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  • Sep 17, 2014
  • Updated: 6:15am
Concrete Analysis
PUBLISHED : Wednesday, 12 September, 2012, 12:00am
UPDATED : Wednesday, 12 September, 2012, 2:39am

Lands Department controls the property market, not developers

Lands Department's discretionary power over land sales is what has slowed development. The system is unfair and bad for the economy

 

The government has announced that it will release some sites for the development of residential projects for restricted sale to Hong Kong residents only, with details of terms and conditions yet to be announced.

It is easy to criticise the new policy and say it will have little impact on cooling prices or increasing the supply of much-needed apartments.

But critics ought to be aware that getting a development off the ground and finishing it is a lot more complex than one may think.

Government land sale conditions come in different forms. There are development parameters setting out gross floor area (GFA), uses, height, and other requirements.

In addition, approval is required from the Lands Department for detailed design elements, as well from the Buildings Department for matters covered by the Buildings Ordinance.

These detailed design elements include but are not limited to design and disposition, building setback (from the street), provision of sales offices, recreational facilities, landscaping, car parking provision and layout, and many more.

In the "old days", there were clear guidelines indicating what may be approved, and what would not.

But in recent years, especially after the Sustainable Design Guidelines came into effect last April, the standards have been more stringent. Only a few guidelines are available on how the discretionary power is actually used.

The changes appear to be prompted by the desire to reduce building bulk, but in fact the government has bowed to public pressure and treated every lot-owner or developer as representing "Developer Domination".

The government talks about a level playing field. However, there is no fairness in land sale conditions as the Lands Department, acting in the capacity of landlord, has total discretion over land sale contracts. The Lands Department is the biggest landlord and dominates the market rather than legitimate businessmen.

The imbalance is becoming extreme, with the department using every tool to make owners pay for approval.

I have come across situations where the department has invoked a clause on "supervisory and overhead charges", now included in every land sale document, to charge additional land premiums as a condition to granting approval.

The approvals required are part of the construction process but it is now becoming a pattern of "paying for approval".

There is no corruption involved but it's simply unfair when a purchaser, after paying for a piece of land, is subsequently asked to pay more for a product that the market desires but which the government did not envisage when it sold the land.

This is absurd and not something a responsible landlord would do to extort money from his tenants.

But the Lands Department is somehow encouraged to operate in this manner by the administration.

It is because this will generate more revenue, please the pressure groups, and most of all penalise the business sector. It exercises its discretion unfairly, to the disadvantage of developers.

This is not healthy for the economy and is one of the reasons why there are so few new players in the market. It's a risky business when land sale contracts are so unfair and guidelines are non-binding on the government.

Previously Hong Kong did not have this problem and we trusted the government to act reasonably. Unfortunately, this is no longer the case when it uses land sale conditions not to administer land resources but to penalise its tenants.

So who dominates the property market? Perhaps the new director of lands can look into the matter of a level playing field.

When the late Mr Bob Pope was the director of lands, he organised lunches with surveyors and listened to our views. Nowadays, any outside office meetings are construed as collusion.

The problem lies with the fact that the Lands Department, acting in the capacity of landlord, is free to exercise its discretion over land sale contracts.

Their rules are also different from those of the Buildings Department and Planning Department - so how can you fast-track a development when so many hurdles are installed?

The Lands Department can also revoke approvals when revised designs are submitted and these rulings are not subject to Judicial Review. Any dispute over lease interpretation or design can only be resolved in the courts, and may take years to settle.

The system has to be changed on the grounds of equity, fairness, and expediting development.

While developers and the public may welcome initiatives that bring down property prices, getting a new supply of flats to the market in a timely and fair manner is more important and could cure the root of the problem.

Alnwick Chan Chi-hing is head of valuation and professional services at property consultancy Knight Frank.

 

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