Building cheaper flats in Hong Kong redevelopment plan may cause loss of HK$138 billion: urban renewal chief
Compensation rates for residents affected by redevelopment in Yau Ma Tei and Mong Kok districts would result in Urban Renewal Authority facing a deficit after selling new flats
Building subsidised housing when redeveloping Yau Ma Tei and Mong Kok districts would be difficult, the head of the city’s Urban Renewal Authority hinted over the weekend, as he pointed out that such a project would cause it to lose more than HK$138 billion (US$17.6 billion).
The remarks by the authority’s managing director Wai Chi-sing came about six months after it started a two-year study on both districts covering 212 hectares with more than 3,300 buildings. More than half of the buildings have been around for over 50 years.
As part of redevelopment, the authority would have to pay compensation to flat owners of some 800 tenement blocks at a rate of HK$15,700 per square foot, going by what owners were given when they had to leave To Kwa Wan, also in Kowloon, as part of a recent redevelopment project.
Unlike other developers, it would not have to pay land premiums – the fee usually payable to the government for using land for new or more lucrative purposes.
The total payout for the acquisitions would be HK$347.6 billion. Assuming the authority gained HK$210 billion in revenue from selling new flats after redevelopment, this would still result in a deficit of HK$138 billion, Wai said on his blog.
“The HK$138 billion loss would be further deepened if we used all or some of the gross floor areas derived from development of those 800 buildings to build subsidised flats and sell them at a 30 per cent discount, let alone building public rental housing on the sites,” Wai said, referring to how subsidised flats must be sold at a discount to market value.
Wai then went on to explain his views on building public rental or subsidised flats in Yau Ma Tei and Mong Kok.
He said some people thought the authority should be financially capable of developing such flats as it was not required to pay land premiums to the government. But in reality, for 70 per cent of the sites it redeveloped, the cost of the land premium was much less than the compensation it had to pay to flat owners affected by redevelopment, Wai said.
Last June, the authority announced that it had recorded a surplus of HK$4.5 billion in the 2015-16 financial year, and said it would spend a total of HK$34 billion on redevelopment and conservation projects in the next five years.
Wai added that the authority had provided 9,000 new residential flats in its renewal efforts over the past 16 years. “Even if all the flats were public housing flats, the supply was just a drop in a glass considering the current keen demand,” he said.
The authority, expected to be self-financing, has been under pressure to expand its role to provide more affordable housing as Chief Executive Carrie Lam Cheng Yuet-ngor has pledged to boost the city’s home ownership rate and help more middle-class Hongkongers own their own flat.
Several private developers have responded by building mixed housing, comprising both private and subsidised flats in an estate, in their upcoming projects.