Urban Renewal v Urban Blight

Introduction
Functions
Development Schemes
Public Objections
Compensation
Disposals by the URA

Introduction

The consequences of urban degeneration are all too apparent in Hong Kong. Tragedies occur with depressing regularity, as a result of fires in illegal structures, inadequate fire detection systems and unsafe structures. In 1998 the Fire Services Department surveyed over 28,000 multi-storey buildings and found that only 28% had satisfactory fire installations. The Buildings Department has estimated that there are over 800,000 illegal structures of various kinds.

Aside from safety issues, there are major issues of urban blight. These include unacceptable housing standards and an unsightly and unhygienic environment in many places.

In an attempt to address some of these issues, the Urban Renewal Authority Ordinance (URAO) was enacted on July 7 2000. It is expected to come into force later this year.

The broad objective of the URAO is to implement urban renewal over a 20-year period. Two hundred priority projects have been targeted, producing some 62,800 new flats. The time taken to resume land is intended to be more than halved, to between 18 and 24 months.

Functions

The existing Land Development Corporation will be replaced by a new Urban Renewal Authority (URA). The URA's functions are much wider than those of the corporation. Functions of the URA will include:

• improving the standard of housing in Hong Kong;
  
  
• replacing old and dilapidated areas with new development that is properly planned and has adequate transport, and other infrastructure and community facilities;
  
  
• making land available to meet various development needs;
  
  
• preventing the decay of existing buildings by promoting maintenance and improvements in structural stability, external finishes and fire safety;
  
  
• preserving buildings, sites and structures of historical, cultural or architectural interest; and
  
  
• engaging in other activities that the chief executive may permit or assign to it by order published in the Gazette. (This last purpose is extremely wide and is not restricted by any other provision in the URAO.)

This is a wide mandate. If fulfilled, it will mean significant progress in the battle against urban blight.

The URA has wide-ranging powers to match its functions. Not only can it buy land and implement development projects, but it can alter and repair existing buildings, and provide fixtures and fittings. It can either do this alone or join with third parties.

The URA's financial situation is also better than that of the previous authority. Its principal source of finance will initially be government loans. It can take commercial loans and the Legislative Council may be called upon to authorize guarantees for these. It is also exempt from tax.

These provisions reflect the government's recognition that urban renewal cannot be entirely self-financing. The Land Development Corporation estimates that its debt will be HK$6.1 billion at the end of the year when the URA takes over. The concept that regeneration must be wholly self-financing has been shown to be idealistic.

Development Schemes

The URA will prepare a corporate plan, setting out its programme for the next five years, and a business plan, setting out its programme for the next financial year. The URA projects will fall into two categories: development schemes and development projects. A development scheme requires amendment to the zoning of the site on the outline zoning plan, whereas a development project does not.

The URA is required to publish details of all its schemes and projects. There will be a cut-off date for (i) determining eligibility for payment of voluntary allowances to affected property owners and tenants, and (ii) determining rehousing eligibility.

Public Objections

The public may become involved in development schemes under the public consultation provisions in the Town Planning Ordinance. The URA will submit the draft scheme to the Town Planning Board. If it is published, the public has the right to object in the usual way.

Public involvement in development projects is directly governed by the URAO. This is a major improvement as there is no such provision under the Land Development Corporation Ordinance. There will be a statutory objection process and ultimately the secretary for planning and lands will consider all objections that have not been withdrawn. It will be possible to appeal against the secretary's decision, in front of an appeal board panel.

The land resumption process has been significantly changed. The Land Development Corporation scheme for the purchase of land for redevelopment is a two-step process. The corporation is under a duty to acquire land by direct negotiation with landowners. The secretary must not recommend resumption of the land unless the corporation has taken all reasonable steps to acquire the land, including offering to purchase the land on fair and reasonable terms. This has led to many legal disputes and resulted in enormous delay in the land resumption process.

Under the URAO, this two-step process has been removed to allow the URA to apply directly to the secretary that a recommendation to the Chief Executive in Council be made for the resumption of land. This removes the need for protracted negotiations with landowners.

Compensation

Affected owners are eligible for statutory compensation based on the fair market value of the resumed premises. In addition, owner-occupiers are eligible for the home purchase allowance, which is the difference between the cost of a replacement flat (of between eight and ten years old) and the amount of statutory compensation. Non-domestic owners may also claim a business loss and disturbance payment.

Affected tenants may be rehoused or opt for cash compensation. The government has made a commitment that nobody will be made homeless as a result of the urban renewal programme.

Under pressure from the public and legislators, the administration in mid-June issued a list of undertakings relating to compensation including the following measures. It states it will:

• consider reviewing the proposed enhanced home purchase allowance to be based on the purchase of a newer replacement flat;
  
  
• consider providing incentives to owners to sell land to the URA after a resumption notice has been issued;
  
  
• review compensation for non-domestic properties;
  
  
• consider fixing the business loss of non-residential properties at a certain percentage of the property's value;
  
  
• consider providing a bridging loan to affected landowners;
  
  
• set up a non-statutory appeals committee to hear appeals against the decisions of the director of lands on home purchase allowance issues; and
  
  
• issue guidelines on the valuation of properties.

The government's approach to these issues will be important. Under the present regime, valuation disputes have been a significant cause of delay in the land resumption process.

When the URAO was at the bill stage, the Hong Kong Bar Association commented that the URAO continues the statutory restriction on compensation to owners, by excluding any compensation for 'hope value' and the value of continuation or renewal of existing government leases or licences. The development gain passes instead to the URA and its developer partners.

Another criticism of the URAO is that it does not provide any compensation for planning blight, unlike other developed countries (eg, the United Kingdom, Australia, New Zealand, Canada and the United States). In 1995 the Privy Council in the Shun Fung Iron Works Case found a way to award compensation to owners of resumed land who operated a business. The Privy Council held that losses to a business caused by the 'shadow of resumption' fell within Section 10 of the Land Resumption Ordinance. But this does not help residential owners. In fact, the URAO may make their situation worse by denying them the opportunity to sell in the market to developers seeking to assemble sites and by blighting their area for six years ahead of resumption.

The process of blight (and effects) will probably occur as follows:

• Every year the URA must submit a draft five-year plan to the financial secretary.
  
  
• The plan includes a programme of proposals to be implemented by way of development schemes (to which no objection is allowed) or by way of development projects, in both cases with proposed commencement dates and related business plans.
  
  
• The areas covered by the proposals will become publicly known, particularly once approved by the financial secretary. Therefore, in practice, blight will begin from around the date of the five-year plan identifying the area. The ultimate compensation for the land cannot exceed the land resumption ordinance measure, as assessed by the Lands Tribunal.
  
  
• After submission of the plan, nothing need be done by the URA for five years. It may then publish a project under Section 23, which involves publishing the commencement date, a description of the project, and times and places where information on the project may be inspected. The publication is to be in each issue of the Gazette, and once a week in a Chinese and an English language local newspaper for two months. Any objections to the proposed development projects must be made within this period and the URA then has three months to decide whether to seek authority to proceed and pass the matter to the secretary for planning and lands for a decision.
  
  
• Once the secretary authorizes the project to proceed as a Section 26 development project, it has another 12 months in which to recommend resumption to the Executive Council (ie, the effective blight period could be over six years).
  
  
• If the URA's corporate plan is kept secret until the authority gazettes a project as a development project, there is still no guarantee that there will be no blight. Owners have two months to object to the URA, which in turn has three months to pass the matter to the secretary with its own decision for him to consider (Section 24(3)). There is then no time limit for the secretary's decision (Section 24(4)). Only after the secretary's decision does the new 12 months run for secretarial approval and for the URA to ask the secretary to recommend resumption. If the process is hastened to reduce URAO blight for owners of land affected by the development projects, that will also decrease any incentive for the URA to pay anything more than Land Resumption Ordinance compensation.

Under the present system, the land development corporation must offer a fair and reasonable price to owners. The corporation's offers often increase just before it asks the secretary to recommend resumption. These increased payments often compensate in part for the 'hope element' to which the owner is not actually entitled. There is no incentive within the URAO to expedite the process until it is ready, nor for the URA or its partners to share any of the development gain with owners. These inequities may result in an increase in applications to the Lands Tribunal.

Disposals by the URA

The URA is given power to dispose of resumed land, but only after approval from the chief executive. This is a measure to enable the URA to dispose of land to other developers rather than shouldering long-term commitments to carry out renewal on its own. During the consultation process, it was clear that the government envisages that joint ventures between the URA and third parties will be the principal way of implementing development projects. It will be interesting to see how the URA tackles its more novel functions, such as repair and refurbishment projects.

For further information on this topic please contact Sally Durant at Baker & McKenzie by telephone (+852 2846 1888) by fax (+852 2845 0476) or by email ([email protected]).