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1. Owners offered 3 times market price

2. Agreement Reached on Disposal of PSPS Flats (Monday, 09 February 2004)

3. Transcript of Secretary for Housing Planning and Lands

4. Developers win a double

5. Housing chief defends cut-price flats sale

6. Wedding Card Street 'could last 30 years'

7. Public 'should have a say on harbour'

8. Sale exposes folly of homes policy

1. Owners offered 3 times market price
Jonathan Tam, The Standard 11 February 2004

The Housing Society is offering almost three times estimated market prices to buy seven 40-year-old apartment buildings for redevelopment.

The government-owned agency said it would pay HK$386 million, or HK$3,435 per square foot, to buy about 1,890 square metres of development in Shau Kei Wan. The units were valued at a current average unit rate of HK$1,185 a square foot, it said.

The price includes relocation compensation for affected owners and tenants.

About 230 households and 35 shops are affected, involving 130 property owners. The purchase offers are open for acceptance for 60 days.

Upon completion in about six years, the new development will provide about 300 apartments and a retail area of 1,700 square metres.

``It's hard to say whether the price is reasonable given that it has to pay for other costs for the owners such as relocation,'' Midland Realty executive director executive director Victor Cheung said. ``It may make a small profit but urban renewal shouldn't be just about profits.''

New apartments in Shau Kei Wan now cost HK$5,000 to HK$6,000 a square foot, and redevelopment costs are around HK$1,000 a square foot, Cheung estimated.

Housing Society executive director Wong Lai-chun said the Society offered an ``incidental cost allowance'' as an incentive to encourage owners to sell their flats. The allowance served as a subsidy for the conveyancing, removal and other related expenses, she said.

``The purchase offers ... are based on the Urban Renewal Authority's existing acquisition policy which links the level of compensation to the open market value of a notional seven-year-old replacement domestic flat in a similar locality for owner-occupiers.''

2. Agreement Reached on Disposal of PSPS Flats (Monday, 09 February 2004)
Hong Kong Housing Authority Press Release, 9 February 2004

The Government announced today (February 9) that an agreement has been reached with the developer of the Hunghom Peninsula Private Sector Participation Scheme (PSPS) project to modify the Conditions of Sale to allow the 2 470 flats to be sold in the open market.

The developer, First Star Development Limited (First Star), has agreed to give up its right to receive the payment of a guaranteed price at $1.914 billion from the Housing Authority (HA) for failing to nominate purchasers for the 2 470 flats under the PSPS conditions and will, in addition, pay a premium of $864 million to the Government for the lease modification to allow it to dispose of the flats in the open market.

A spokesman for the Housing, Planning and Lands Bureau said: "Taking into account the imminence of the deadline for the HA to buy back the flats due in July 2004, the ongoing litigation brought by the developer against the Government and the HA as well as the various restrictions under the PSPS Land Grant, we consider that the outcome of the mediation is the best possible deal and the agreed premium is acceptable.

"If we had not clinched a deal HA would have to pay a guaranteed price of $1.914 billion, the public coffer will forgo the $864 million as modification premium and left with 2 470 flats which are not suitable for conversion to public rental housing," the spokesman said.

The project (KIL 11076 at Hunghom reclamation), comprising 2 470 flats, with total gross floor area about 144 300 square metres, 494 associated car parking spaces and commercial facilities, was completed in November 2002.

Under the PSPS Land Grant, the flats are to be sold only to purchasers nominated by the HA. The developer holds both the legal title to the lot and to the flats, and owns the car parking spaces and commercial facilities.

The HA was named in the condition of grant as the party to nominate purchasers within a period of 20 months from the date of the Consent to Sell, which was issued in November 2002. The HA was obliged to purchase the flats at a guaranteed price of $1.914 billion if it failed to make the nominations by July 2004.

Following the change in housing policy to cease the production and sale of subsidized home ownership flats indefinitely and to terminate the PSPS in November 2002, the Government and the HA had explored several possible options to dispose of these PSPS flats.

One of the options was for the HA to buy back the PSPS flats and put them up for sale in the open market.

"This option is constrained by the fact that the PSPS site is owned by the developer, whose agreement is pre-requisite for any proposal which require modifications to the lease. This is complicated by the co-existence of the developer's commercial facilities and carpark spaces within the development. Further, this ran contrary to the Government's policy of no direct intervention of the property market.

Another option would have been for HA to buy back these flats for conversion into public rental housing. Again, this was not recommended because the flats are not suitable for conversion. These flats are excessive in size as well as in provision standard far exceeded that of the existing rental units.

"Since the developer holds both the legal title of the lot and the flats in question, allowing the developer to sell the flats in the open market subject to the payment of a lease modification premium is the most logical and pragmatic way to dispose of these flats," the spokesman explained.

The Government commenced preliminary negotiations with the developer in January 2003 in order to obviate the need for the HA to pay the guaranteed price to purchase the flats. However, both sides were unable to reach any agreement.

In July 2003, the developer initiated litigation against the Government and the HA, alleging breaches of the relevant terms of the Land Grant of the project and claiming damages.

"After taking into account the various policy, legal and financial considerations and re-considered various options, the Government had decided that a negotiation team comprising representatives from the Department of Justice, Lands Department and Housing Department be formed to re-open negotiation with the developer by way of mediation with a view to settle the matter.

"The mediation was concluded in December 2003 before an independent mediator, who is accredited by the Hong Kong International Arbitration Centre. A formal agreement on the lease modification was reached in January 2004.

The conditions of grant restrict the private residential development on the lot to 144 300 square metres and the modification will not change this.

"Without the agreement of the developer, these flats would remain subject to the PSPS restriction in the land grant, and of which the HA has no other rational means to dispose.

"The parties are still working on issues relating to the dispute over the alleged damages. The conclusion of the modification should effectively put a cap on the amount of damages that the Government and the HA might have to pay in the event of their being found liable in the litigation," the spokesman added.

3. Transcript of Secretary for Housing Planning and Lands
Hong Kong Government, 10 February 2004

Following is a transcript of the media session by the Secretary for Housing, Planning and Lands, Mr Michael Suen, on the Hunghom Peninsula today (February 10):

Reporter: Mr Suen, ... when you are trying to get money back wherever you can, and trying to save money wherever you can, how can you walk away ... with public money being lost?

Mr Suen: You've got to look at it this way. According to the contract that we have signed with the developer, the Housing Authority (HA) is obliged to within a period of 20 months to nominate buyers for those flats. According to the conditions of the deed, if the HA is not able to fulfil this particular requirement, the HA has got to pay the developer $1.9 billion. Against that background, the HA, in accordance with the deal, will save an outlay of $1.9 billion. On top of that, we will be getting a premium of around $.0.9 billion from the developer. So the total cost to the developer for that piece of land amounts to about $3 billion.

Reporter: But the whole question really is being unable to find buyers, because there is a change of policy and you are not looking for buyers.

Mr Suen: Yes, you can put it this way. Because we have decided to cease production of and also not to sell all home ownership flats. We've made a policy decision back in November 2002.

Reporter: Why not put this out to tender?

Mr Suen: Because there are restrictions. That particular development only obliges the HA to nominate buyers for the domestic portion. But that particular development consists of both domestic and non-domestic portions which include carparks and commercial facilities. Those other facilities which are owned by the developer formed an integral part of the development. You can't separate these parts. In any case, if we are to try to buy back that non-domestic portion, we still have got to negotiate with the owner and to negotiate a price for it. Having regard to these factors and the fact that there are complexities involved, having regard to the fact that we are not just talking about the domestic portion, we feel that the arrangement that we have now come to, represents the best way for us.

Reporter: Was it a badly constructed deal to begin with, now that you are suffered in this situation with the developer, essentially, had you overvalued?

Mr Suen: I don't think so, because that was a conscious decision at the time which was accepted by the community as a whole that we stopped the production of the HOS flats.

Reporter: Isn't this really another piece of bad news ... of the housing policy?

Mr Suen: I don't agree with that assessment. I think we have taken a very comprehensive view of the need to clarify our housing policy back in November 2002. As I said, that was a conscious decision. We know that in reaching that decision, we have got to face some additional problems. There are remnants of the whole policy that we've got to deal with. eg, we know very well that there are vacant home ownership flats that are waiting for disposal. We are then prepared to face the consequence of that particular decision and we believe that through patient negotiation, we will be able to find a satisfactory solution to the problem. And I believe that what we've got now is a satisfactory solution. Please do remember that it is the result of negotiation. We have negotiated for over a year with the developer, and now we have reached agreement over how we settled them.

Reporter: Secretary, could this potentially destabilise the market? Especially with another case coming up in Ngau Chi Wan?

Mr Suen: I don't think so. I think you've got to look at it in context to see how many units are involved. We are not talking about a continuing phenomenon whereby you expect a few more cases coming up every year. In which case, there will be a big impact on the market. What we are talking here are 2,000 units in Ngau Chi Wan that will be the last of this particular kind of home ownership flats. There will be no more because we are producing no more.

Reporter: How much do you expect to lose on the flats in Ngau Chi Wan?

Mr Suen: I'm afraid it's not a question of losing. We are getting premium, getting additional money from the developer. It's all about how well we manage to negotiate a settlement.

Reporter: What's that loss ...?

Mr Suen: I don't think we should speculate as to the result. We will try our best to get the best deal.

Reporter: (inaudible)

Mr Suen: As I said, you don't talk about $860 million for those flats. Remember, if the deal fell through, the HA was obliged to pay $1.9 billion to the developer. So you've got to take that into account. In terms of the outlay for the developer for this particular site, the total sums involved would be $0.9 billion plus $1.9 billion, almost $3 billion. So we are not talking about small sums of money.

4. Developers win a double
Eli Lau and Raymond Wang, The Standard 11 February 2004

In yet another dismal example of housing policy failure, developers are expected to reap a windfall profit from the return of a second subsidised project at a premium as low as HK$1,500 a square foot - after officials insisted they would demand top dollar for any such deal in future.

Taxpayers are thus about to be confronted with the extraordinary possibility that two huge new apartment complexes, which could house more than 5,000 lower-income homebuyers, could be reduced to rubble without any member of the public even getting a chance to open the lobby door.

The projects stalled in the face of strenuous protests by developers and neighbouring homeowners, who see their low per-square-foot selling prices as cutting into their own flagging home sales values.

This is more than just a reversal of housing policy. The fact that the two projects are being turned back to private developers represents an enormous blunder on the part of the SAR government and Chief Executive Tung Chee-hwa, who made affordable housing a cornerstone of his incoming administration in 1997 during the handover of the SAR from the British government.

It is undecided at this point whether the developers will actually tear down or refurbish the latest project to come to light - Kingsford Terrace, a 2,010-unit residential project in Ngau Chi Wan, which was built by New World Development under the same ill-fated private sector participation scheme as one in Hung Hom that has resulted in widespread adverse publicity. But one thing is certain. Neither project will ever be occupied by the people for whom they were intended.

The Hung Hom Peninsula project was reported sold back to New World and Sun Hung Kai Properties yesterday with the government having forgone nearly HK$800 million in lost revenue and having created the possibility that the developers could make windfall profits as high as 40 per cent.

Because the Housing Authority failed to nominate buyers for Kingsford Terrace, the government must now pay the developer HK$1.441 billion under the terms and conditions of the subsidised housing plan.

Surveyors said that with land prices having risen more than 10 per cent over the past few months and the government not selling the project at fire sale prices, the premium settlement could range from HK$1,500 to HK$1,700 psf.

Based on a gross floor area of 1.25 million sq ft, the premium amount could be as low as HK$1.88 billion. As a condition of the settlement, developers will agree to give up their right to a guaranteed HK$1.441 billion from the Housing Authority for failing to nominate purchasers for the flats' deadline by June this year. It will only pay a premium of about HK$434 million or just HK$347 per square foot, lower than the premium of HK$556 psf for the Hung Hom Peninsula project.

While the government has been strongly criticised for disposing of the 2,470-unit Hung Hom Peninsula to NWD for only HK$864 million worth of premium payment, deputy director of Housing Vincent Tong acknowledged that his agency ``did not have much to do'' on the issue under the restriction of contract.

``It is the best option we could take for the Hung Hom project,'' Tong said. ``With an improving economy and rising home prices, the premium we are asking [for Kingsford Terrace] will not be too conservative,'' Tong said.

The conversion premium of the Hung Hom project was decided with reference to market data in September to November last year.

The government is currently negotiating with the developer.

. ``We will definitely refer to the current market situation before deciding the premium price,'' Tong said.

Chung Sen Surveyors director Cheng Wing-ming said the government's valuation on the Hung Hom Peninsula project was based on real estate market price levels in September last year, but since then land prices have risen 15 per cent. The premium of the Ngau Chi Wan project is estimated at HK$1,700 psf if it is concluded within two months.

Midland Surveyors director Ronald Cheung, however, said: ``The same weak stance of the government on negotiations with the developer over the premium in the Ngau Chi Wan project is likely to see a government shortfall of more than HK$500 million in revenue.''

Cheung estimated the premium deal at as low as HK$1,500 psf , reduced from an original premium offer of HK$2,000 psf. Prevailing price levels for second-hand flats in the district are around HK$3,000 psf .

As the sale of subsided flats has been frozen since 2002, the PSPS flats would remain vacant even if the government decided to pay the guaranteed price.

NWD director and general manager Stewart Leung said the Hung Hom units could not be sold at market standard without renovation.

``The premium payment is not too low,'' Leung said. ``If we decide to revamp the flats, each of them would cost us around HK$400 to HK$500 per square foot and a 1 year completion period is required.

``It's true that I could sell the flats faster by offering a lower sale price. But how can I do that after paying a few hundred dollars [for each flat] for renovation?'' he stressed. ``I'm an investor, if there is no profit margin then I won't consider that''.

5. Housing chief defends cut-price flats sale
CHLOE LAI and CHEUNG CHI-FAI, SCMP 11 February 2004

Michael Suen: "Not too cheap"

A harbourfront housing estate built for the government but left unsold to help stabilise property prices was not sold back to its developers too cheaply, the housing chief insisted yesterday.

Secretary for Housing, Planning and Lands Michael Suen Ming-yeung said the seven blocks at Hunghom Peninsula fetched a market price and urged the public to look at the deal from a different perspective.

However, he said that with the experience learned from the Hunghom deal, the government would strike a better deal next time.

The government revealed on Monday that the 2,470 flats, built under the now-defunct Private Sector Participation Scheme (PSPS), were sold for $2.778 billion to First Star Development, a joint venture between Sun Hung Kai Properties and a New World Development unit. The government had been seeking a price of $2,300 per sq ft but settled for $1,800.

Legislators claim the sale unfairly favoured big developers, who stood to make more than $6 billion in profit. The Democratic Party is not satisfied with Mr Suen's explanation, and the Legislative Council's housing panel will meet next Tuesday to discuss the deal.

Party lawmaker Sin Chung-kai said: "It is unfair. The government suspended the Home Ownership Scheme under the pressure of developers, and now the government sold the subsidised flats cheaply to developers. It is a classic case of favouritism."

However, Mr Suen said the deal meant the Housing Authority - which under the original scheme guaranteed to buy back all units at a pre-set price to sell them as subsidised housing - would save $1.9 billion.

"On top of this amount of money, we will be getting a premium of some $864 million. The total cost for the developer over this project is nearly $3 billion. So we are not talking about small sums of money."

He said the government would have to pay extra should they have opted to buy back the project, since the authorities did not own the car park and facilities there.

New World Development director Stewart Leung Chi-kin said yesterday the company would make only a small profit from the project, and would not rule out the possibility of demolishing the blocks and rebuilding the site.

He said it would cost $400 to $500 per sq ft to upgrade the units, and $1,200 to $1,300 per sq ft to turn the site into luxury flats.

Sun Hung Kai Properties said yesterday that it paid $2,550 per sq ft for the Hunghom Peninsula development when it bought its 50 per cent share of the project earlier this month. The focus will now turn to the fate of another PSPS project, Kingsford Terrace in Ngau Chi Wan, which was also built by New World Development.

Meanwhile, Edwin Lau Che-fung, assistant director of Friends of the Earth, urged the developer not to demolish the Hunghom flats.

"The demolition will inevitably lead to huge volumes of construction waste, which will be dumped for free in landfills approaching the end of their life cycle," he said.

It is estimated that about 200,000 tonnes of demolition waste might be generated.

Poon Chi-sun, of the structural engineering department of Polytechnic University, said the structure should be "used to its best capacity".

6. Wedding Card Street 'could last 30 years'
POLLY HUI, SCMP 11 February 2004

Architects and town planners have rejected a claim by the Urban Renewal Authority that Wedding Card Street in Wan Chai must be bulldozed because it is too run down.

They say the buildings are sound and could remain for at least 20 to 30 more years if refurbished.

A spokesman for the authority yesterday reiterated that the buildings in Lee Tung Street were too decrepit to keep because they were mostly 40 to 50 years old.

The South China Morning Post reported on Monday that most of the owners of the 20 or so shops in the street that specialise in printing wedding cards are opposed to the redevelopment, which is scheduled to start in 2006.

But the authority said the printing shop owners were only a minority among the 3,000 people who worked or lived there.

"We have received many petition letters asking us to speed up the redevelopment project," the spokesman said.

Award-winning architect Thomas Tang Kang-wah, who has carried out an inspection of the street, rejected the claim.

"If our government thinks that the 50-year-old buildings in Lee Tung Street are already too old to keep, then Westminster Abbey would have to be pulled down," Mr Tang said.

Refurbishing the buildings would cost about $500 per square foot, whereas demolishing them and building new ones would need almost $6,000, he said.

Alan MacDonald, director of planning and urban design at Urbis consultants, said the authority's plan reflected a "fundamental failure to understand what urban renewal means".

Town-planner Otto Cheng Ping-lun said the street could be developed into a "world card centre" if the government and developers committed resources to attract card printers to the area.

7. Public 'should have a say on harbour'
SARA BRADFORD SCMP 11 February 2004

The public should be allowed to have a say on the Central reclamation project before any more of the harbour is filled in, a court heard yesterday.

Counsel representing the Society for the Protection of the Harbour, Mok Yeuk-chi, said the public must have a chance to express its views on whether legal tests laid down by the Court of Final Appeal should be applied in any proposal to reclaim the harbour.

The latest judicial review in the Court of First Instance is focusing on the 18-hectare Central Reclamation Phase III project.

The society wants the court to force the Executive Council to send the plans back to the Town Planning Board to comply with new legal tests laid down by the Court of Final Appeal in January. That court ruling established the principle of "over-riding public need" for all harbour reclamation projects.

Although the test case involved the draft Wan Chai North zoning plan, the Central plan and all other reclamation works are also affected. The Wan Chai and Central plans are part of the Central-Wan Chai bypass project.

The court was yesterday told that Exco had made the decision not to send the plans back to the Town Planning Board on December 2, last year. Their decision was based on a report by the Territory Development Department.

Mr Mok argued that mandatory public participation, consultation and deliberation was a crucial feature of the town planning process and was enshrined in the Town Planning Ordinance.

He said if Exco sent the Central Reclamation plan back to the Town Planning Board it would engage public participation in the plan's preparation.

"Given the nature of the harbour as a special public asset and a natural heritage, the public must be given an opportunity to participate in the policy debate on whether there is a public need ... that the special public asset and natural heritage has to be permanently and irreversibly destroyed," he said.

He also said the Town Planning Board was the only body that held the lawful power to prepare and amend a plan, not Exco.

"Exco cannot, therefore, usurp the Town Planning Board's town planning function," he said.

"By taking it upon itself to apply the tests, the Executive Council has deprived itself of valuable input from the Town Planning Board and the public and hence defeated the legislative intention of the Town Planning Ordinance."

The hearing continues today before Mr Justice Michael Hartmann.

8. Sale exposes folly of homes policy
PEGGY SITO SCMP 11 February 2004

The government's subsidised housing programme on prime locations has come to an apparent end with the sale of a harbourfront housing estate in Hunghom to profit-driven developers.

The controversial about-turn not only helped the Hong Kong developers pocket a hefty gain but throws into question the soundness of the city's housing policy.

Analysts said the government's idea of putting subsidised flats on prime sites, a move criticised by developers when it was introduced in the 1990s, did not make the best economic use of public land.

The government would have generated a bigger profit for the public coffers had it decided to sell the public site by government auction or tender, they said.

Putting the government's housing policy back in the spotlight is the 2,470-unit residential development Hunghom Peninsula, built under the now defunct Private Sector Participation Scheme (PSPS).

The government said on Monday the seven-tower project, comprising 1.55 million square feet, had been sold to First Star Development, a joint venture between Sun Hung Kai Properties and NWS Holdings, for nearly $1,800 per square foot, or $2.778 billion.

The deal drew strong criticism from legislators and critics, who said the sale price was too low and unfairly favoured big developers.

First Star, the developer of Hunghom Peninsula, is allowed to turn the project into private flats.

The price tag included $864 million in cash paid by the consortium for the conversion of the PSPS flats into private homes. It also included a $1.91 billion guaranteed payment the government was supposed to pay the developer, according to the PSPS project contract signed between the two. Under the deal, the developer agreed to give up its right to the $1.91 billion.

The PSPS scheme was designed to use private resources to speed up the construction of government-subsidised housing.

Under the scheme, land was granted to developers at a discount and the Hong Kong Housing Authority agreed to buy the completed residential units for a pre-agreed return and sell them as subsidised housing.

Taking selling prices of as much as $8,000 per square foot in projects near Hunghom Peninsula into account, the land should have been sold for $4,000 per square foot to $4,500 per square foot, according to Midland Realty director Ronald Cheung Yat-fai.

He said First Star Development would need to spend money to make Hunghom Peninsula more marketable as PSPS-subsidised flats were inferior to homes in the private housing sector.

"PSPS flats are economic housing built by the government to improve home ownership for low-income earners," he said. "The quality is not comparable to private homes."

PSPS units typically ranged in size from 600 square feet to 800 sq ft, whereas demand in the private housing market was for flats of 1,200 sq ft to 1,600 sq ft.

PSPS projects also rarely had clubhouse facilities, and the quality of their drainage systems and construction materials were not comparable to those for private homes.

"How much [First Star] can gain from the project will be subject to its remodelling plan," he said.

Two options reportedly under consideration at Hunghom Peninsula would result in profits for the consortium ranging from $1.5 billion to more than $6 billion, analysts said.

Cheng Yu-tung, chairman of New World Development, the controlling shareholder of NWS, said one option was to knock down the entire project and put up upmarket private housing.

Analysts estimate this could give the private consortium a windfall of more than $6 billion, or $4,700 per square foot, based on demolition costs of $300 per square foot, construction costs of $1,200 per square foot and selling prices of $7,000 to $8,000 per square foot at the nearby high-end housing project Harbourfront Landmark.

SK Pang Surveyors managing director Pang Shiu-kee said the developer would have to take a risk as the project would take a year to demolish and a new one three years to construct. But he said the project could be put on the market in about 2-1/2 years' time.

"No one can tell what the market price will be at that time," he said.

The other option is to remodel the project by upgrading the lobbies, enhancing the clubhouse facilities and increasing the number of car parks, according to legislator Lau Ping-cheung.

In this case, analysts predict the developer would have to spend another $500 to $600 per square foot, bringing total costs to about $2,500 per square foot. Selling prices for units of such quality are about $3,500 per square foot, meaning a profit for the developers of $1.5 billion, or $1,000 per square foot.

Said Mr Cheung: "Whichever option the developer picks, it will make a profit."