CONCRETE ANALYSIS
Concrete Analysis
by

Hong Kong private flat supply dries up as Lands Department, developers in stalemate

Flawed negotiation process between development industry and Lands Department is hampering attempts to get more flats on to the market

PUBLISHED : Tuesday, 28 July, 2015, 8:00pm
UPDATED : Tuesday, 22 September, 2015, 4:52pm

The latest statistics from the Hong Kong Development Bureau shows that the supply of flats resulting from lease modifications and land exchanges has fallen from a high of 4,070 units in 2011-12 to 700 in 2012-13 and 90 in 2013-14, with a slight increase to 100 in 2014-15.

These figures are shocking and indicate there is something seriously wrong with the negotiation process between the Lands Department and the development industry, resulting in an outcome that runs completely contrary to the government's desire to get more flats on to the market.

I suspect the nub of the problem revolves around the premium assessment, with the Lands Department using outdated methodologies in its "before" value assessments, such as only working on a cleared site even if there is an economically viable building standing on the land in question.

Using outdated and/or inappropriate construction data related to the present-day requirement for higher-quality housing, not allowing for appropriate marketing costs and ignoring legitimate "costs contingent on development", are all factors that should be properly reflected to arrive at the right "after" value.

Using outdated and/or inappropriate construction data related to the present-day requirement for higher-quality housing are all factors that should be properly reflected to arrive at the right "after" value

The Lands Department seems paranoid about being seen to be giving any favours or advantages to the private sector but these should not be seen as favours. Rather, they should be seen as assessing premiums on a fair and equitable basis. Data for the past three years indicates developers believe they are not being treated fairly, hence the stalemate and slowdown in this important source of flat supply.

In August last year, the government introduced on a two-year trial basis the option for unresolved premium disputes to be submitted, provided both parties agreed, to arbitration in order to speed up the resolution of such cases. Unresolved legal disputes such as lease interpretation would not be the subject of such arbitration, whose jurisdiction would be confined to the premium figures only. To date, the development industry seems reluctant to choose this option as we are still awaiting the first case.

This is unfortunate because most of the major developers hold significant land banks of sites suitable for residential development and it would be more beneficial to find a way to tap into these sites rather than trying to justify rezoning green belt or country park lands to make up for what is, in effect, an artificial deficit in land supply.

Roger Nissim is an adjunct professor of the department of real estate and construction at the University of Hong Kong

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