The proposed New Development Areas in the northeast New Territories "need a balanced approach to implementation". Photo: May Tse
Concrete Analysis
by Roget Nissim
Concrete Analysis
by Roget Nissim

New Development Areas need mechanism to adjudicate land exchanges

Fears of collusion over land deals in proposed New Development Areas can be assuaged with a properly policed land exchange system

Chief Secretary Carrie Lam advised the Legislative Council in late June that the government would adopt "a conventional New Town approach" to land resumption, the process where the government exercises statutory power to compulsorily take over ownership of private land "for achieving a public purpose", for the proposed New Development Areas (NDAs) in the northeast New Territories.

The decision represented a complete about-turn from earlier suggestions which indicated the possibility that private sector participation might be an option, presumably through the conventional land exchange mechanism, given the large landholdings that a number of developers have put together in the area.

The previous documents also stated that the implementation processes should be fair and equitable, in the public interest, and in line with the legislative framework.

Major concern surrounds that dreaded, over-used and toxic, word "collusion" which now hangs over the government. It occurs nearly every time a property deal is in the headlines, for example earlier in the same month when the Ocean Terminal lease renewal was in the news and the government was criticised for charging too low a premium, Lam was quick to deny there had been any collusion.

In the case of the land resumptions for the NDAs, Lam again made reference to the problems associated with "collusion" for the about-turn in the government's approach.

The development industry and the administration have a responsibility to find a solution to this impasse, otherwise it is going to be increasingly difficult, if not impossible, for property development as we know it to continue into the future.

It is clear that a number of developers have, on the basis of the encouraging comments previously made by the government, systematically started to assemble large blocks of mainly agricultural land within the areas of the NDAs, the boundaries of which are well-known and documented in the public domain, in the expectation that once the detailed plans were gazetted there would be opportunities for land exchanges.

I would suggest that if a single developer owns at least 80 or 90 per cent of the land within a proposed private sector development site, and the remaining land is government-owned, then the land exchange mechanism, which is a well-established and tried and tested mechanism, could, in the interests of fairness and equity, be adopted for such commercial or residential developments.

In this context it is worth remembering that the government has, through the enactment of the Land (Compulsory Sale for Redevelopment) Ordinance (Cap 545), provided a statutory mechanism to assist land owners who own a minimum of 80 per cent of certain buildings with a method to complete site assembly to enable development to proceed.

Why not apply the same principle to land assembly in the NDAs?

It is worth remembering that in the 1970s and 1980s when the first generation of new towns, Sha Tin, Tuen Mun and Tai Po, were being developed, the government made liberal use of land exchange entitlements, otherwise known as Letters A&B, as a method of resuming private agricultural land.

These documents basically promised the landowner two square feet of building land in exchange for five square feet of agricultural land to be surrendered, with a premium also being payable for the new grant of land. Building land was exchanged on a foot for foot basis.

The crux of any land exchange deal is, of course, the premium that the government wishes to charge for the land use conversion. Disagreements over this can cause, and have caused, significant delays in getting these sites developed.

Here is my suggestion for helping to overcome this problem as well as dealing with the "collusion" issue.

Because land exchanges do not come within the statutory land resumption purview there needs to be a binding agreement between both the developers and government that in cases of land exchanges within the NDAs, where the land premium cannot be agreed by negotiation, the case should be referred for adjudication.

Such adjudication should be undertaken by an expert panel of three completely independent and experienced valuers set up under the auspices of the Hong Kong Institute of Surveyors, on the strict understanding that both parties would accept the figure given by the expert panel.

This mechanism should help deal with both the timing and collusion aspects that appear to be the government's main concerns. The use of statutory land resumption will still be needed for those areas of land with fragmented land ownership patterns and also to deal with those plots of land with defective land titles, absentee owners, Tso and Tong land, and so on.

What we need is a balanced approach to implementation, with the use of land resumption where necessary and land exchanges where appropriate.

This article appeared in the South China Morning Post print edition as: Land exchange the fairest route