Despite COVID-19, Hong Kong’s housing market has been the least affected sector and has proved to be resilient with only a slight drop of -0.5% Year-on-Year (YoY) in overall growth of the average price for a residential unit. Developers and investors have the appetite to acquire land from different sources such as the government Land Sale Programme, private redevelopment sites and sites disposed of by the Urban Renewal Authority (URA) or MTRC. However, there is a fundamental land scarcity issue in Hong Kong, making land acquisition competitive and in turn, keeping new supply limited. An opportunity to consider, which might be overlooked in this process, is to target civil servants’ buildings.
Hong Kong’s land shortage
Sufficient land supply has been a long-standing challenge for Hong Kong. Much of the space, including village, brownfield/storage and agricultural land held by private developers is underutilised or not easy to develop. This is due to geotechnical challenges, outdated planning or ownership and land tenure difficulties. Looking beyond the undeveloped land in the New Territories, one option to resolve the land supply shortage is to redevelop the old civil servants’ buildings, which was under the Co-operative Building Society Scheme (the CBS Scheme) in urban areas. It is believed that these old civil servants’ buildings could serve as an alternative development opportunity for the government and developers, providing a solution to Hong Kong’s land shortage.
The Co-operative Building Society Scheme
The CBS Scheme is an old form of housing benefit for civil servants. It was launched in the early 1950s and was in operation until the mid-1980s. Its main objective was to provide accommodation for civil servants and their families. Under the Scheme, eligible civil servants were granted land by the government at a concessionary premium, usually at half or one-third of the full market value, to build a home through co-operative societies.
The “owners”, however, cannot sell their properties unless at least 75% of members agree to dissolve the society. The legal title of the land and the residential building is held by the CBS which is also responsible for their management and maintenance. Within the underlease, signed by the CBS with its members, members have the right to use the properties but do not possess their legal titles. An owner wishing to sell also needs to pay the government a land premium defined as the difference in the value of the property before and after redevelopment.
Civil servants’ buildings are generally old, with many aged 50+ years. Currently, many of the units are run down and vacant because the aged owners moved to other buildings with better facilities. Yet, the owners of these vacant flats cannot find tenants due to restriction of an alienation clause. The buildings are generally located in urban areas and are low to moderate in height, but they have high potential to create new, modern and good occupancy buildings. The opportunity in the market for core stakeholders is to consider identifying these types of assets to create long-term residential development sites.
Out of the total 238 CBS Schemes in Hong Kong, 191 have been dissolved but only 12 have been redeveloped. If the buildings of the remaining CBSs were to be redeveloped based on the permitted plot ratio of the respective land lots, it is estimated that there is a potential of nearly one million m² of domestic Gross Floor Area (GFA) that could be made available, equivalent to over 20,000 residential units.
The Belcher’s was the first building to be completed under the CBS Scheme in 1956. The site is situated on a lucrative plot of land on Hong Kong Island, hence it attracted interest from high profile developers. In the 1980s, Shun Tak invited Sun Hung Kai, Liu Chong Hing and New World Development to jointly-develop “The Belcher’s”, a high-rise residential development consisting of six residential buildings constructed in two phases.
The Belcher's development
The premium the developers paid to the Lands Department for redeveloping this site was HK$4.9 billion and the redevelopment was completed in 2000, creating over 2,200 residential units. Including pre-sale in May 1999, the average unit price of GFA for the first batch was about HK$6,000 per sq. ft. The current average unit price on GFA is about HK$25,000 per sq. ft., or a saleable area (SA) of over HK$27,000 per sq. ft., which has led to substantial increment in value.
The Belcher’s was the first successful case of a CBS and created an outline process of how to approach a civil servants’ building redevelopment. This included how to dissolve the CBS, to paying the full land premium to obtain permission for redevelopment. The success of The Belcher’s encouraged Shun Tak to redevelop another civil servants’ building located in No. 388 Chatham Road North, Hung Hom which is known as “Chatham Gate” and was completed in 2012.
Nos. 2, 4, 6 and 8 Mount Parker Road
Nos. 2, 4, 6 and 8 Mount Parker Road comprises two, six-storey residential buildings with a site area of 1,182.65 m² developed under the CBS Scheme in 1973. The developer, Agile Property applied to the Lands Tribunal for a compulsory sales order. In August 2020, the Lands Tribunal’s decision* confirmed the applicability of land (Compulsory Sale for Redevelopment) Ordinance (Cap. 545) to buildings developed under the CBS Scheme. Agile was successful in its bid and bought the building at a reserve price of HK$452 million in a public auction on 16 October 2020, with accommodation value# of 38,219.25 per m².
The lot has alienation restriction, with a maximum GFA of 2,703.72 m², includes one car parking space per flat in the Land Lease, and the Land Lease modification is expected to include a land premium. The auction is the first CBS case under Cap 545 and provides a financial business case that supports developer confidence in acquiring CBS building for redevelopment. The land premium issue can be settled by the developer, but not deduct from the consideration to minority owners of the CBS unit to reduce their resistance to sell.
Valuation & Advisory Services
Colliers Valuation & Advisory Services can help support multiple stakeholders interested in redevelopment opportunities:
- Minority interest owners: provide a valuation
- Developers: complete a land premium assessment, manage appeal submissions to the Lands Department and carry out feasibility studies
- URA redevelopment project: carry out freezing surveys and compensation assessments
- Lands Department: conduct compensation assessments
* Fuller Holdings Ltd & Another v Hsu Ling Ling & Others (LDCS 13000/2019)
# assumed maximum plot ratio of 10 for a Class C Site and the maximum GFA of 11,826 m² (i.e. excluding the exempted floor area of 294m² for balconies and utility platforms as green features.