A recent judgment by the Court of Final Appeal on the definition of a ‘house’ is expected to change the landscape of urban redevelopment in Hong Kong.
The judgment involved Fully Profit (Asia) Ltd, the owner of five contiguous lots on Nam Kok Road in Kowloon City. The lots were carved out from a parent lot, which had been further subdivided into a number of lots. The developer wished to redevelop the five lots into a 26-storey building straddling all five lots. The development proposal was rejected by the Lands Department, which led to litigation, as each lot was subject to an individual government lease containing a restriction against building more than one house on the respective land.
The judgment’s implications:
• Amid this latest cast of ambiguity on the market, redevelopment risks and cost for developers will increase.
• Redevelopment value will be lowered as developers who intend to redevelop lots with a ‘one-house’ restriction into a high-rise building could be demanded to make a lease modification by the Lands Department and hence a payment of land premium.
• Such redevelopments are thus less likely to be justified under the Land (Compulsory Sale for Redevelopment Ordinance), with lowered redevelopment potential on such land lots.
• Acquisition price and compensation offered to minority owners would be significantly lowered, with increased risks and costs on such redevelopment project.
• Site amalgamation and utilisation of land resources would also be discouraged under the judgment, which seems contradictory to the primary objective of the current administration to boost residential supply.
• The government is likely to take a more conservative approach in the negotiation process.
• The pace of urban regeneration will hence be further slowed.
• The market would see a surge in such disputes and litigations.
Thomas Lam, Director and Head of Research & Consultancy, Greater China at Knight Frank says, the government should issue new guidelines regarding the revised definition of a ‘house’ as soon as possible, or we will start to see redevelopment projects being stalled until the ambiguity has been cleared by the court judgment.