DISCREET LTD v. SECRETARY FOR TRANSPORT

LDMR 14/2002

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

Miscellaneous Resumption Application No. LDMR 14 of 2002

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J U D G M E N T

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1. This is an application from Discreet Limited ("the Applicant") for a determination of the amount of compensation payable under the Roads (Works, Use and Compensation) Ordinance (Chapter 370) ("the Ordinance") for the resumption of a portion of Lot 414 in Demarcation District 399, Tsuen Wan ("the Subject Lot"). The Applicant is the registered owner of both the Subject Lot and Lot 415 in Demarcation District 399 ("Lot 415").

2. By the Gazette Notice dated 26th April 2001 as amended by a Corrigendum dated 13th July 2001, a portion of the Subject Lot was resumed by the Government on 27th July 2001. The land concerned was resumed to make way for the improvement of the section of Castle Peak Road between Area 2 and Sham Tseng of Tsuen Wan under PWP Item 6365TH. Pursuant to Item 1 in Part II of the Schedule to the Ordinance and Section 10(2) of the Land Resumption Ordinance, Chapter 124, the Applicant made claim in the amount of HK$5,688,400 for the land resumed and the loss/damage due to the severance of the resumed land from the remaining portion of the Subject Lot and Lot 415.

3. The District Lands Officer/Tsuen Wan representing the Director of Lands (who had the delegated authority from the Secretary for Transport to deal with the claim from the Applicant), offered to the Applicant a total sum of HK$1,430,710.10 as compensation for the resumption of the land concerned. This offer, however, was not accepted. The Applicant, represented by Lo, Wong & Tsui Solicitors, filed in the above application No. LDMR 14/2002 to the Lands Tribunal on 27th August 2002. The valuation expert witness engaged by the Applicant is Mr. Charles C.P. Lai from Surpass Property Strategy Consultant. The Respondent's legal representative is Mr. Anthony Houghton and the expert witness, Mr. Ngai Chi-kong, Norman.

4. The basic approach adopted by the two valuation experts is more or less the same, i.e. by the use of Residual Valuation to assess the before and after resumption values of the Subject Lot and Lot 415. In ascertaining the value of the finished units on the Subject Lot and Lot 415, both valuation experts made references to the selling prices of comparable properties in the vicinity or nearby districts. Despite the above similarities in the basic approach, the two valuation experts' valuations diverged in many places. These divergence are set out with the Tribunal's comments as follows: -

Methodology

(a) The Applicant's Method

5. The Applicant's valuation expert is a bit weird in his format of claims. The claim for the land resumed made pursuant to S. 10 (2) (a) of the Land Resumption Ordinance is only confined to its garden land value. This garden land value is arrived at by multiplying the area of land resumed, which is 162.7s.m., by the unit rate of HK$12,000 per sq. m., producing a total land value of HK$1,952,400. The garden land unit rate is not supported by any sale evidence but a sheer view of the Applicant's valuation expert. His claim for the loss/damage due to severance is done by finding out the difference between the total development value before and after the resumption. To avoid duplication in his claim as he professed, the amount of garden land value is then deducted from the difference so as to arrive at the net amount of claim due to severance.

6. The Tribunal does not consider this method of calculation appropriate. The land taken is not a piece of land demised for sheer garden purpose. It is permitted to be built over and, therefore, it contains GFA (gross floor area). In accordance with the conditions set down under Government Notification No.364 of 1934 as amended by Government Notification No.50 of 1940, two third of the Subject Lot and Lot 415 is permitted to be built over and the rest for garden purpose. Buildings are permitted to be erected on the Subject Lot and Lot 415 up to two storeys. The equivalent plot ratio of the Subject Lot and Lot 415 based on this development parameter is hence 1.33. Even though it were to be with the agreement for compensation purpose from both parties that the resumed portion were to be sheer garden land, this consensus should be reflected in the development model adopted in the Before and After Valuations in its entirety. If that indeed be the case that it were to be sheer garden land, then this would mean more GFA on the remaining portion of the land not subject to resumption and would be disadvantageous to the Applicant as the development model adopted by the Applicant's valuation expert in his Before Valuation comprises a total GFA equivalent to a plot ratio already less than the maximum permitted under the conditions set down by Government Notification No.364 as amended by Government Notification No.50. This garden land assumption apparently is not with any agreement from the Respondent nor did the Applicant's valuation expert so assume that only garden land had been resumed. When the Tribunal examined his development model in the Before and After Valuation, the Applicant's valuation expert did assume a loss of GFA, i.e. 28 houses before resumption versus 26 houses after resumption. Therefore, the resumed land is not garden land but, as envisaged by the Applicant's valuation expert, with two houses. His such method of calculation gives rise to the question as to why the same piece of land which is permitted for both garden and building purposes should be separately valued and valued twice; one for garden and the other for building purpose.

7. The Tribunal finds it difficult to accept this method of calculation, as it will result in confusion and bias, regardless of whether it may or may not be more advantageous to the Applicant. In fact, the way he has adopted to calculate the compensation would unnecessarily boost the total amount of claim as demonstrated above

8. Resumption of part of the land of a lot in general would result in loss of development potential. The loss of part of the land would to some extent negate development design flexibility and reduce the advantage arising from economy of scale. As a result, there may be higher unit formation/construction cost and lower unit price receivable upon development for the finished units in relation to the original lot (or lots) before resumption. The greater is the proportion of land taken, the greater is the adverse effect (arising from severance) to the lot(s). In the present case, the adverse effect to the Subject Lot to be developed singly is much greater than when the Subject Lot is to be developed together with Lot 415. The Tribunal has noted that the land taken, which is 162.7 sq. m., is less than 10% of the total area of the Subject Lot together with Lot 415. In the opinion of the Tribunal, as supported by the decision in Golden hand Industrial Co. Ltd. Vs Director of Land and Survey [1979/80] LTLR 24, the adverse effect is minimal. Examining the Before and After Valuations prepared by the Applicant's valuation expert, the Tribunal does not find such adverse effect being reflected in the cost and price adopted as the cost and price adopted in both the Before and After Valuations remain unchanged. Though he has assessed the loss/damage due to severance as $3,416,000, this in fact is the value for the loss of GFA (or loss of building land) minus the garden land value only and is not the real loss/damage due to severance.

(b) The Respondent's Method

9. The Respondent's valuation expert has similarly calculated the compensation by way of the Before and After Valuation. The difference between the values of the Subject Lot (to be developed jointly with Lot 415) before and after resumption, in his view, is the amount of compensation that should be payable for both the loss of land and the loss/damage due to severance. This method would not lead to controversy as the loss of GFA (or loss of building land) and the elements affecting the cost and price due to the resumption can be reflected in the After Valuation in one go (instead of pursuing the calculations under two different sets of valuation: one for the loss of GFA and the other by way of the Before and After Valuation for loss/damage due to severance). In this regard, the Tribunal does not find the method used posing any problem.

10. Again, the Tribunal has observed that the Respondent's valuation expert has adopted the same unit rates of cost and price in his Before and After Valuation. This subconsciously signifies his opinion that the loss of a portion of land due to resumption does not pose any significant adverse effect to the development potential of the Subject Lot and Lot 415 (which is said to be developed jointly with the Subject Lot). Taking into account the manner the Applicant's valuation expert has displayed in respect of the cost and price in his Before and After Valuation, the Tribunal finds that the adverse effect of severance due to the resumption is negligible.

Development Model

(a) The Applicant's Model

11. The Applicant's valuation expert assumes that the optimum development model is by building New Territories Exemption Houses (hereinafter known as "NTEH(s)") but subject to the maximum plot ratio (i.e. 1.33) and development restrictions (i.e. not more than two storeys for each building and built over area at not more than two third of the area of the lot etc.) permitted/stipulated under Government Notification No. 364 as amended by Government Notification No. 50. With the support of another valuation expert, Mr. Albert SO, who professed himself with abundance of experience in dealing with applications for Certificates of Exemption for building NTEH when he was District Lands Officers of various New Territories districts, the Applicant considers that he is entitled to build NTEH design houses on the Subject Lot and Lot 415 and the grant of Certificates of Exemption under the Building Ordinance (Application to the New Territories), Chapter 121 ("the Building Ordinance") permitting the building of NTEH by the District Lands Officer is a matter of course. The Applicant is also of the view that based on s. 9 of the same Building Ordinance, the District Lands Officer is prohibited to impose any additional conditions in the Certificate of Exemption such as the condition providing for compliance with the Town Planning Ordinance or the zoning requirements under the Outline Zoning Plan in force. On all these premises, 28 NTEHs can be built before resumption and only 26, after the resumption resulting in a loss of GFA of about 214.76 sq. m. (i.e. area resumed x plot ratio). This Tribunal does not accept the Applicant's such submission because s.9 provides that the Director may issue a Certificate of Exemption subject to such conditions relating to safety and health or such other reasonable conditions as he may impose and any such conditions shall be recorded on the Certificate of Exemption.

12. The Tribunal considers that given the decision in Rita Enterprise Ltd. Vs District Lands Officer, Tai Po [1996] 4HKC 410, it is quite clear that the District Lands Officer may include additional conditions in the Certificate of Exemption notwithstanding the Applicant's dispute regarding the interpretation of s.9. Non-compliance of the additional conditions will automatically render the Certificate invalid. In fact, the Certificate of Exemption grants exemption from the Building Ordinance, but grants no exemption from the Town Planning Ordinance, Chapter 131. As the Applicant's second witness, Mr.Tse, has also opined in his reply to Mr. Houghton (the Respondent's counsel), building NTEH within the Zone R(C) of the Outline Zoning Plan applicable to the Subject Lot and the adjoining Lot 415 D. D. 399 without the approval from the Town Planning Board, would be a breach of the Town Planning Ordinance, Chapter 131. The Tribunal has also noted that NTEH is neither a Column 1 (refers to developments always permitted) or 2 (refers to developments that may be permitted subject to conditions to be imposed by the Town Planning Board) development envisaged by that concerned Outline Zoning Plan. Therefore, Mr. Tse's admission is correct and in accordance with s.16(1)(d) of the Buildings Ordinance, Chapter 123.

13. The Tribunal also does not consider that the site topography should pose real engineering problem to site formation (it is so considered by the Respondent that it would). As advised by the Applicant's architects, the difficult terrain can be overcome at a cost. The Tribunal shares this view.

(b) The Respondent's Model

14. The Respondent's valuation expert simply sets his development model following strictly the development restrictions for Zone R(C), i.e. 0.4 plot ratio, site coverage at 20% and buildings at not more than two storeys. Though he has prepared a valuation on NTEH basis, it is only a fallback valuation. He does not wish to rely on it for assessing the compensation.

15. The Respondent's valuation expert obviously has adopted the correct development model for assessing the compensation. Not only in reality the Applicant needs to follow the Zone R(C) development parameter strictly (if he indeed wishes to develop), but he is also needed to take into account the prevailing zoning under the Town Planning Ordinance, Chapter 131, as provided under s. 12 (aa) of the Land Resumption Ordinance, Chapter 124, when pursuing the compensation assessment. Under s.12 (aa) of the Land Resumption Ordinance, residential zoning is not one of the classes of land use zones that are to be ignored in assessing the compensation. As regards s.12(c) of the same Ordinance, the Tribunal is aware that this is also the concern of the two parties following CFA's recent decision on the Nam Chun Development Limited v. Secretary for Justice: FACV Nos. 2 & 3 of 2002 (Consolidated). The Tribunal is of the view that it has no effect on the subject case as the Applicant does not need a lease modification to re-develop the Subject Lot at the Zone R(C) plot ratio and site coverage, which are much lesser than those permitted under the lease conditions.

Comparables and Adjustments

The Applicant's Comparables

16. The Applicant's valuation expert has chosen high-rise residential flat prices for the purpose of assessing the gross development value. This, in the view of the Tribunal, is not appropriate. It is difficult to conceive that one would be expected to pay high-rise flat price for houses with garden and parking space(s). What has caused more concern is that the proposed buildings on the Subject Lot and Lot 415 are NTEH design, which are normally sold at a different price level and built at a different cost. The Tribunal, therefore, does not feel the need to analyse these comparables.

The Respondent's Comparables

17. The Respondent's valuation expert has provided 11 comparables. All are low density house sales along or within minutes walking distance from Castle Peak Road with the exception of one (i.e. Comparable 3) which is not by the side of Castle Peak Road but Route Twisk of Tsuen Wan. The Tribunal has grave doubt that Comparable 3 does have sea-view. Even if there were, it might be partially blocked by high-rise town buildings. Of the rest 10 comparables, the sea-view of the three located on the fringe of Tuen Mun Town (i.e. Comparables 9, 10 and 11) are likely to be blocked by another low-rise development located in between the Comparables' development and the seaside, which is of similar scale and at more or less the same formation level. As sea-view is an important aspect in the price payable for house type development, any attempt to adjust the prices of properties without sea-view to arrive at the value of property with sea-view may contain high risk of error. Since there remain 7 comparables suitable for valuation purpose, these 4 comparables should better be discarded.

18. The Respondent's valuation expert has also made price adjustment for difference in size between the proposed house and comparables. The Tribunal does not find this necessary as the sizes of comparables are within the range of 127 sq. m. to 158 sq. m. (whereas the size of the proposed houses on the Subject Lot and Lot 415 is 150/159 sq. m.). The deviation from 150/159 sq. m. does not, in the Tribunal's view, warrant any price adjustment.

19. The Tribunal finds that the adjustment made for ancillary facilities is questionable. Not only the difference between the comparables and the proposed house has not been precisely outlined, the full list of appropriate ancillary facilities has also not been provided. Due to the fact that these are all low-density house developments, space is not a problem for such to be provided in full if such does attract a price. Accordingly, the Tribunal considers that such adjustment may not be necessary.

20. The Tribunal has the following comments on the amounts of adjustment made by the Respondent's valuation expert under the following headings: -

(a) Adjustment for Time

The Tribunal has no objection to the percentage adopted as it is worked out following the Rating and Valuation Department Property Indices.

(b) Adjustment for Building Age

The Tribunal does not feel it necessary to adjust just for sake of the building age, but rather, it should take into account the building conditions. For an older building with proper maintenance, it very often can withstand weathering and remains in good condition than one in lack of maintenance. Therefore, the adjustment made should reflect the building condition and maintenance quality as well. From the evidence provided by the Respondent's valuation expert, the Tribunal considers that the conditions of Comparables 1 and 2 are not much below the standard of a new building despite the development in which Comparables 1 and 2 are located, being 6 years old. The Tribunal adopts only +1% for adjustment. As to the rest, the Tribunal agrees with the valuation expert's recommendations.

(c) Adjustment for Sea-view

The Tribunal does not find it necessary to adjust for Comparables 1, 2, 4, 5 and 6. Whether one can see the Ching Ma Bridge or the Ting Kau Bridge does not matter so long as there is the sea-view and such sea-view does not arouse uncomfortness. The Tribunal, however, agrees with the valuation expert's adjustments for Comparables 7 and 8 which sea-view might to some minor extent be affected by some other houses within the same development and a public road.

(d) Adjustment for Location

In respect of the value of location, factors such as tidiness of the neighbourhood, compatibility of land use on the nearby sites, tranquillity, proximity to facilities and services, accessibility to places of work and entertainment etc should normally be taken into account (the valuation expert did not list out these factors in his report). The valuation expert, however, specifically cited the factor of proximity to beach. At the same time, the traffic noise and privacy factors are each separately given adjustments. Therefore, the adjustment given for location is obviously only confined to the rest above. As to the factor of proximity to a beach, it is actually a double-edged sword. It gives rise to the advantage of being proximate to a facility but at the same time, it may give rise to the disadvantage of noise from users. On this premise, the Tribunal considers that the percentage of adjustment should be 0%, 0%, -10%, +10%, +10%, +15% and +15% in the order of Comparables 1, 2, 4, 5, 6 7, and 8.

(e) Adjustment for Communal Facilities

As the scale of development of Comparables 1 and 2 is similar to that on the Subject Lot and Lot 415, the Tribunal prescribes only 0% for both comparables. As regards the rest adjustments, the Tribunal agrees with the valuation expert.

(f) Adjustment for Traffic Noise

The Tribunal considers that the valuation expert's adjustments are justifiable.

(g) Adjustment for Privacy

The Tribunal also accepted the valuation expert's adjustments except those for Comparables 7 and 8, which the Tribunal considers should be 0% as the development on the Subject Lot and Lot 415 would not seem to be much better off than the said two comparables.

The Tribunal has no adverse comment on other valuation factors adopted by the valuation expert, such as the construction cost, period of construction, yield rate, percentage of developer's profit, and site clearance cost etc. As the prices of the 7 comparables are payable for house together with garden and car parking spaces, the loss of garden land value due to the resumption has been reflected in the valuation. A revised table of adjustments is appended for easy reference: -

Valuation

21. After adjustment, the highest value is 22.5% above the lowest. The highest value nevertheless, is only greater than the next below it by $2,000 (less than 4%) and the lowest is only by $400 (less than 1%) smaller than the next above it. This value pattern leads to no conclusion that any of the 7 values is anomalous and should be discarded, or the best that should be singled out for valuation purpose. As such, it is advisable to take the average of them, which is $51,000/ sq. m. for valuation.

(a) Before Valuation

(b) After Valuation

(c) Compensation Assessment

Say, $1,530,000

22. The Tribunal does not consider justified the claim for the cost of development plans prepared in 1995, which were rendered abortive. The development plans prepared in 1995 were inhibited from implementation by the inception of the Outline Zoning Plan on 27th July 2001. Had there been no resumption, the development plans of 1995 should have been amended to accord with the planning requirements under this Outline Zoning Plan before re-development can legitimately be proceeded.

Order

The Tribunal hereby order that the Respondent shall pay the Applicant HK$1,530,000 as the compensation for resumption of a portion of the Subject Lot. The matters of professional fees, interest and costs be adjourned to a date to be fixed by the Assistant Registrar, with liberty to apply for any other ancillary and consequential matters.