamber of Commerce

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