AU KAI LEUNG v. DIRECTOR OF LANDS

LDLR 11 of 2006

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LANDS RESUMPTION APPLICATION NO. 11 OF 2006

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JUDGMENT

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Dispute

1.   This is an application for compensation under the Land Resumption Ordinance. The Applicant’s entitlement to compensation is no longer in issue. The main dispute is over the assessment of the open market value of the subject property. It is not in dispute that the direct comparison method should be used. The valuation experts differ on the choice of comparables, adjustments to be adopted for the comparables.

Choice of Comparables ----- Purchase by Urban Renewal Authority

2.   The Applicant uses four comparables in assessing the value of the subject shop. One of such comparables was a purchase by the Urban Renewal Authority in a redevelopment scheme.  He adopted this comparable because he believed that the Urban Renewal Authority would not have paid more than the market price. Be that as it may, we are at loss to see how this comparable came to be chosen among other purchases by the Urban Renewal Authority. We are not convinced that this is an appropriate comparable. We prefer the Respondent’s expert evidence in this regard.

3.   It is a matter of standard practice not to adopt this kind of comparable. Of course, it is not a matter of law that such comparable cannot be used. Similarly it is not a general rule that this kind of comparable cannot be used in all circumstances of the case.  Looking at the availability of other comparables and considering that there are no special circumstances to justify a departure from the common practice, we accept the opinion of the Applicant’s expert that this transaction should not be used as a comparable. 

Choice of Comparables ----- Time of transactions and Size of comparables

4.    The other three comparables used by the Applicant’s expert are all of much smaller sizes. They were chosen because they are transactions within three months either way of the valuation date. The expert of the Applicant stressed on the advantages and desirability of using transactions close to the valuation date. No one would disagree with this general principle. For one reason or the other the Applicant’s expert seemed to miss the point that it is a question of balancing exercises.  In the instant cases, proximity in time of the transactions should not be the only factor to look at, the other obvious factor and shortcoming of these comparables is their sizes. The sizes of the Applicant’s comparables differ significantly from that of the subject shop. The smallest one of the three is about 13.5 % the size ( in terms of effective area according to the calculation of the Applicant’s expert ) and the largest 24.3 %.

5.   The sizes of the Respondent’s comparables are close to the subject shop and very similar to it in other aspects.  The only criticism that can be levied on them is that the times of transaction stand farther away from the valuation date than the Applicant’s comparables do.  However the market trend over the period of these transactions was indisputably stable and adjustments can be worked out, as the Respondent did, in an objective manner using the usual and easily available data.  On the other hand, to use the Applicant’s comparables, the Applicant’s expert had to use adjustments which were highly, if not solely, subjective. For these reasons we accept the evidence of the Respondent’s expert that these three comparables of the Applicant should not be used.

6.   We accept the choice of comparables adopted by the Applicant’s expert with one modification. Under the particular circumstances of this case, it is better to use as more comparables as permissible. The comparable (RC S3), has been considered by the Respondent’s expert. She disregarded it on the ground of its strong ‘arcade character’. Incidentally the Applicant’s expert has not advocated the use of this comparable. However this should not be held against the Applicant as we had doubt about the reliability of his own expert’s evidence. From our observation during the site visit of the area in question, we are of the view that the arcade effect is present but not strong. This arcade effect can be safely offset by suitable adjustment. By including this comparable, thereby increasing the number of comparables, we believe we can arrive at a better and fairer assessment under the special circumstances of this case.

Measurements, Effective Area, Adjustment of Comparables

7.   The differences under these three heads relate to the reliability of the two experts. The expert reports filed on behalf of the Applicant were brief to say the very least. Most significantly the Applicant’s expert claimed to have omitted to use the best comparable in assessing the value of the subject shop. He did not mention this omission in his evidence in chief. On being cross-examined on this point, it became clear he could not have denied the fact that the comparable is the best comparable among all, and obviously so.  At this point he brushed aside the omission by claiming this was an oversight. We are left with no choice but gravely doubt his reliability in respect of his overall approach and assessment. We have examined the materials used by the experts and prefer the evidence of the Respondent’s expert. We accept the evidence and assessment of the latter subject to one adjustment relating to location and traffic flow.

8.   As the result of our observation at the site and submission of counsel for the Applicant, we think that the subject shop was located in the main stream of local traffic. Adjustments greater than those advocated by the Respondent should be made under the head of location and traffic.  Except for two of the comparables, the best comparable in Larch Street and the one in Mayfair Centre, we made the adjustment of 15 % for all other comparables.

Calculation of Value of the Subject shop

9.   The following is our assessment of the value of the subject shop. We make an order in terms of our assessment. There be liberty to apply for consequential matters.

Value Subject to existing tenancy