Secretary for Transport v. Leung Ka Tong and Another

LDRW 13 OF 2001

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

RAILWAYS ORDINANCE APPLICATION NO. 13 of 2001

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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 the amount of compensation payable to the Respondents for land resumed under the Railways Ordinance (Cap. 519) ("the Ordinance"). The Respondents were the former registered owners of Unit 8 on 2/F of Block B, Wah Kai Industrial Centre, No. 221 Texaco Road, Tsuen Wan, New Territories ("the Property").

2. The scheme for the construction of West Rail (Phase 1) was gazetted on 3 October 1997 pursuant to Section 6(4) of the Ordinance. The objections, including one from the Incorporated Owners of Wah Kai Industrial Centre ("Wah Kai"), were subsequently heard. The West Rail scheme was authorised by the Chief Executive in Council on 22 September 1998. On 30 June 1999, the notice of resumption of Tsuen Wan Inland Lot No. 53 Remaining Portion on which Wah Kai was built was affixed on site on 30 June 1999 and gazetted on 2 July 1999. The reversion date was 2 October 1999.

3. According to Section 32 of the Ordinance, the Respondents' right to compensation in respect of the resumption of land is the right to recover from the Applicant a sum to be assessed on the basis "as if the claim were made under the Lands Resumption Ordinance (Cap. 124) for land resumed under that Ordinance". Section 10 of the Lands Resumption Ordinance provides for the rules for determination by the Lands Tribunal of compensation payable by the Applicant.

4. The Applicant made a pre-reversionary offer to the Respondents on 26 July 1999 for full and final settlement of all claims in respect of the Respondents' interests in the Property but the Respondents did not respond. After the reversion, the Applicant made another similar offer to the Respondents on 15 October 1999. The Respondents did not accept the offer but agreed to a provisional payment. The Respondents via their agent submitted on 28 April 2000 a compensation claim in the sum of $1,309,000 excluding professional fees. On 12 July 2000, the Applicant requested the Respondents' agent to furnish more relevant information and evidence to substantiate their claim under Section 34(4) of the Ordinance but to no avail. As a result, the Applicant on 21 September 2000 rejected the claim in its entirety. On 5 July 2001, the Applicant applied to the Lands Tribunal to determine the amount of compensation for the Property and disturbance under Section 34(7) of the Ordinance. On 30 August 2001, the Applicant applied to list the case for hearing.

5. Prior to the hearing, the Respondents claimed the following:-

Heads of claims	Amount
(a) Open Market Value of the Property	HK$791,600.00
(b) Loss of Respondents' fixtures	HK$161,020.00
(c) Expenses incurred in acquiring alternative premises	HK$9,430.00
(d) Interest	to be assessed
(e) Professional fees	to be assessed

6. During the hearing, the Respondents amended item (a) of the claims, the open market value of the Property, to HK$858,859.20. The Respondents agreed not to pursue item (b) and did not call any evidence in respect of the same. The Respondents and the Applicant agreed that the Applicant would pay compensation for item (c) in the sum of $9,430.00. The Respondents further asked the Tribunal to reserve its decision for items (d) and (e). Therefore, the only issue left for the Tribunal to determine is the amount for item (a), namely the open market value of the Property.

The Property

7. The Property was one of the thirteen industrial units on the 2nd floor of Block B of Wah Kai. It was one of the lower floor units (G/F to 3/F) of Wah Kai, which had a higher headroom and a higher loading capacity than most of the other upper floor units (4/F to 26/F), each having a ceiling height and loading capacity of 10 ft. 8 in. and 150 lb. / sq. ft. respectively. The parties agreed that the saleable area of the Property was 84.6 sq. m., with a ceiling height of about 4.70 m (about 15.42 ft.) and loading capacity of 1,250 kg / sq. m. (250 lb/sq. ft.). There was no dispute that Wah Kai was an industrial building subject to the Government Lease of Tsuen Wan Inland Lot No. 53 and the user covenant of the same was for industrial purposes. According to the Respondents, the Property was owner-occupied before the resumption. It was also agreed that the date of valuation of the Property was the date of resumption, namely 2 October 1999.

Summary of the parties' valuation

8. The Applicant and the Respondents respectively called for the expert evidence of Chartered Surveyors, Mr. Pang Ho Chuen Lawrence ("Pang") and Mr. Tam Fung Cheung ("Tam"). Both experts carried out valuation by employing the same direct comparison method, and the basis of valuation was the same, i.e. on " existing use" with the benefit of vacant possession.

9. Pang identified and analysed 11 comparables in 5 buildings for the purpose of his valuation. He made adjustments to the comparables to allow for the differences in location, accessibility for container vehicles, loading facilities, lift facilities, internal toilet, floor level, ages and floor area. The resulting adjusted unit rates ranged from $5,068 to $7,671 per sq. m., or an average of $6,507 per sq. m.

10. As a check, Pang carried out an analysis of the historical sales of the few lower floor units in Wah Kai that took place between 1996 and 1999. Pang opined that the sale transactions in Wah Kai after 1997 were unreliable because by then resumption was well known and therefore, the transactions might be affected by speculation. Pang calculated that, after adjustment, the sale of Unit 9, 3/F, Block B of Wah Kai on 2 May 1997 show a unit rate of $5,791 per sq.m. Pang suggested that this figure provided a better guidance of the open market value of the Property at the valuation date. Pang further concluded, "Even allowing for the improvement of the road network surrounding Wah Kai and the opening of the new airport at Chek Lap Kok by as much as 15% (but without discounting the time despite the industrial property market was on a downward trend), the result should be around $6,600 per sq. m." In the final analysis, Pang valued the Property by applying the unit rate of $6,600 per sq. m. to the saleable area of 84.6 sq. m. He rounded off the value to the sum of $558,000, which was equated to a unit rate of $6,596 per sq. m.

11. On the other hand, Tam, after amending his adjustment calculations during the hearing, valued the Property in the sum of $858,859.20 (based on an adjusted unit rate of $10,152 per sq. m. and see page 75A of Exhibit AR-1), which was based on an analysis of 27 comparables in 7 comparable buildings.

12. As a check, Tam also sought to analyse the differences in values of industrial units of ceiling height of about 14 ft. to 15 ft. and high loading capacity and values of other industrial units in the same buildings of normal ceiling height of about 10 ft. to 11 ft. and normal floor loading capacity. Based on the analysis as presented in his examination-in-chief (i.e. Exhibit R-7), Tam opined that a substantial premium in the order of about 30% existed for industrial units of higher ceiling height and higher loading capacity. The Respondents submitted in the final submission that the 30% premium, as opined by Tam and evidenced by Tam's analysis, should be adopted as a good guide for checking the final value estimates. On that basis, the Respondents submitted that even if the basic rate of $6,007 per sq. m. as decided in Poon Chi Man's case was adopted as a basis for an alternative check (after adjustment for floor level but before adjustment for ceiling height and loading capacity) and after applying the said 30% premium, the resulting figure of $8,160 per sq. m. suggested that Pang's estimated value at $6,596 per sq. m. was unreasonably low. For this reason, the Respondents submitted that Tam's opinion of value at $10,152 per sq. m. as modified at the hearing should be adopted.

Selection of comparables by the expert surveyors

13. Pang and Tam considered and selected their comparables from a number of industrial buildings in Tsuen Wan and Kwai Chung districts with ceiling height and loading capacity similar to the Property. Both of them identified and adopted some common comparables from two buildings, viz. Hi-Tech Industrial Centre (Blocks A and B) ("Hi-Tech") and Thriving Industrial Centre ("Thriving"). Pang further relied on some transactions in three other buildings that were not used by Tam. They were Tsuen Wan International Centre ("TWIC"), Leader Industrial Centre ("Leader") and Sun Fung Centre ("Sun Fung"). On the other hand, Tam also relied on some transactions in the following five buildings, which were not used by Pang: Lucida Industrial Building ("Lucida"), Juko Tower or TCL Tower ("Juko Tower"), Cheung Fung Industrial Building ("Cheung Fung"), Technology Plaza and Yue Fung Industrial Building ("Yue Fung").

14. Counsel for the Respondents, Mr. Simon Lui, has summarised in Attachment 1 of his Final Submission the comparables used by both Pang and Tam. Altogether, Pang analysed a total of 11 comparables (described by Mr. Lui as AC1 to AC11) in his valuation report (Exhibit AR-1, page 47) whilst Tam analysed a total of 27 comparables (described by Mr. Lui as RC1-1 to RC7-1) in Tam's report (Exhibit AR-1, page 75). For ease of reference, Mr. Lui's numbering of the parties' comparables will be adopted in this Judgment.

15. In between Pang and Tam, a total of 34 comparable transactions of industrial units were analysed. There were only four common comparables: AC4 (or RC4-5), AC5 (or RC4-4), AC6 (or RC4-1) and AC11 (or RC2-1). The first three common comparables were transactions in Hi-Tech while the fourth comparable was a transaction in Thriving. Next, we will consider which comparables are not suitable for the valuation of the Property, leaving only the most relevant comparables for further analysis later.

Comparables in Hi-Tech

16. Hi-Tech is a common comparable building, located in between Pak Tin Par Street and Castle Peak Road, at the industrial area in Western Tsuen Wan. The Respondents submitted that in addition to the three common comparables, more comparables (i.e. RC4-2, RC4-3 and RC4-6) should be used. On the other hand, the Applicant submitted that these should be excluded. Instead, another comparable (AC3) should be included in the list of appropriate relevant comparables. We will consider these comparables one by one before deciding whether to discard any of them or otherwise.

17. As there was no dispute between the parties on the admissibility of Comparables AC4(RC4-5), AC5(RC4-4) and AC6(RC4-1) as comparables for the valuation of the Property, they are accepted as appropriate comparables.

18. Pang stated in his report that Comparable RC4-3 was not a transaction at arm's length and should be disregarded because one of the vendors is the purchaser. Pang also reported that Comparable RC4-6 was purchased by the owner of Units 4 & 5 on 2/F of Hi-Tech, which was located on the opposite side of the corridor. Pang opined that Comparable RC4-6 should be excluded since the purchaser was a "special purchaser", one who would be willing to pay a higher price in order to centralize its operation on the same floor. In addition, Pang submitted that Comparables RC4-2, RC4-3 and RC4-6 should all be excluded from consideration because they all had attached fully enclosed flat roofs, each having an area larger than that of the unit. Since the Property in Wah Kai did not have any flat roof, Pang submitted that these three comparables should not be taken into consideration in order not to distort the comparison process. In this regard, we agree with the Applicant that in view of the reasons aforesaid, Comparables RC4-2, RC4-3 and RC4-6 should be excluded for consideration.

19. In addition, Pang stated that Comparables AC-7 and AC-8 should not be ignored since the vendors and the purchasers were unrelated parties. The Applicant submitted that although the two units were purchased as part of one transaction, the two comparables should not be excluded because it was not, as alleged by Tam, a "bulk" transaction. The total transaction price only added up to $1,238,000. We agree with the Applicant that Comparables AC-7 and AC-8 should not be discarded. However, since the two units concerned were purchased as part of one transaction, they should be treated as one comparable in the analysis.

20. Therefore, for Hi-Tech, the following comparables were considered to be appropriate: AC3, AC4(RC4-5), AC5(RC4-4), AC6(RC4-1), and AC7 & AC8 joined together. The appropriate adjustments to be applied to these comparables will be considered later below.

Comparables in Thriving

21. Thriving is another common comparable building. It is also situated at Sha Tsui Road in the same industrial area in Western Tsuen Wan as Hi-Tech, with vehicular ingress and egress points abutting Sha Tsui Road. Pang agreed to include RC2-1, which was the same as his AC11. He opined that contrary to RC2-1, which was close to the date of valuation, RC2-2 should be excluded since it was transacted almost one year apart when the market would be different. We agree.

Comparables in TWIC

22. TWIC is a purpose-built godown building located at the corner of Wang Lung Street and Lung Tak Street, close to Wah Kai. The parties agreed that the Government Lease for TWIC in fact allowed the building to be used for industrial purposes (subsequently amended to "industrial or godown purpose or both"). The restriction in user to godown was only introduced in the Deed of Mutual Covenant of TWIC.

23. Pang suggested that because of the modern age and design of the building, TWIC would not have been a good comparable to Wah Kai. Pang however decided to include the transaction of comparable AC1 in TWIC because he found that the building was within close proximity to Wah Kai and that sales of industrial premises with high ceiling height and loading capacity were relatively limited.

24. The Applicant submitted that bearing in mind that storage accounted for more than 50% of the user in Wah Kai at the relevant time, it would be appropriate to use a purpose-built godown building as a comparable for the Property. The Applicant also submitted that "greater flexibility in user does not mean greater value of the property because one could easily find oneself with a noxious neighbour next door... Restrictions were often introduced in DMC with a view to enhancing the value of the Property."

25. Tam opined that AC1 was not a suitable comparable because TWIC was a purpose-built godown building, restricted to godown use, whereas Wah Kai was an industrial building. The Respondents submitted that given the above reason, it would be unsafe to use this comparable for the valuation of the Property (as it would be difficult for adjustment and neither expert suggested any adjustment) and it would be absolutely unnecessary as well. We agree with Tam's opinion and the Respondents' submission that this comparable should be excluded in the present valuation.

Comparables in Leader

26. Leader is located at Lung Tak Street, next to TWIC and close to Wah Kai. The Applicant submitted that whether AC2 was an out of range comparable should not be decided by reference to the after-adjusted rates of Tam's comparables. Instead, if AC2 was compared with the Comparables first chosen by Pang (Exhibit AR-1, page 47), its adjusted unit rate of $5,068 was only 23% below the overall average of $6,507 for all the comparables of Pang. By comparison, Pang's comparable fetching the highest unit rate (i.e. Comparable AC10), at $7,671 was 18% above the overall average of $6,507. So, Pang submitted that it could hardly be said that AC2 was "grossly out of line".

27. Tam on the other hand submitted that based on his comparables and adjustments, Comparable AC2 was grossly out of line and should be rejected. Since it depends on the final choice of comparables and the results of the analysis of those comparables before we could decide whether AC2 should be discarded for being out of range with the rest of the comparables, we decide to keep this comparable in the list for the time being.

Comparables in Sun Fung

28. Pang included in his valuation two comparable transactions, Comparables AC9 and AC10 in Sun Fung. Sun Fung was situated at the junction of Kok Shui Road and Cheong Wing Road, in the Northern outskirts of Kwai Chung industrial area. Pang opined that the location of Sun Fung was relatively isolated and was considered to be slightly inferior to that of Wah Kai.

29. Tam did not object to the use of Comparables AC9 and AC10 in Sun Fung. However, he suggested that a much higher upward adjustment would be required to reflect the differences between the ceiling height of the two comparables (at 12 ft. 8 in. ) and the Property (at 15 ft. 5 in.). The adjustment of +6% adopted by Pang was considered by Tam to be inadequate.

30. It is difficult to estimate the appropriate adjustments to reflect the difference in headroom of the two comparables and the Property. Otherwise, we might as well adopt the valuation for the basis unit of Wah Kai (as decided in Poon Chi-man's case) and simply apply appropriate adjustment for headroom to arrive at the value for the Property. Therefore, in light of the large differences in the ceiling heights of AC9 and AC10 in Sun Fung and the Property, we decide against adopting the said comparables as appropriate comparables for the valuation of the Property.

Comparable in Lucida

31. Tam gave evidence that he had attempted to look for suitable comparables within the six industrial buildings, all close to Wah Kai and considered by the Tribunal in Poon Chi Man's case. However, although two of these buildings, Po Yip Building ("Po Yip") and Lucida contained units with high headroom and loading capacity at the first and second floor levels, there was no transaction of such units in Po Yip around the relevant valuation date whilst for Lucida, he found a comparable transaction (RC1-1) that took place on 1 December 2000. Tam stated in his valuation report (Exhibit AR-1, page 59) dated 23 March 2002 that "Despite the fact that this transaction being some 12 months away from the relevant date (i.e. 2 October 1999), it is submitted, it is nonetheless a useful comparable in view of the property market had remained quite stable during the period since 2 October 1999 until the date of S & P on 1 Dec. 2000." He sought to support this assertion by reference to the Rating and Valuation Department - Index of Property Values at Annex I of his report.

32. Notwithstanding Tam's opinion as stated above, the Respondents accepted in the final submission that RC1-1 "was not a transaction close in time with relevant date and could be excluded for the valuation."

33. Pang commented that since RC1-1 contained a fully enclosed flat roof, the assumption made by Tam that the value of the flat roof be equated to 1/10 of the value of the unit was inadequate. Pang suggested that a more appropriate ratio of 1/3 be adopted to reflect the value of the enclosed flat roof, regardless of whether the enclosure was unauthorized. He based this on the unreported judgement of Cheung J. (as he then was) in Leung Man Cheung and Others v. Secretary for Planning and Lands and Another, HCAL 274, 375-382, 390-394, 396, 900-904, 906, 907, and 909-915 of 2000, page 40: "All that the tribunal was concerned with was how the price of a property used as a comparable could be affected by the presence of (an unauthorised structure)." On that basis and based on a different area as quoted by the developer of Lucida, Pang re-calculated the unit rate of RC1-1 as $8,073 per sq. m. More importantly, Pang pointed out that the transaction of RC1-1 took place some 14 months after the valuation date of the Property and that the adjustment made by Tam might not reflect the market conditions as at the relevant date. Furthermore, the index quoted by Tam was not the price index for flatted factories as compiled by the Rating and Valuation Department.

34. Whilst it is appropriate to consider relevant comparables of high headroom and loading capacity, similar to the Property, in Lucida or indeed in any other industrial building similar to Wah Kai, we do not agree that we should accept a comparable in Lucida such as RC1-1 that was transacted some 14 months away from the valuation date of the Property. The principle of finding comparables that are close to the relevant valuation date should generally be adhered to. It is only when such comparables are not available then the Tribunal is prepared at times to extend the search to include transactions that are further away from the relevant valuation date. In the present case, we find that there are clearly so many other relevant comparables with transaction dates close to the valuation date of the Property that we should not extend the time frame unnecessarily to include RC1-1, notwithstanding that it is located in one of the comparable buildings considered in Poon Chi Man's case. We therefore agree with the parties that RC1-1 should be discarded.

Comparables in Juko Tower (TCL Tower)

35. Juko Tower (TCL Tower) is located at the junction of Pak Tin Par Street and Tai Chung Road near the latter's junction with Castle Peak Road in Western Tsuen Wan. Pang did not consider this building to be comparable to Wah Kai.

36. The Respondents disagreed with Pang and considered this building to be a suitable comparable building as the Respondents found that there was no proper and reasonable ground to suggest that it was not a suitable building.

37. Pang commented that it was very undesirable to include redundant sales in several similar buildings in a different locality from that of Wah Kai. If the adjustment for location turned out to be wrong, the inclusion of several comparable buildings in the same locality would skew the comparison analysis process. In the present case, we do not find the possible shortcoming material simply because it is far more important to have sufficient number of comparables in comparable buildings.

38. We had the benefit of viewing this comparable building and the study of the user distribution of units in the building. Having considered these factors, and after taking into account the location of the building, we agree with the Respondents and decide to use the comparables in this building for the valuation of the Property because of the shortage of comparables of high ceiling height and loading capacity, even though this building may not be an ideal comparable building.

Comparables in Cheung Fung

39. Cheung Fung was located next to Hi-Tech in between Castle Peak Road and Pak Tin Par Street, in an industrial area in Western Tsuen Wan. Pang raised no objection to the inclusion of comparables in Cheung Fung for this valuation. He suggested that if sales within Cheung Fung were to be included as comparables for Wah Kai, his adjustments would be the same as those he applied to Hi-Tech. Also, Pang opined that since both Hi-Tech and Cheung Fung were situated in a locality different from Wah Kai, the adjustment for location would be more subjective and that the inclusion of "redundant" sales in a different locality would skew the comparison analysis process.

40. The Respondents submitted that there were no proper and reasonable grounds to suggest that the comparables in Cheung Fung were not suitable. We agree with the Respondents and fail to understand why comparables in Cheung Fung should not be included just because the building is located not so close to Wah Kai thus requiring adjustment for location. Also, we do not agree that since Hi-Tech has already been included as a comparable building, Cheung Fung should not be included in order not to "skew" the comparison analysis process. Therefore, all the four comparables in Chung Fung quoted and analysed by the Respondents (i.e. RC5-1 to RC5-4) will be analysed below.

Comparables in Technology Plaza

41. Technology Plaza was located in between Pak Tin Par Street and Sha Tsui Road, opposite Hi-Tech and Cheung Fung on one side and Thriving on the other side. Pang pointed out that of all the transactions in Technology Plaza quoted by Tam, only one unit, Unit 6 on 3/F (Item 10 in page 72, Exhibit AR-1)) was a unit with high headroom and high loading capacity. However, for that case, the areas quoted by Tam as the areas of the unit and the ancillary flat roof were both incorrect. In any event, Tam did not choose to include the transaction of this unit as a comparable.

42. The Applicant submitted that the inclusion of comparables in Technology Plaza by Tam was inappropriate as the ceiling height and loading capacity of the units were quite different from the Property but resembled those of the higher floor units of Wah Kai.

43. We find that the comparables used by Tam (RC6-1 to RC6-6) were all of headroom of 12 ft. 6 in. and loading capacity of 156 lbs / sq. ft. We therefore cannot understand why these comparables were considered by Tam to be appropriate comparables for the Property, which has headroom of 15 ft. 5 in. and loading capacity of 250 lb. / sq. ft. Indeed, as rightly pointed out by the Applicant in the Applicant's Opening, if one were able to easily estimate the appropriate adjustments for headroom and loading capacity (as Tam had done in his analysis of his comparables RC6-1 to RC6-6), one might as well adopt the valuation for the basis unit in Poon Chi Man's case and apply these estimated adjustments for the differences in headroom and loading capacity to arrive at the value of the Property. To sum up, we decide that there is no merit in considering Tam's comparables (i.e. RC6-1 to RC6-6) in Technology Plaza.

Comparables in Yue Fung

44. Yue Fung is located at Chai Wan Kok Street in an industrial area in Western Tsuen Wan. Pang opined that the sale price of RC7-1 was obviously out of range with other sales quoted in both his and Tam's valuation reports. Also, it included a flat roof larger in size than the unit itself and the adjustment for the flat roof by Tam was inappropriate. The Applicant therefore submitted that RC7-1 should be excluded.

45. Tam did not consider it appropriate to discard his Comparable RC7-1 in Yue Fung even though it was obviously out of range by any standard. The adjusted unit rate of $14,667 was 44% above his overall average adjusted unit rate of $10,152 for all his comparable buildings (Exhibit AR-1, page 75A) or 56% above the average of $9,401 for his comparable buildings excluding Yue Fung. However, the Respondents in the final submission accepted that RC7-1 had a flat roof, making the unadjusted unit rate of $13,916 very much on the high side. The Respondents also accepted in the final submission that, given that other suitable comparables could be used, RC7-1 should be excluded for the valuation. We therefore decide to discard this comparable.

46. Based on our above findings and conclusion, we summarise below all the comparables that are considered to be appropriate comparables for the valuation of the Property:-

Table 1

47. Apart from AC2, all the comparables are situated in an industrial area in Western Tsuen Wan, an area commonly known as Chai Wan Kok Street area.

Adjustments of comparables

48. Despite some adverse comments from Pang, both experts agreed that the adjustment factors adopted by the Tribunal in Poon Chi Man's case are to be applied in the present valuation. As a result of this agreed approach, we find that the experts' adjustments to the comparables, with exception of the adjustments on location and facilities of the comparable buildings, are generally within reasonable range of each other.

49. On the whole, we find that the adjustments adopted by Pang are more rational and logical than those adopted by Tam. For instance, before Tam amended his adjustment sheet (Exhibit 75 of Exhibit AR-1), his adjustments for headroom and loading capacity for the comparables were not consistent with each other. Also, we agree with the Applicant that Tam applied double standards when considering whether the price of a comparable transaction is "out of range". He steadfastly refused to exclude the one transaction in Yue Fung (Comparable RC7-1) even though its adjusted unit rate of $14,250 was over 40% of the overall average of his comparables (Exhibit AR-1, page 76). This comparable must be out-of-range by whatever standard. On the other hand, he chose to exclude a transaction of Cheung Fung (Item 3 page 68 of Exhibit AR-1) for the reason that its unit rate (at $5,900) was only 25% below that of item 4 (at $7,828).

50. Therefore, we decide in general to adopt the adjustments for buildings as suggested by Pang in his valuation. The only amendments that we made are in respect of the quantum of adjustment for location even though we agree with Pang in the direction of adjustment. Also, in view of the minor differences in the adjustments for individual units, in cases where Pang had not provided the adjustment figures, we decide to adopt the figures put forward by Tam in his revised adjustment sheet (Exhibit AR-1, page 75A). On this basis, we sum up below the adjustments of various comparables that had been chosen by us as appropriate:-

Table 2

51. In the analysis in Table 2, we consider that in respect of the location factor, a -5% adjustment is appropriate for all the comparables in Hi-Tech, Thriving and Cheung Fung, while for Juko Tower which enjoys a better location, a -15% adjustment is warranted. In arriving at this estimate, we have had the benefit of our physical inspection of the locations of these comparable buildings vis-à-vis Wah Kai. For other adjustments for buildings (i.e. ages and other factors - accessibility for container vehicles, loading facility), we adopt Pang's estimates in his valuations. As for the adjustments for individual units (i.e. adjustments for floor, size, internal toilet, time, ceiling height and loading capacity), we have also adopted Pang's estimates. However, since Pang did not provide his estimates for individual comparables in Cheung Fung and Juko Tower in respect of adjustments for individual units, we have adopted Tam's estimates.

52. After we arrive at the total adjustments for each comparable, we set out and calculate in Table 3 below the adjusted unit rate for each comparable and the average of comparables in each building, where appropriate:-

Table 3

Out of range comparable

53. As aforesaid, we will decide whether the comparable in Leader is out of line only after we have analysed all the appropriate comparables. As we have summed up in Table 3 above, we find that the average unit rate of the comparable in Leader is obviously out of line with the average after-adjusted unit rates of comparables in the other 4 buildings, Hi-Tech, Thriving, Juko Tower and Cheung Fung. Therefore, we decide that the comparable in Leader should be discarded in order not to skew the result, in line with the usual approach in valuation. In the circumstances, the average of the average unit rates for comparables in Hi-Tech, Thriving, Juko Tower and Cheung Fung is calculated. This average figure, at $7,332, is also found to be very close to the average of all individual comparables, excluding the one in Leader.

Valuation of the Property

54. We decide that it is appropriate to apply the average of the average unit rates for comparables in Hi-Tech, Thriving and Cheung Fung to the saleable area of the Property in order to arrive at the open market value of the Property, as follows:-

Adopted average unit rate from the comparables	$7,332
Saleable area of the Property (in sq. m.)	X ____84.6
Estimated open market value of the Property	$620,287

55. We have also given some thoughts to the alternative approaches considered by Pang and Tam in their valuation reports. Although it is the best method of valuation if direct comparable sales of industrial units of the same ceiling height and loading capacity in Wah Kai are available, the scarcity of sales and the effects of resumption on the sale prices lead us to decide that it is inappropriate to consider the historical actual transactions of units in Wah Kai. The countercheck valuation suggested by Pang is not very useful because it relies on one particular transaction.

56. We have also considered the alternative valuation carried out by Tam adopting his estimated 30% premium to account for higher ceiling height and loading capacity. Although Tam carried out an analysis of values of similar industrial units in the same buildings with different ceiling height and loading capacity, the results of his analysis were not very consistent and hence could not be relied upon to justify for an adjustment of 30%.

Final reconciliation of value

57. Therefore, we find that the alternative valuations do not assist us in this valuation. We come to the conclusion that the open market value of the Property should best be based on the results of the analysis and adjustments of the appropriate comparables as set out before. On that basis, we determine the open market value of the Property to be $620,287.

Guidelines

58. At the hearing, Counsel for the Applicant invited us to give some guidelines for the percentage of increase in values for certain fixed quantum of increase in ceiling height and loading capacity. We do not find it appropriate at all to give such guidelines. The best method for valuation is still the direct comparison method. We do not think that it is desirable to have a shortcut in valuation by giving the guidelines as suggested.

Orders

59. Accordingly, we order that the Applicant do pay the Respondents compensation for the Property in the sum of $629,717, a break-down of which is as follows:-

(a)	Open Market Value of the Property	HK$620,287
(b)	Loss of Respondents' fixtures	Nil
(c)	Expenses incurred in acquiring
	alternative premises as agreed	$9,430

60. We further order that the matters of professional fees, interest and costs to be adjourned to a date to be fixed by the Assistant Registrar, with liberty to apply for any other ancillary and consequential matters.