How tweaking Hong Kong’s compulsory purchase law could ease its housing shortage
- Reliance on sales of government lands is not going to be adequate and urban renewal can be a vital additional source of plots
- The city should consider relaxing developable plot ratios and provide more resources to the Lands Tribunal to speed up the compulsory sales process
Housing problems have been causing Hong Kong people continued misgivings over the past few decades. Residents have suffered from either unaffordable prices for habitable residences, or increasing waiting times for public housing allocations. The need to expand the land supply and the provision of public housing, thus, have remained at the top of the government’s agenda.
Urban ageing also highlights the importance of urban renewal. The number of dilapidated buildings in Hong Kong has risen rapidly in recent years.
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Latest figures from the Development Bureau indicate that there are now more than 9,160 buildings aged 50 years or more. Of these, 3,500 are older than 60 years.
More than 198,000 households were living in flats more than 50 years old as of 2018, while the figure is set to quadruple in the next 30 years. It can be expected that as these buildings approach the end of their designed lifespan, more defects posing serious health and safety risks to residents will become apparent. Increasingly expensive repairs and maintenance work will become inevitable.
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Meanwhile, the situation facing the 4,239 “three-nil buildings” is even worse. These buildings have neither owners’ corporations, nor residents’ organisations or property management companies. Many such properties are already in a poorly maintained state.
The government introduced the Land (Compulsory Sale for Redevelopment) Ordinance (Cap. 545) in 1999 to facilitate the redevelopment of old buildings, with a view to both solving the problem of ageing buildings and helping to meet the city’s redevelopment needs. The threshold for applications to the Lands Tribunal for compulsory sale was further lowered in January 2010 through the “Land (Compulsory Sale for Redevelopment) (Specification of Lower Percentage) Notice”, reducing the required minimum ownership of undivided shares in a lot from 90 per cent to 80 per cent.
The number of such applications soared in the following few years after the threshold was lowered. Despite the long project cycle of property acquisition, demolition and new construction, the process provides a good alternative for developers to source development sites.
A total of 342 applications for compulsory sale were made to the Lands Tribunal from the beginning of 2011 to the end of May 2022, further proving that this was a viable option for boosting the city’s housing supply.
Yet, the ordinance is not without its flaws. The number of applications has been declining lately, implying the existence of several issues that should be dealt with.
On the one hand, after years of progress under urban renewal, the pool of older buildings in urban areas possessing potential redevelopment value is shrinking. The crux of the issue is that, in many cases, there is marginal or zero gain in floor area upon redevelopment, thus giving developers little incentive.
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To tackle this, the ordinance should give favourable consideration to relaxing the developable plot ratio, where permissible from planning and other technical perspectives, to enhance a site’s potential.
On the other hand, statistics from 2020 and 2021 show that it takes, on average, 22 months from the submission of an application to the Lands Tribunal to be granted a compulsory sale order. The longest case took 43 months.
The legal process is certainly lengthy, despite the fact that the Lands Tribunal services were temporarily suspended during the Covid-19 pandemic. The long processing time undoubtedly increases the risk and difficulties for developers in acquiring old buildings, and adds to uncertainty in estimating the project redevelopment value. Developers are consequently deterred from investing in such projects, posing an explicit hindrance to urban renewal.
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To ease this, greater resources should be made available to the Lands Tribunal, so as to increase the speed of processing compulsory sale applications.
It is believed that a review of the compulsory sale threshold could help bolster policy. By lowering the threshold, the redevelopment constraints of old buildings could be relaxed, acting as a necessary incentive for developers to participate in the mechanism.
The replacement of old and three-nil buildings that are poorly managed and maintained can be accelerated, alleviating the health and safety concerns of residents and safeguarding public interest, while replenishing short-to-medium term urban land resources.
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Smaller sized developers with relatively fewer financial resources could then also be involved in this market, benefiting the city’s overall urban renewal.
Chiu Kam-kuen is international director and CEO of Greater China at Cushman & Wakefield
