Arbitration is not the answer to assess value of land premiums

PUBLISHED : Thursday, 20 February, 2014, 4:39am
UPDATED : Thursday, 20 February, 2014, 4:39am

The chief executive's policy address confirmed that there would be a trial scheme to determine assessment of land premiums by arbitration.

Aside from the fact that finding impartial arbitrators who have had no connections with the private development sector would be extremely difficult, the suggestion has been welcomed by various parties who have pointed out that there has been a significant reduction in the number of land exchanges or modifications processed, from more than 60 in 2003 to about 20 last year.

The simple fact is that developers like to pay as little as possible for the land, and sell the units for as much profit as possible. Values were low in 2003 and as premiums are assessed using values of the day, developers, as is their business, took a gamble and have benefitted handsomely from the surge in values.

However, as values started to rise, so did premiums. As developers could see their profits being reduced, plus more risk of falls in the future, it became more difficult to agree on premiums, hence the reduction in the number of cases.

The Lands Department has a duty to get a fair price for land, not give it away, but it now seems that the bureaucrats wish to interfere and have bowed to pressure, perhaps to try and bring development of land forward as quickly as possible. Developers choose when to trigger a modification or land exchange and it need not necessarily be approved, but the premium is a matter of negotiation between professionals representing the developer and professionals within the Lands Department.

Bearing in mind the Lands Department makes an offer of the premium, and therefore does all the initial work, it is incumbent on the professional acting for the developer to make his case as to why it should be reduced. An arbitrator will not necessarily hasten a conclusion, bearing in mind the need to prepare and consult both sides. If the professionals do their job, then agreement can be reached, but often the developers will not accept the result and want a further reduction as they see themselves as taking the risk. That element is impossible to value.

The chief executive, a chartered surveyor, should have known better than to agree to arbitration for land premiums. There is nothing wrong with the existing system.

Allan Hay, Tai Po