October 27 2000
The consequences of urban degeneration are all too apparent in Hong Kong. Tragedies occur with depressing regularity, as a result of fires in illegal structures, inadequate fire detection systems and unsafe structures. In 1998 the Fire Services Department surveyed over 28,000 multi-storey buildings and found that only 28% had satisfactory fire installations. The Buildings Department has estimated that there are over 800,000 illegal structures of various kinds.
Aside from safety issues, there are major issues of urban blight. These include unacceptable housing standards and an unsightly and unhygienic environment in many places.
In an attempt to address some of these issues, the Urban Renewal Authority Ordinance (URAO) was enacted on July 7 2000. It is expected to come into force later this year.
The broad objective of the URAO is to implement urban renewal over a 20-year period. Two hundred priority projects have been targeted, producing some 62,800 new flats. The time taken to resume land is intended to be more than halved, to between 18 and 24 months.
The existing Land Development Corporation will be replaced by a new Urban Renewal Authority (URA). The URA's functions are much wider than those of the corporation. Functions of the URA will include:
This is a wide mandate. If fulfilled, it will mean significant progress in the battle against urban blight.
The URA has wide-ranging powers to match its functions. Not only can it buy land and implement development projects, but it can alter and repair existing buildings, and provide fixtures and fittings. It can either do this alone or join with third parties.
The URA's financial situation is also better than that of the previous authority. Its principal source of finance will initially be government loans. It can take commercial loans and the Legislative Council may be called upon to authorize guarantees for these. It is also exempt from tax.
These provisions reflect the government's recognition that urban renewal cannot be entirely self-financing. The Land Development Corporation estimates that its debt will be HK$6.1 billion at the end of the year when the URA takes over. The concept that regeneration must be wholly self-financing has been shown to be idealistic.
The URA will prepare a corporate plan, setting out its programme for the next five years, and a business plan, setting out its programme for the next financial year. The URA projects will fall into two categories: development schemes and development projects. A development scheme requires amendment to the zoning of the site on the outline zoning plan, whereas a development project does not.
The URA is required to publish details of all its schemes and projects. There will be a cut-off date for (i) determining eligibility for payment of voluntary allowances to affected property owners and tenants, and (ii) determining rehousing eligibility.
The public may become involved in development schemes under the public consultation provisions in the Town Planning Ordinance. The URA will submit the draft scheme to the Town Planning Board. If it is published, the public has the right to object in the usual way.
Public involvement in development projects is directly governed by the URAO. This is a major improvement as there is no such provision under the Land Development Corporation Ordinance. There will be a statutory objection process and ultimately the secretary for planning and lands will consider all objections that have not been withdrawn. It will be possible to appeal against the secretary's decision, in front of an appeal board panel.
The land resumption process has been significantly changed. The Land Development Corporation scheme for the purchase of land for redevelopment is a two-step process. The corporation is under a duty to acquire land by direct negotiation with landowners. The secretary must not recommend resumption of the land unless the corporation has taken all reasonable steps to acquire the land, including offering to purchase the land on fair and reasonable terms. This has led to many legal disputes and resulted in enormous delay in the land resumption process.
Under the URAO, this two-step process has been removed to allow the URA to apply directly to the secretary that a recommendation to the Chief Executive in Council be made for the resumption of land. This removes the need for protracted negotiations with landowners.
Affected owners are eligible for statutory compensation based on the fair market value of the resumed premises. In addition, owner-occupiers are eligible for the home purchase allowance, which is the difference between the cost of a replacement flat (of between eight and ten years old) and the amount of statutory compensation. Non-domestic owners may also claim a business loss and disturbance payment.
Affected tenants may be rehoused or opt for cash compensation. The government has made a commitment that nobody will be made homeless as a result of the urban renewal programme.
Under pressure from the public and legislators, the administration in mid-June issued a list of undertakings relating to compensation including the following measures. It states it will:
The government's approach to these issues will be important. Under the present regime, valuation disputes have been a significant cause of delay in the land resumption process.
When the URAO was at the bill stage, the Hong Kong Bar Association commented that the URAO continues the statutory restriction on compensation to owners, by excluding any compensation for 'hope value' and the value of continuation or renewal of existing government leases or licences. The development gain passes instead to the URA and its developer partners.
Another criticism of the URAO is that it does not provide any compensation for planning blight, unlike other developed countries (eg, the United Kingdom, Australia, New Zealand, Canada and the United States). In 1995 the Privy Council in the Shun Fung Iron Works Case found a way to award compensation to owners of resumed land who operated a business. The Privy Council held that losses to a business caused by the 'shadow of resumption' fell within Section 10 of the Land Resumption Ordinance. But this does not help residential owners. In fact, the URAO may make their situation worse by denying them the opportunity to sell in the market to developers seeking to assemble sites and by blighting their area for six years ahead of resumption.
The process of blight (and effects) will probably occur as follows:
Under the present system, the land development corporation must offer a fair and reasonable price to owners. The corporation's offers often increase just before it asks the secretary to recommend resumption. These increased payments often compensate in part for the 'hope element' to which the owner is not actually entitled. There is no incentive within the URAO to expedite the process until it is ready, nor for the URA or its partners to share any of the development gain with owners. These inequities may result in an increase in applications to the Lands Tribunal.
The URA is given power to dispose of resumed land, but only after approval from the chief executive. This is a measure to enable the URA to dispose of land to other developers rather than shouldering long-term commitments to carry out renewal on its own. During the consultation process, it was clear that the government envisages that joint ventures between the URA and third parties will be the principal way of implementing development projects. It will be interesting to see how the URA tackles its more novel functions, such as repair and refurbishment projects.
For further information on this topic please contact Sally Durant at Baker & McKenzie by telephone (+852 2846 1888) by fax (+852 2845 0476) or by email (firstname.lastname@example.org).
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