Hong Kong's troubled Urban Renewal Authority needs to be rebuilt

Lau Ping Cheung says low efficiency, high overheads and relationship with developers must be tackled

PUBLISHED : Friday, 01 May, 2015, 10:58am
UPDATED : Friday, 01 May, 2015, 10:58am

The memory of the resignation of Urban Renewal Authority managing director Iris Tam Siu-ying is still fresh, and there has been speculation as to what really triggered her decision: was it just a clash of philosophies with the URA chairman over whether to prioritise profit over serving society, or was it prompted by Ming Pao's disclosure of a report, submitted in March by consultant McKinsey, which suggests the URA must heed its loss-making situation while upholding a mission to serve society in preventing urban slums?

That Tam had, for whatever reason, chosen to publicly announce her resignation one day before a regular URA board meeting without prior notification was well calculated, as it caught the government and all members by surprise. That the consultancy report was leaked to outsiders before it had even been approved internally reveals not only management's lax discipline but also the unethical attitude of whoever leaked it, as all senior management and board members must have signed confidentiality agreements.

The Land Development Corporation, the URA's predecessor, was established by the government in the 1980s as an institutional framework to facilitate private-sector participation in the supply of land, and the redevelopment of dilapidated urban areas, not least through land resumption. One problem with the corporation, however, was that its redevelopment proposals and locations of earmarked land were announced to the public well in advance of the actual date of land resumption, prompting opportunists and speculators to acquire and/or rent properties in the area, gaining hefty sums of cash compensation or rehousing as a result, paid by the corporation at taxpayers' expense.

And so it was replaced by the statutory body in May 2001, under the Urban Renewal Authority Ordinance. Support poured in from the government, including an injection of HK$10 billion, the waiver of land premiums for redevelopment sites, and the power of land resumption by compulsory acquisition.

As stipulated in the legislation, the URA's acquisition offer for an owner-occupied domestic property is the market value of the property plus an ex-gratia allowance, based on the value of a seven-year-old notional flat, while the offer for tenanted and vacant properties is the market value plus a supplementary allowance. In addition, details of targeted locations for land resumption are no longer announced beforehand.

So far so good. Yet despite the ordinance's pledge for the URA to be self-financing in the long run, 14 years on, it still hasn't repaid the HK$10 billion, or even the interest. And the prospect of it doing so is bleak, considering the HK$2.2 billion deficit last year, plus the HK$367 million of administrative expenditure (a 15 per cent hike from the previous year) for its 567 staff (double the number of six years ago) - a fairly high overhead, when you consider the few hundred flats per year on average the URA has produced - a low single-digit percentage of the annual private housing supply in the market.

In addition to its lax discipline in internal management and staggeringly poor efficiency, the URA's main problem lies in its positioning. Running on commercial prudence while enjoying the privilege of compulsory acquisition and waived land premium for redevelopment sites, the body is, however, compelled under the ordinance to pay high prices for land resumption when the market is buoyant, resulting in deficits for the projects. Even if that is covered by the high plot ratio gain from some of the resumed land, the URA's subsequent partnering with property developers will always be seen as sinful, and involving convoluted practices. On the other hand, when the market is stagnant, the URA would need to spend a huge chunk of taxpayers' money on land resumption, especially when plot ratio gain is low.

It is understood that it was against this background of low efficiency, high overheads, unsustainable business model and unbefitting positioning that the government ordered the McKinsey report to be commissioned last year.

To maintain its mission both to serve the community in urban rejuvenation and keep its books balanced, as well as avoid being perceived to be in a convoluted relationship with developers, the URA could be repositioned and restructured. In addition to dealing with rehabilitation and repairs, it could become a land resumption agent, still targeting dilapidated urban buildings, but solely for the government, not developers. In such a case, the resumed land would be handed over to government as a land bank which would either be sold for private developments or for public purposes such as hospitals and schools. All the URA's resumption expenses would be funded from the government's general coffers, which includes all land sale proceeds anyway.

Lau Ping Cheung is a member of the Economic Development Commission cum convenor of its working group on professional services and a former non-executive director of the URA