Treating the Symptoms - A Critical Review of ... - Civic Exchange

smaller developers, it would probably be opposed by largedevelopers currently benefiting from the status quo. 99Making the URA premium-exempt was a way to sidestepthe premium problem rather than to tackle it directly.Instead of freeing up the market, the URA would simplytake on the task of urban renewal itself. Yet the URA wasnot granted a broad mandate to redevelop underutilizedindustrial buildings, but was targeted mainly at residentialand commercial mixed-use areas where lease restrictions areless of an issue due to many leases in the old urban corebeing unrestricted.Although the Planning Department’s 1996 Urban RenewalStrategy Study (which preceded the 2001 URS) addressedthe issue of industrial buildings, 100 it took a limitedapproach whereby the URA would only directly redevelopindustrial buildings when it was able to bundle them withadjacent residential ones, while facilitating private sectorredevelopment elsewhere. As of June 2010, only one projectin Sai Wan Ho (H14) involves the redevelopment of anindustrial building. 101 Reasons given for this comparativelyhands-off approach were vague, but seemed to indicate areluctance to displace the few remaining industries relyingon inexpensive factory space. 102Land premiums are possibly the most important factorcontributing to market failure in urban renewal, but theyare not the only factor. There are many other contributingreasons, only some of which the government has attemptedto address. Many of them are related in some way to HongKong’s unusual land tenure system and its high land pricepolicy.The Problem ofMulti-OwnershipOne of the most commonly cited barriers to privateredevelopment is the multi-ownership of buildings. HongKong’s land shortage, which forced the city to developvertically, means that most buildings are held under multiownership.The specific form of multi-ownership mostcommon in Hong Kong is that of undivided shares, whichmeans that each person who buys a flat in a building acquiresa share in the apartment building and the exclusive rightto use the flat. They also acquire a share in the building’scommon areas and are thus obligated to contribute to theirmaintenance.This form of land ownership emerged in 1931 when theeconomic depression left many flats vacant. In order toaddress this problem, the government began to charge ratesaccording to rented flats instead of the whole land lot. AfterWorld War II, multiple-ownership by tenants-in-commonbecame the dominant form of land ownership as it becameincreasingly unaffordable for a single individual to ownan entire lot. This was legally recognized in 1956. Thegovernment also enacted the Law of Property (Enforcementof Covenants) Ordinance to put into place buildingcovenants to govern the maintenance and management ofbuildings among residents. 103This meant that any owner seeking to redevelop a plot mustgain the agreement and cooperation of all the other owners.A developer seeking to buy a building for redevelopmentmust purchase each unit in the building individually. Thismade the process of land assembly in built-up areas a longand difficult process, unattractive to most developers who areprimarily interested in quick returns. A developer wishing tobuy out an old block must first attempt to predict the finalsale price after redevelopment depending on the forecastedprice per square foot multiplied by the gross developablefloor area. It must then estimate the construction costs,professional fees, land premium and interest. From there, itworks backwards to find the maximum amount it can offerthe current owners, leaving enough for a profit margin.However, owners may demand more compensation —especially the last few remaining ones. Another barrier toredevelopment has been the problem of missing or defectivetitles which prevent buyers from completing a transaction.In light of these obstacles, few investors have the longtermvision to engage in projects that may not yield greatreturns until many years later. 104 One major exception is theentertainment entrepreneur Allan Zeman, who spent twodecades buying up properties in Lan Kwai Fong and growingit into Hong Kong’s most prominent bar and restaurantdistrict — his business model involved the modification ofexisting buildings and the transformation of ground flooruses, enabling him to sidestep the problem of having to buyevery unit. 105 The typical developer, however, is primarilyinterested in acquiring a site, redeveloping it, and selling iton as quickly as possible.The government has made some progress in amelioratingthe barriers posed by multi-ownership. The Land(Compulsory Sale for Redevelopment) Ordinance, passedin 1999, enabled purchasers who have acquired 90% of theshares in a lot to compel the sale of the rest through theLands Tribunal. It has proved useful in instances where thelast remaining owners were holding a developer to ransom,such as in Swire’s redevelopment of industrial buildings inTaikoo Shing. 106 However, it has not been the panacea itwas hoped to be. In May 2009, the Development Bureaureported that since the law’s passage only 19 applicationshad been carried out. 107In January 2010, LegCo passed an amendment to theOrdinance lowering the threshold to 80% for buildingsover 50 years old (or 30 years old for industrial buildings)with fewer than ten owners. The reforms walked a delicate29