Loss-making URA may scale down involvement in small projects

Faced with HK$3 billion in losses, URA is having second thoughts about redevelopment scheme

PUBLISHED : Thursday, 22 May, 2014, 3:53am
UPDATED : Thursday, 22 May, 2014, 6:48pm

It may be left to the private sector to redevelop the city's ageing buildings if the Urban Renewal Authority goes ahead with a plan to reject projects that are too small to turn a profit.

As it struggles to balance its books, the authority is considering scaling down its commitment to loss-making projects under a scheme in which it develops sites at the request of owners, an ad hoc URA committee heard yesterday. The idea was floated in the wake of overwhelming calls for help in redeveloping sites smaller than 400 square metres - despite the scheme being available only for larger plots of land.

The scheme - which requires two-thirds of owners at a site to agree with redevelopment - has resulted in a loss of about HK$3 billion for the URA since it began in 2011.

And that is despite the fact that only nine out of 110 applications have been accepted since the scheme began.

Five of the successful applications were for sites of 400 to 500 square metres. Sites under 400 square metres made up close to a third of the total of 110.

"The [nine] projects are all in Kowloon, where the environment is already compact. Little room is left for us to earn more by increasing density," a source in the authority said. "Besides surging construction costs, it is worrying whether the authority can still be self-financing in the long run."

It is understood that the URA will record a deficit on its 2013/14 balance sheet, which is to be tabled for discussion by lawmakers. It has gone into deficit only twice in the past - in 2004 and 2009. By last year, the authority's accumulated surplus was HK$16.2 billion. It has no plans to ask the government for more money at this stage.

Yam Kwok-tung, a district councillor in Kowloon City, where most of the city's dilapidated blocks are concentrated, said many residents hoped the authority would help because developers were not interested in the small sites. "The URA is not a listed company. It has a social mission," Yam said.

The possible change in policy was unveiled yesterday at the committee's first meeting, attended by URA chairman Victor So Hing-woh and most board members, to discuss raising the bar for the demand-led scheme.

Proposed measures included capping the annual losses, focusing on sites of at least 600 square metres, and rejecting applications from those that failed to comply with building orders within a year.

Board members also agreed to expand another redevelopment programme, under which the URA would act only as an agent, helping to secure agreement from enough owners and identifying interested developers. Tenants would not be eligible for any compensation or resettlement arrangements.

The move would signal a shift of the redevelopment burden to the private sector.

The source said larger sites would produce more flats and add more community facilities. As for smaller sites, the URA would consider helping to maintain the buildings.

The source also said the authority may consider reviewing a rule in which owners of redevelopments are compensated at a level equal to the value of seven-year-old flats in the same district.

The number of buildings over 50 years old has gone up from 4,000 in 2010 to 6,000 this year. Most are in Kowloon City, Sham Shui Po and Yau Tsim Mong.