FAN CHUN KEUNG v. THE SECRETARY FOR THE ENVIRONMENT, TRANSPORT AND WORKS

LDMR 5/2004

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS REFERENCE APPLICATION NO. 5 OF 2004

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J U D G M E N T

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Background

1. This is an application by the Applicant for determination of compensation pursuant to section 29(7) of the Roads (Works, Use and Compensation) Ordinance, Cap. 370 (“the Ordinance”).  The Applicant also applies for professional fees, interest and costs, but the parties have agreed that these matters can be adjourned to another date after the determination of the compensation.

2. The Applicant was the registered owner of Lot No. 3250 Section A Sub-section 2 Section A in D.D. 104 (“Lot 3250A2A”) and Lot No. 3250 Section B Sub-section 32 in D.D. 104 (“Lot 3250B32”).  They were held under a Block Government Lease originally for a term of 75 years commencing from 1 July 1898, renewable for 24 years less 3 days, but the lease was extended to 30 June 2047 without payment of any additional premium by virtue of section 6 of the New Territories Leases (Extension) Ordinance, Cap. 150.

3. Lot 3250A2A had an area of about 930.7 sq. m. and Lot 3250B32 had an area of about 20,194 sq. m.  They were contiguous to each other and together formed a rectangular site.  They were located to the north of Fairview Park Boulevard, near Sheung San Wai Tsuen and Man Yuen Chuen, Yuen Long.  According to the Applicant, Lot 3250A2A and Lot 3250B32, together with another adjoining lot also held by the Applicant, namely, Lot 3250A16RP, were occupied as an open storage compound.  However, according to the Respondent, the “Existing Use” of Lot 3250A2A and Lot 3250B32 was a “container vehicle park”. 

4. By Government Notice No. 4076 dated 29 June 2000, which was published in the Gazette on 30 June 2000, the Government gave notice that portion of Lot 3250A2A and portion of Lot 3250B32, as well as some other lots, were to be resumed pursuant to section 13(1) of the Ordinance.  The resumption was to facilitate the implementation of ancillary roads for the Village Flood Protection Works.  The effective date of the resumption was on 30 September 2000.  At the date of reversion, Lot 3250A2A and Lot 3250B32 were zoned “Village Type Development” on the Mai Po and Fairview Park Outline Zoning Plan No. S/YL-MP/1 dated 3 June 1994.

5. The areas resumed in Lot 3250A2A and Lot 3250B32 are 26.9     sq. m. and 3,808.1 sq. m. respectively.  The resumed portion of Lot 3250A2A is trapezoidal in shape and located at the northeastern corner of Lot 3250A2A.  The resumed portion of Lot 3250B32 is elongated in shape and bisects Lot 3250B32 into two portions, northern and southern portions.  The northern portion is rectangular in shape and has an area of 14,876.9 sq. m.   The southern portion has the shape of an elongated triangle and has an area of 1,509 sq. m.  The resumed portions of Lot 3250A2A and Lot 3250B32 are not contiguous to each other, but the remaining southern portion of Lot 3250B32 is contiguous to the remaining portion of Lot 3250A2A.

6. The Applicant’s claim for compensation is based on the value of the land taken and the loss suffered due to severance of the land.  The Applicant’s expert, Mr. Alain Lau (“Mr. Lau”) of Fotton Surveyors Limited, has complied information on recent sales of some other lots but finds none of them suitable for direct comparison.  Mr. Lau therefore resorts to the alternative investment approach by using the capitalization of market rental of lands let for open storage/fee paying car park use to determine the amount of compensation.  This approach was adopted in Yuen Long Fish Merchant’s Association Limited v. Secretary for Transport, LDMR 44 of 2000.  According to Mr. Lau’s assessment, the compensation should be in the sum of $26,000,000.  In a revised calculation sheet filed during the hearing (Bundle AR-1, page 56A), Mr. Lau’s estimate of the compensation payable to the Applicant for the open market value of the land resumed is $18,446,350 (based on the resumed area of 3,835 sq. m. and an estimated unit rate of $4,810 per sq. m.) and the compensation for the severance of the remaining southern portion of the subject site is $7,624,448 (based on an area of 2,412.8 sq. m. remaining at the southern portion and an estimated diminution in value of $3,160 per sq. m.).

7. The Respondent’s expert, Mr. Yip Ho Chuen (“Mr. Yip”) of LCH (Asia-Pacific) Surveyors Limited, however, finds that there are suitable sale comparables to be used for the direct comparison approach in assessing the amount of compensation.  The Respondent therefore disagrees with the Applicant on the use of the alternative investment approach.  Mr. Yip has pointed out that a portion of Lot 3250A2A and Lot 32250B32 (“the Enforcement Portion”) was subject to enforcement notice and planning approval would be required to use the Enforcement Portion for open storage use, i.e. Melhado Use (see Attorney General v. Melhado Investment Co. Ltd. [1983] HKLR 422).  He therefore assesses the compensation on two approaches, one based on the assumption that no planning approval could be obtained for the Enforcement Portion and the other on the assumption that planning approval could be obtained.  The amounts of compensation assessed by him on these two approaches are $6,004,600 and $7,032,600 respectively. 

8. Nevertheless, the Respondent has conceded that, given the characteristics and attributes of the subject site, use of the site for the purpose of open storage would have been permitted and hence there should not be any distinction between the Enforcement Portion and the other portion of Lot 3250A2A and Lot 3250B32.  Thus, the Respondent relies only on the latter approach now in assessing the amount of compensation.  That is, the Respondent’s estimate of compensation is $7,032,600, which includes (i) open market value of the land resumed at $6,519,500 (based on the resumed area of 3,835 sq. m. and an estimated unit rate of $1,700 per sq. m.) and (ii) severance loss of $513,100 for the remaining southern portion of the site (based on an area of 1,509 sq. m. at the southern portion and an estimated diminution in value of $340 per sq. m.)

The law

9. Section 27 of the Ordinance stipulates that the compensation is to be assessed on the basis specified in Part II of the Schedule of the Ordinance.  For resumption of land, Part II of the Schedule specifies that the compensation is to be assessed as if the claim were made under the Lands Resumption Ordinance, Cap. 124 (“the LRO”).  Section 10(2)(a) of the LRO provides that the Tribunal shall determine the compensation on the basis of “the value of the land resumed and any buildings erected thereon at the date of resumption”.  As to the claim for severance, section 10(2)(c) of the LRO provides that the Tribunal shall determine the compensation on the basis of “the amount of loss or damage suffered by any claimant due to the severance of the land resumed or any building erected thereon from any other land of the claimant, or building erected thereon, contiguous or adjacent thereto”.

10. Sections 11 and 12 of the LRO set out the principles and additional rules for determining compensation, in particular, section 12(d) states that “the value of the land resumed shall be taken to be the amount which the land if sold by a willing seller in the open market might be expected to realize”.  On the other hand, section 12(aa) stipulates that “no account shall be taken of the fact that the land lies within or is affected by any area, zone or district reserved or set apart for the purposes specified in section 4(1)(a), (c), (d), (e), (f), (g), (h) or (i) of the Town Planning Ordinance (Cap. 131)”.

11. Section 12(aa) has been considered by the Court of Appeal in View Point Development Ltd & Anor v. Secretary for Transport [2004] 2 HKC 52 and Delight World Limited v. The Secretary for Transport, CACV 167 of 2004 (Judgment delivered on 12 May 2005).  Both parties agree that the law as it stands now is that where zoning is to be ignored, any restriction or need for permission associated with the zoning also has to be ignored.  In other words, when assessing compensation payable on resumption of land, all planning restrictions are assumed to be non-existent.  Although the Respondent has reserved its position on the construction of section 12(aa) in view of the pending appeal of Delight World to the Court of Final Appeal, we are bound by the present judgments of the Court of Appeal and see no basis to depart from them at this stage.

12. In the case of severance loss, the Respondent submits that the same assumption must be made for both the “Before” and “After” situations, as it would be wrong to assume that before resumption, all affected lots are assumed to be capable of being put to Melhado Use without regard to any planning restrictions, whereas after resumption, the remaining land shall be regarded as being subject to planning restrictions.  We agree with the Respondent’s submission in this regard, as it is the only logical conclusion that can be made.

13. The Applicant has made reference to section 12(c) of the LRO and the judgment of the Court of Final Appeal in Director of Lands v. Yin Shuen Enterprises Ltd., [2003]6 HKCFAR 1, which decided that hope value for lease extension or modification should be ignored under section 12(c).  The Applicant submits that the Court of Final Appeal did not rule that section 12(c) requires all prospects of development to be ignored.  The Respondent disagrees with this contention and submits that the Court of Appeal in View Point, supra. and in Nam Chun Investment Co. Ltd. v. The Director of Lands, CACV 335 of 2003has refuted this contention.  Nevertheless, as submitted by the Respondent, we do not find this contention relevant to the present case, as neither side’s expert has sought to use comparables with development potential.

14. Apart from the aforesaid statutory principles, there are two basic guiding principles at common law: the principle of equivalence and the Pointe Gourde principle.  The principle of equivalence means that the owner shall be paid “neither less nor more than his loss”: Horn v. Sunderland Corporation [1941] 2 K.B. 26.  The Pointe Gourde principle means that no account is to be taken of the effect on value of a scheme underlying the resumption: Pointe Gourde Quarrying and Transport Co. v. Sub-Intendent of Crown Lands [1947] AC 565 and Director of Buildings and Lands v. Shun Fung Ironworks Ltd. [1995] 2 AC 111.

The issues

15. Subject to the aforesaid, the parties have no dispute on the legal principles relevant to the present case.  The outstanding issues are: -

(1)	The “Existing Use” of Lot 3250A2A and Lot 3250B32;
(2)	Whether the Applicant’s investment approach based on the letting comparables or the Respondent’s direct comparison approach based on sale comparables should be adopted in assessing the compensation;
(3)	Which are the suitable comparables to be used; and
(4)	What adjustments should be made to the comparables.

16. In addition, the Applicant submits that the case of Delight World is factually similar to the present case in a number of important areas: both are agricultural lots with Melhado potential, similar in area, both have ready access to major road networks which is important for open storage use on a large scale, both are large integral sites severed by resumption with remaining portions suffering significant loss of value and both are in Yuen Long area reasonably close to the border.  The Applicant contends that it is important to consider Delight World as persuasive authority in view of judicial consistency.  In Delight World, the Lands Tribunal assessed the unit rate at $3,174 per sq. m.  In the present case, according to Mr. Yip’s assessment, the unit rate is $1,700 per sq. m.  The Applicant is of the view that such a huge discrepancy in the unit rates cannot be right.  Nevertheless, it is not the Applicant’s contention that Delight World should enjoy any status as a comparable.  The Respondent disagrees with the Applicant’s contention.  It is therefore necessary for us to deal with this issue too.

Existing Use

17. Section 1A of the Town Planning Ordinance, Cap. 131, defines “Existing Use” in relation to a development permission area to mean “a use of a building or land that was in existence immediately before the publication in the Gazette of notice of the draft plan of the development permission area”.  Mr. Yip’s evidence is that when the Mai Po and Fairview Park Interim Development Permission Area Plan No. IDPA/YL-MP/1 was gazetted on 17 August 1990, the resumed portions of Lot 3250A2A and Lot 3250B32 were mainly vegetated and vacant land.  Five trailer-like objects were found on the southwestern part of Lot 3250B32 whilst an unidentified object was found in portion of Lot 3250A2A.  Mr. Yip therefore opined that the “Existing Use” for portion of Lot 3250A2A and Lot 3250B32 was not for open storage uses.

18. According to the Statement of Expert Report of Mr. Liu Wai-kwok produced by the Respondent, the survey sheet prepared in 2000 and aerial photo taken on 1 June 2000 show that the Enforcement Portion was used for open storage purpose (including containers and container vehicles among others), which was a suspected unauthorized development and subject to enforcement.  However, a container vehicle park was located to its north, which was identified as an “Existing Use” tolerated under the Town Planning Ordinance.

19. We accept the evidence produced by the Respondent in this regard and find that the “Existing Use” of Lot 3250A2A and Lot 3250B32 was “container vehicle park”.

Investment approach or direct sale comparison approach

20.  Mr. Lau’s investment approach is no doubt an alternative means of ascertaining the market value of a property, but it is not the best method in valuation.  As pointed out by Mr. Yip, the best method in valuation is the direct sale comparison approach, and the Lands Tribunal has repeatedly expressed its preference for the comparative method: Director of Lands and Survey v. Fung Ping Chung [1977] HKLTR 37.  Mr. Lau has in fact identified 4 sale comparables, but for certain reasons, he finds that these comparables were not suitable for comparison and hence adopts the investment approach.  It is clear that if there were suitable sale comparables, Mr. Lau would not have used the investment approach.  Therefore, we can conclude that both surveyors giving evidence in this case agree in principle that the best method is the direct sale comparison method.

21. Under this method, suitable sale comparables were analyzed and adjusted, to reflect the differences between the comparables and the resumed lots, arriving at an appropriate adjusted unit rate for the valuation of the resumed lots.  As discussed later in this judgment, we find that there are in fact suitable sale comparables in the present case and hence there is no need to resort to the investment approach at all.

22. Moreover, Mr. Yip points out that the investment approach involves summation of all the future income generated from the property and then discounting the income at an appropriate discount rate.  There are 3 elements in this approach: rental income, capitalization rate and holding period.  The capitalization rate and holding period will work out a multiplier, i.e. Years’ Purchase.  A minor change in the capitalization rate will greatly affect the capital value of the property.  It goes without saying that with one more set of variable, there is a less certain chance of arriving at a value that equals to the market value of the subject land, which is the subject matter of valuation.  More importantly, it is commonly known, and acknowledged by both surveyors in this case, that mainly because the sales of land demised for agricultural land were scarce, there was no market evidence at all as to their yield.  Therefore, the yield adopted in Delight World case, as in other cases when the agricultural land in question were valued on the basis of investment approach, was simply a figure that had to be adopted in the absence of any other evidence.  In view of the forgoing, we find that the investment approach is not as reliable or accurate as the direct comparison approach.

23. Since there are suitable sale comparables in the present case and the investment approach is not as reliable or accurate as the direct comparison approach, we find that we should adopt the direct comparison approach.  There are many matters concerning the letting comparables disputed by the parties, but as we adopt the direct comparison approach, these matters become irrelevant and we shall not deal with them in the judgment.

Delight World

24. Even in the case of Delight World, the Lands Tribunal stated in the Judgment on Review dated 21May 2004 (unreported case LDMR 2 of 2002, paragraph 24), “Summing up, we agree in principle with Mr. Ng in his valuation approach, in the absence of suitable direct sales comparables of land having the same characteristics and permitted uses as to what we were required to assume, for the Affected Lots, which were the subject matter of the resumption, …”.  It is obvious from the reading of the above extract of the Judgment that if the Tribunal had found that there were suitable direct sales comparables, the Lands Tribunal would not agree with Mr. Ng in his choice of the investment approach. 

25. The Respondent submits that a decision of a tribunal is not to be treated as having the status of a comparable: Land Securities Plc v. Westminster City Council [1993] 4 All ER 124.  Although the Applicant is not contending that Delight World should be treated as a comparable, by asking us to consider the similarities between the two cases and the unit rate decided in Delight World, it is tantamount to asking us to compare the two cases.

26. However, we accept the Respondent’s submission that the assessment in each case must depend on the evidence presented to the Tribunal in each case.  When the evidence presented in each of the cases are different, the Tribunal would come to different conclusions.  So the unit rate decided in Delight World is based on the evidence available in that case, and the evidence there would not be the same as the evidence in the present case.  We cannot simply compare the unit rates as suggested by the Applicant.  The Applicant uses the term “judicial consistency” to justify his argument, but we agree with the Respondent that “judicial consistency” simply means that the Tribunal should apply principles of law consistently.  It does not mean that the Tribunal has to compare the unit rate assessed in one case based on the evidence available in that case with an earlier decision based on a different set of evidence.

27. We therefore find that it is unnecessary to consider the unit rate decided in Delight World in the present assessment.

Availability of suitable sale comparables

28. We shall therefore consider below the different views of the two surveyors and also the grounds for holding their views before deciding on whether there is sufficient number of suitable comparables to warrant the employment of sale comparison method in the valuation of the resumed lots, including the assessment of any loss in value of the remaining land due to severance.

29. Mr. Lau stated in para. 15.1.2 and 15.1.3 of his valuation report dated 18 October 2004 (Bundle AR-1, page 37) the following: -

“The ‘Resumed Land’, with their Melhado potential, should be compared with lands put to similar use.  However, there was a lack of transactions of private lands of similar size in the same vicinity of similar character.  Nevertheless, a few transactions that took place in the near vicinity during the relevant period were recorded and examined.  It was noted however that none appears to be suitable comparables for one reason or another.”

30. He went on to analyze his 4 comparables and concluded, “None of the transactions recorded can be regarded as a suitable comparable evidence to the subject lots which was used as a large storage/parking compound at the time of and before the resumption”.  As a result, he considered that it would be more appropriate to value the resumed lots by the “investment approach” involving the capitalization of market rental values of land let for either open storage or fee-paying open car parking use, even though most of these sites were located far away from the subject lots in the northwestern part of the New Territories, or in other parts of the New Territories.

31. Mr. Lau also commented in his supplementary valuation report dated 18 November 2004 (Bundle AR-1, page 151) that none of the sale comparables adopted by Mr. Yip could be said to be relevant or suitable comparables.

32. During the hearing, Mr. Lau elaborated and reiterated his earlier view as stated in his valuation reports dated 18 October 2004 and 18 November 2005 that there was no suitable sale comparable for the purpose of valuing the subject lots by direct sale comparison method.  As such, he opined that there was no other alternative but to value the subject lots by the “investment approach”.  Therefore, much of his written evidence, and his oral evidence in chief and in cross examination concentrated on the letting comparables, their adjustments as well as the adoption of the appropriate yield in the investment approach.  He also chose not to give any evidence or opinion as to the adjustments that should be applied to any of the sale comparables identified by him and Mr. Yip.

33. On the other hand, Mr. Yip held an entirely opposite view from that of Mr. Lau.  Mr. Yip in his first valuation report dated 21 October 2004 (Bundle AR-1, page 174) opined that the subject lots should be valued depending on whether they were subject to enforcement or not subject to enforcement.  Mr. Yip identified and opined that in the former situation, two sale comparables (i.e. Comparable Nos. C1 & C2) were considered relevant because their physical attributes were similar to that of the subject lots whilst in the latter situation, two other sale comparables (i.e. Comparable Nos. AWS1/C3 and AWS3/C4) were relevant.

34. Mr. Yip in his supplementary valuation report dated 22 November 2004 (Bundle AR-1, page 252) commented on the four comparables cited by Mr. Lau in his first valuation report.  He opined that contrary to what Mr. Lau said, these comparables were suitable comparables. 

35. Before the hearing commenced on 15 March 2005, counsel for the Respondent conceded with the Applicant that a distinction in the different areas of the subject lots, i.e., between the planning enforcement portion and the non-enforcement portion, would not be made.  Following this, both parties’ expert surveyors agreed to value the subject lots on the basis of the same assumption in the users (i.e. open storage) that would be permitted for the lots in both the Before and After situation.

36. We note the Applicant’s contention, as supported by Mr. Lau’s opinion, that whilst the resumed lots were actually used and were suitable for use for the purpose of open storage of container trucks, trailers and containers, some of the sale comparables were not actually put to the same said uses around the dates of their transactions, and/or were not physically large enough or otherwise capable for being put to the same said uses.  However, we agree with the submission of the Respondent that the Applicant has adduced no evidence to show that the values of agricultural land such as the resumed lots and the sale comparables for open storage of container trucks, trailers and containers would necessarily be higher than the values of the similar lands put to other open storage uses.

37. In addition, we are not aware of the above assertion as something known to and agreed upon by valuation surveyors and market players in the land market in Hong Kong.  Therefore, we do not agree with Mr. Lau’s inference that because of the differences in the areas of the subject lots before the resumption and the sale comparable sites and also, the differences in the actual or possible types of commodities or vehicles that could be stored in the subject lots before the resumption and the comparable sites, all the sale comparables are not suitable comparables for the valuation of the resumed lots.

38. Conversely, we agree with the opinion of Mr. Yip that the values of agricultural land for open storage purposes should be dependent on the different factors of location and demand etc. at the relevant valuation dates.  There is no basis, for instance, to conclude that the unit rate market value of land demised for agricultural purpose but used for open storage of container vehicles must be necessarily higher than that of other similarly demised land used for open storage of other commodities or scrap metal yard, or as fee-paying car parking lots.

39. For Comparables AWS1/C3 and AWS4, Mr. Lau said that they should not be admitted as suitable comparables because they were part of larger sites, which were subject to resumptions before the dates of their transactions.  For Comparable AWS1/C3, Mr. Lau said that “with a very reduced area, this lot was no longer a suitable site in its own right for large open storage use but it does provide a useful reference for the assessment of the market value that reflects the effect of resumption.”  For the reason stated in the previous paragraph, we do not agree with this assertion of Mr. Lau.  For Comparable AWS4, Mr. Lau said that it formed part of a larger site of which portions were resumed about 3 months before the sale of this comparable.  In addition, Mr. Lau stated that a large part of the site was found vacant at the time of transaction.  Also, he argued that since these comparables were much affected by various resumptions and public infrastructure works in the region, they could not be accepted as suitable comparables. 

40. Overall, we do not agree these to be valid grounds for rejecting these 2 comparables.  The sales of Comparables AWS1/C3 and AWS4 were made some time after the said resumption was carried out as a result of which even the Applicant agreed that it could not be said that they were affected by the “threats” of the said resumption.

41. For Comparable AWS2/C1, Mr. Lau said that this should be rejected as it had been sold to the mortgagor bank on 29 March 2000 before re-selling again to the present owner on 30 October 2000.  The Applicant also submitted that there was a difference between the price of $4,608,510 stated in the agreement for sale and purchase dated 23 August 2000 and the price of $4,428,510 the subsequent assignment dated 30 October 2000, which makes this transaction not reliable.  We find that the difference between the price stated in the agreement is only about 5% different from that stated in the assignment.  Although it is not very common to have a difference in price stated in these documents, we think that this is insufficient to justify the rejection of the comparable.  We agree with the Respondent that this comparable should not be discarded just for these reasons.

42. For Comparable AWS3/C4, Mr. Lau said that with a small site area of only 404 sq. m., it was not a suitable site for comparison purpose as its size rendered it incapable of being used as “a large storage compound for bulky good/vehicles/containers”.  Again, for the reason stated in paragraphs 36 to 38 above, we do not agree with Mr. Lau that we should discard this comparable on this ground.  Mr. Lau also added that this sale suffered from an uncertainty as it was partly encroached by a structure the major part which rested on an adjacent lot.  However, we agree with Mr. Yip that this defect could be dealt with by reducing the original site area of the lot by the encroached area.

43. Finally, for Comparable C2, the comparable at Pok Oi, Mr. Lau said that the site, being close to the West Rail Viaduct and the Pok Oi Hospital, would unlikely to have any Melhado potential.  He added that since it could not be used for the storage of container vehicles and containers, it should be rejected.  For the same reason as for Comparable AWS3/C4, we do not agree with Mr. Lau to reject this comparable.

44. To conclude, after reviewing the evidence and opinion of both expert surveyors, we do not agree with Mr. Lau that there was no sufficient number of suitable comparables for the valuation of the subject site.  We find that as far as the assumption of user is concerned, use of the subject site for the purpose of open storage would be permitted in both the Before and After situation whilst for the comparables, we note that they were all used for and/or capable of being used for open storage around the dates of transactions.  Also, we find that for the factors of location and time, the two other important parameters affecting values of land in general, the five sale comparables identified by both surveyors were close to that of the subject lots.  Therefore, we do not find at the outset that we should exclude any of these five comparables.  In the following section, we would analyze these comparables.

Analysis and adjustments of the sale comparables

45. Mr. Lau chose not to analyze any of the sale comparables identified either by him in the first instance or by Mr. Yip.  We only had the benefit of the evidence of Mr. Yip who opined that the sale comparables should be adjusted under the different factors of adjustments of location, accessibility, size, layout/shape, time, right of way and risk of planning enforcement.  Since the Respondent already conceded on the users that would be permitted for the subject lots and since we are bound to follow the decisions of the Court of Final Appeal in Director of Land v Yin Shuen & anor (supra.) and the Court of Appeal in the case of View Point (supra.) and the case of Nam Chun (supra.), as regards the users that could be assumed to be permitted, we do not find it necessary to make any adjustment on the factor of “risk of planning enforcement”.

46. In the table below, we summarize our adopted adjustments for the five sale comparables (using the reference numbers adopted by Mr. Lau and Mr. Yip respectively).

Table 1 - Adjustment of sale comparables

* Based on Mr. Yip’s computation – excluding the area of the encroached structure of 17.4 sq. m.  (i.e. site area of 404.7 sq. m. less 17.4 sq. m. = 387.3 sq. m.)

47. We will discuss the adjustment factors one by one as below: -

Location

We compute from the site plan produced by the two surveyors that apart from Comparable C2, the other 4 comparables are all less than 1 km. away from the subject lots.  Comparable AWS1/C3 is located almost immediately adjacent to the subject lots whilst Comparable AWS4 is located to the west, in the very close vicinity of the subject lots.  The other 2 comparables, AWS2/C1 and AWS3/C4 are located to the south of Fairview Park Boulevard but are still very close to the subject lots.   Comparable C2, located at Pok Oi, is farthest away but is located in the same part of New Territories.  Therefore, we are of the view that as far as location is concerned, these sale comparables, apart from Comparable C2, are so closely located to the subject lots that no adjustment or a small adjustment of +5% is warranted.   For Comparable C2, we disagree with Mr. Yip that it has a better location than the subject lots and we adopt an adjustment factor of +10% instead of –20% as suggested by Mr. Yip.

Accessibility

Mr. Yip opined that no adjustment is required for Comparables AWS2/C1, AWS3/C4 and C2, and +3% for Comparable AWS1/C3.   Based on the evidence shown on the site plans and our site inspection with the parties, we hold different view and adopt different adjustment percentages for the comparables, varying from 0% to +15%, as shown in the above table.

Size

Mr. Yip opined that no adjustment for size is warranted at all.  We instead adopt the traditional approach of adjusting the value downwards as the size increases and the lump sum price increases.

Layout / Shape

We agree with Mr. Yip that a discount should be given to Comparable C2 as it has an irregular shape.  But we adopt a higher adjustment of +10%.

Time

In the absence of any other basis, we follow with Mr. Yip in his adjustments for time, after making reference to the private flatted factories’ price indices of the Hong Kong Property Review published by the Rating & Valuation Department.

Right of Way

Mr. Yip researched the lands status plan for Comparable AWS2/C1 and suggested an adjustment of +5%, based on the reduction in the area of the land of the comparable due to the existence of the mutual right of way shared by adjoining lots.   We agree and adopt the same percentage of adjustment.

Risk of Planning Enforcement

As stated before, we do not find this factor of adjustment adopted by Mr. Yip to be necessary.

Reconciliation of estimated market value

48. Based on the comparables, and after making the various adjustments as stated above, we estimate the market value of the subject lots to be between the lowest unit rate of $1,439 per sq. m. (Comparable AWS2/C1) and the highest unit rate of $2,253 per sq. m. (Comparable C2), with an average of $1,730 per sq. m.  The differences between the adjusted unit rates derived from all five comparables are within a range of between +30% and –17% from the mean.  Hence, we do not find it necessary to discard a certain comparable on the ground that it is obviously out of line with the rest of the comparables.  For reasons stated before, we also do not find it appropriate to discard a certain comparable on the ground, as suggested by Mr. Lau that it was not capable of being used for the open storage of container vehicles, trailers and containers.  In concluding, we decide to adopt all as relevant comparables and use the average figure as the appropriate market value for the subject lots.

Conclusion of unit value based on direct sales comparison

49. From the above table, we arrive at a figure of $1,730 per sq. m.   We round this to $1,750 per sq. m. and adopt this as the unit market value of the subject lots, based on the transaction prices of the five sale comparables, and after making adjustments reflecting the differences between the said comparables and the subject lots.

Valuation of the resumed lots

50. In estimating the value of the resumed lots at the relevant valuation date, we apply the assessed unit rate of the resumed lots to the total site area of the said land, as follows:

Valuation of the loss to the Applicant due to the severance of land

51. The resumption has bisected the subject site into two parts, the northern portion and the southern portion.  After the resumption, the northern portion of the subject site remaining in the ownership of the Applicant extends to about 14,885 sq. m.  It is also of regular shape and is still accessible to the Fairview Park Boulevard via the local access road at about the same position as before.  Both Mr. Lau and Mr. Yip shared the same view that no compensation for the severance of the remaining northern portion of the subject site should be payable to the Applicant.  However, Mr. Lau gave evidence that he agreed that there was no severance for the remaining northern portion of the subject site because he assumed that the Applicant still maintained the access through the unresumed portion of Lot 3250A2A (i.e., the trapezoidal shaped lot in between the public access road and the unresumed portion of Lot 3250B32 (i.e., the remaining triangular shaped portion of the site).

52. They also both agreed that after the resumption, the southern portion of the subject site suffered loss due to the severance of that portion from the other land.  However, they held different views as to the quantum of severance loss that should be applicable to the southern portion of the subject site.  They disagreed on both the areas of the remaining southern portion of the site that suffered from the severance loss as well as on the extent of the loss per sq. m. of the remaining site.  Mr. Lau said that both the triangular, un-resumed portion of Lot 3250B32 (1,509 sq. m.) and the trapezoidal, un-resumed portion of Lot 3250A2A (903.8 sq. m.), or a total area of 2,412.8 sq. m. of land suffered severance loss whilst Mr. Yip said only the former suffered any loss.  

53. In the valuation report dated 18 October 2004, Mr. Lau estimated that the unit market value applicable to the southern portion in the Before and After situations were $4,810 per sq. m. and $1,650 per sq. m. respectively, or a difference of value of $3,160 per sq. m.     This is equivalent to a reduction in value of over 65% assuming an estimated market value of the land of $4,810 per sq. m.  On this basis, he estimated the loss in value to be 2,412.8 sq. m. times $3,160 per sq. m., or $7,624,448.  On the other hand, Mr. Yip estimated in his valuation report dated 21 October 2004 that the southern portion of the subject site, on the higher basis of assuming Melhado use, would suffer a 20% of the diminution of the land value after the resumption.   He estimated it to be 1,509 sq. m. times $340 per sq. m. (estimated market value of $1,700 per sq. m. x diminution in value of 20%), or $513,060.

54. The two surveyors maintained their views during the hearing when they gave evidence in chief and cross-examination.  There was also much debate on the possible use of an area of the subject site, which had been used as part of the main access road leading to the subject site before and after the resumption.

55. After taking into account the opinion of the two surveyors, the configuration of the subject site in both the before and after situation, and in particular the shape and size of the southern portion of the subject site, we are of the view that a reasonable diminution in value of the southern portion of the site is about 30% of the total area of 2,412.8 sq. m. (i.e. the total area of the remaining portion of both Lot 3250B32 and Lot 3250A2A).  Based on our estimated market value of the resumed lots of $1,750 per sq. m., we estimate the diminution in market value of the remaining southern portion of the subject site to be $1,750 x 30%, or $525 per sq. m.  Applying this to the area of the remaining southern portion of the subject site of 2,412.8 sq. m., we calculate the diminution in value of the remaining southern portion of the subject site due to severance to be 2,412.8 sq. m. times $525 per sq. m., which is equal to $1,266,720.

Summary of total compensation payable to the Applicant

56. From the foregoing, we estimate the open market value of the resumed lots and the diminution in value of the southern portion of the subject site due to the resumption to be as follows:

Orders

57. Accordingly, we order that the Respondent do pay the Applicant compensation for the affected lots, including compensation for the severance of remaining land owned by the Applicant, in the sum of $7,980,000.  The matters of professional fees, interest and costs are adjourned to a date to be fixed.