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1. Housing body avoids millions in taxes on property purchases

2. Developers face tighter controls

1. Housing body avoids millions in taxes on property purchases
CHLOE LAI and QUINTON CHAN , SCMP 10 May 2006

The Urban Renewal Authority is avoiding tens of millions of dollars in taxes by registering only part of what it pays for old flats.

At issue is the term "open market value". The authority admits that in filings for property purchases, only part - sometimes as little as a quarter - of the total paid is booked with the land registry, or what it defines as the open market rate. It classifies the remainder as ex-gratia allowances that are not part of the real value of the property.

By booking a lower price for a flat, the authority pays a lower rate of stamp duty, which can often be the difference between $100 and $15,000. The authority says it has filed this way since 2003.

A spokesman said the practice was proper, adding that open market value was assessed by two independent surveyors.

"Ex-gratia payments are offered to help people improve their living conditions and thus does not form any part of the open market value. The open market value is the market price," the spokesman said.

But Ada Wong Ying-kay, chairman of the Wan Chai District Council and a lawyer, said the practice equated to tax avoidance.

"The authority must have saved tens of millions on stamp duty by using this practice," she said. "The Stamp Duty Ordinance states clearly that the price registered with the Land Registry should reflect the full value the buyer pays for the property. Nobody will sell a flat in Wan Chai for just $550,000."

In the five years since it was created, the authority has launched 35 redevelopment projects, and bought about 17,600 old flats. The projects include the controversial scheme to pull down and redevelop Wan Chai's Lee Tung Street , nicknamed Wedding Card Street .

A land search reveals most of the Wedding Card Street properties were sold to the authority for between $500,000 and $800,000 each. But the authority paid nearly $2 million to one landlord.

The amount was broken down into several categories, with about $550,000 being the property's value, and the rest listed as home purchasing allowance and other compensation.

A property worth less than $1 million attracts $100 for stamp duty. For flats worth between $1 million and $2 million, the buyer must pay 0.75 per cent of the selling price in stamp duty. If the authority booked the total amount paid, the stamp duty would have been about $15,000. By registering the "shell price" of $550,000, it paid $100.

Sir Gordon Wu Ying-sheung, chairman of Hopewell Holdings which bought several properties in nearby Ship Street for redevelopment, said the company booked the full price.

"A few of the flats were worth over $10,000 per square foot and we just registered that amount for stamp duty," he said.

A spokesman for the Housing, Planning and Lands Bureau said it was aware of the authority's practice, adding that as a statutory body it could formulate its own policy.

Cheung Tat-tong, a former president of the Hong Kong Institute of Surveyors, said the authority practice was strange.

It sounds odd to me," he said. "The authority should explain the meaning of open market value."

2. Developers face tighter controls
YVONNE LIU , SCMP 10 May 2006

Hong Kong developers will face more barriers to new projects as the government reviews development restrictions in all districts, resulting in tighter planning and building controls.

Property analysts said the profitability of new developments would be dented when the restrictions were imposed.

The Planning Department recently set up two special units to speed up the planning tightening process, a government source said.

The special duties division will consider imposing building height, maximum gross floor area and plot ratio restrictions, the source said.

One of the teams will review the outline zoning plans, particularly on the development restrictions of all districts, according to government sources.

Developers will see how planning controls are tightening ?hen the first revised district outline zoning plan is launched this year.

The other team will handle controversial issues, such as the development restriction of the Tamar Site in Admiralty and the reclamation of Central and Wan Chai.

"Reviewing the development restriction of districts is one of the Planning Department's jobs. However, the government wants us to speed up the review process and review all development restrictions after the Grand Promenade issue," the government source said.

In November, an Audit Commission report criticised former buildings chief Leung Chin-man for granting bonus land and the Planning Department for failing to stipulate a maximum gross floor area for the land. That allowed developer Henderson Land Development to increase the total developable area built on the waterfront site in Sai Wan Ho. Yesterday, an independent investigation panel appointed by the government in response to the report cleared Mr Leung of misusing his powers.

The Planning Department will review the outline zoning plans that cover the sites on the land application list. Developers are waiting for the results of the review while property analysts are raising concerns about how their profit margins will be affected.

An analyst said: "The new policy will definitely affect the profit and the development potential for developers. But it is unlikely to change things significantly. If the government imposes building height restrictions in low-density districts, developers can look at developing projects with luxury clubhouses, higher ceilings and better facilities to market their flats at higher prices."

But he said the restrictions would make it more difficult for developers to obtain bonus plot ratios or allow for floor areas similar to what Henderson was able to get for the Grand Promenade.

BNP Paribas Peregrine Securities executive director Adrian Ngan Wai-hung said: " Henderson Land owns many old buildings and flats for redevelopment [compared with other developers]. So the company will be affected by the new policy.

"Other major developers will replenish their land banks through land auctions, so their developments will not be affected as much. Mid-tier developers like SEA Holdings who acquire land bank through buying old buildings for redevelopment will be affected by the restriction."

Victor Mak Yat-ming, director of mid-tier developer Nan Fung Development, said: "It is too early to tell the effect of the imposition, as we do not know what development restriction will be imposed."

Hang Lung Properties executive director Terry Ng Sze-yuen said: "We believe the new policy will ?ot have an effect on us. However, we will definitely consider the development restrictions when the sites are up for tender or put up for auction."

Surveyor Albert So Chun-hin said the government should not impose too many development restrictions because of the Grand Promenade issue. More building restrictions could result in less flexibility in project design. "The properties being developed may look dull because of the new limitations," he said.