WONG KAI HUNG v. DIRECTOR OF HOUSING

LDHA4 of 2004

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

Housing Ordinance Appeal No. LDHA4 of 2004

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JUDGMENT

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Background

1. The Appellant was the former registered owner of the suit property known as Flat 13 on 32^nd Floor of Block B, Ming Nga Court, 9 On Po Lane, Tai Po, New Territories (“the Property”).  The captioned application is an appeal by the Appellant against the amount of premium assessed by the Director of Housing for the removal of the non-alienation restriction in the original sale and purchase agreement and the deed of assignment of the Property entered into between the Appellant and the Housing Authority.  It was made by the Appellant to the Lands Tribunal on 8 September 2004 pursuant to paragraph 5(d) of the Schedule to the Housing Ordinance, Cap. 283 (‘the Ordinance”).

2. The Respondent, the Director of Housing, filed a Notice of Opposition dated 17 September 2004 opposing the appeal.  In the notice, the Respondent attached a copy of a letter dated 31 August 2004 from his consulting surveyor, Mr. Lyall Alexander-Webber (“Mr. Alexander-Webber”), which stated that the Prevailing Market Value of the Property was assessed at $800,000.

Statutory provisions

3. Paragraph (1) of the Schedule to the Ordinance sets out that the premium payable by the Appellant to the Housing Authority shall be calculated by the following formula-

Premium

=

Prevailing Market Value (Initial Market Value – Purchase Price) Initial Market Value

 

in which “Prevailing Market Value” means, subject to paragraph 6 of the Schedule, “the market value of the land assessed by the Director of Housing as at the time when the purchaser pays the premium.”

4. Paragraph 5(d) of the same Schedule provides that “the purchaser may appeal to the Lands Tribunal in accordance with the Lands Tribunal Rules (Cap. 17 sub. Leg.) against the Director’s assessment of the prevailing market value of the land within 28 days of the date of notification under subparagraph (b).”  And, paragraph 5(e) of the same Schedule provides that “notwithstanding that an appeal to the Lands Tribunal has been lodged, the Director may vary his assessment of the premium at any time prior to the determination of the appeal by the Lands Tribunal.”

5. Paragraph 6 of the same Schedule provides that “The determination of the Lands Tribunal on an appeal shall be of the prevailing market value as at the date of the determination by the Lands Tribunal unless the purchaser has paid the premium in which case the determination shall be of the prevailing market value as at the date of payment.”

Basis of assessment

6. The parties did not have any dispute on the basis of assessment.  Both agreed that since the premium had been paid, the Prevailing Market Value of the Property to be determined by the Tribunal should be the open market value of the Property as at the date of payment of the premium by the Appellant, i.e. 8 September 2004.

7. Both also agreed that the method of valuation to be employed should be the Direct Sales Comparison Method, using the actual comparable transactions of similar flats in the same Home Ownership Scheme (HOS) estate as the Property..

Issue between the parties

8. The issue before this Tribunal is in the choice of the best comparables and their adjustments.

Evidence of the Appellant and the expert surveyor

9. The Appellant gave evidence in person.  He entered into a sale and purchase agreement with a purchaser on 28 July 2004 for a price of $688,000 after putting the Property to the market through several estate agencies since June 2004.  He applied to the Director of Housing for determination of premium for the purpose of removing the restriction on assignment of the Property.  He was first advised that the Prevailing Market Value of the Property was $840,000.  Subsequently, after lodging a written objection, he was advised on 31 August 2004 that the Prevailing Market Value would be reduced to $800,000.  The Appellant paid the premium based on this assessed Value on 8 September 2004, and decided to lodge this appeal on the same date.  Therefore, the Appellant agreed that the date of valuation of the Property under para. 6 of the Schedule to the Ordinance shall be 8 September 2004.

10. The Appellant called for the evidence of an expert valuation surveyor, Mr. M K Chung (“Mr. Chung”) of Fotton ELA Consultants Ltd.  He produced a report dated 24 November 2004 (Exhibit A1) and a supplementary valuation schedule (Exhibit A4), which set out his detailed analysis and adjustments of comparables.  Mr. Chung explained that Exhibit A4 superseded his earlier report, and Exhibit A4 was made within a few days after receiving instruction from the Appellate.  Mr. Chung opined that he decided that the most relevant comparables for the Property were the sales of non-corner units in his valuation schedule at Exhibit A4.  And with the exception of Comparable 13, all his comparables in that schedule were the same as those adopted by the Respondent’s surveyor.  He adjusted his chosen Comparables Nos. 2, 4, 8, 9, 11 and 13 under the headings of floor level, view, orientation, time, defects and arrived at adjusted unit rates for all the comparables.  At the end, he took the average of the adjusted unit rates of these 6 comparables, at $21,213 per sq. m. and applied this to the saleable area of the Property of 33.7 sq. m., arriving at a value of $714,884, rounded to $715,000.

Evidence of the Respondent’s expert surveyor

11. Mr. Alexander-Webber gave evidence in the hearing, producing his valuation report (Exhibit R1), which set out his valuation in details.  He disagreed from Mr. Chung’s view that as there was such a large difference between the corner units and non-corner units in the buildings in the subject estate, only those non-corner units that are similarly located as the Property should be used for the valuation.  Also, he opined that Mr. Chung’s Comparable No. 13 should be discarded as its date of transaction, at 7 April 2004 was too far away from the valuation date of the Property under the Ordinance. Besides, there was already sufficient comparable evidence from the remaining 12 comparables with very close transaction dates of between 17 August 2004 and 28 October 2004.  As a result, he analysed all his 12 comparables and made adjustments under various headings of floor level, flat size, view, orientation, time, interior condition and noisy condition (for a particular comparable, Comparable No. 11 only).  He applied the average of the adjusted unit rates of those 12 comparables, at $23,500 per sq. m. to the saleable area of the Property of 33.7 sq. m. arriving at a value of $791,950, rounded to $790,000.

Choice of comparables by the Tribunal

12. First, I have to decide what the best comparables are.  I agree with Mr. Chung that in general, a corner unit in an estate type building such as the subject building fetches a higher price than non-corner units because it enjoys a more open view.  Also, I have made an analysis based on the unadjusted unit rates of 2 different sets of comparables (i.e. corner units: Comparables Nos. 1, 3, 5, 6, 7, 10 and 12 and non-corner units: Comparables Nos. 2, 4, 8, 9 and 11) as well as the after-adjusted unit rates for these 2 sets of comparables, based on adjustments of Mr. Chung and Mr. Alexander-Webber.  The results are as follows:

Before adjustments

Average of unadjusted unit rates of the 7 corner units = $25,038

Average of unadjusted unit rates of the 5 non-corner units = $22,231

Ratio of average of corner units to that of non-corner units = 89%

After adjustments, based on Mr. Wong’s valuation schedule

(*Disallowing and adding back the corner adjustment made by Mr. Wong)

Average of unadjusted unit rates* of the 7 corner units = $22,965

Average of unadjusted unit rates of the 5 non-corner units = $21,143

Ratio of average of corner units to that of non-corner units = 92%

After adjustments, based on Mr. Alexander-Webber’s valuation schedule

Average of adjusted unit rates of the 7 corner units = $24,135

Average of adjusted unit rates of the 5 non-corner units = $22,306

Ratio of average of corner units to that of non-corner units = 92%

13. I find from the above analysis that the comparables compiled by the surveyors show that the corner units fetch on average higher unit rates than non-corner units.  This supports the contention of Mr. Chung.  Therefore, I agree with him to concentrate on the non-corner units in this valuation.  However, I decide to follow Mr. Alexander-Webber in discarding Comparable No. 13 as its transaction date is quite a few months away from that of the Property and all other comparables, hence minimizing the error due to the timing differences and adjustments in the valuation.  In summary, a total of 5 comparables are adopted as the best comparables, viz., Comparables Nos. 2, 4, 8, 9 and 11.  I make various adjustments to these comparables, as follows:

Floor level

I agree with and follow the adjustment percentage of 0.3% per floor as suggested by Mr. Alexander-Webber, instead of Mr. Chung’s suggested difference of 0.2% per floor.  Mr. Alexander-Webber said that this also followed the Judgment of Member Lam in similar unreported Housing Ordinance Appeal cases (reference LDHA 2 of 2003 and LDHA 3 of 2003).

Flat size

There is no longer any necessity to consider this factor as all the comparables and the Property are of identical or very similar sizes.

Corner or non-corner unit

Since I have decided to concentrate on the non-corner units for the valuation of the Property, this factor of adjustment is no longer necessary.

Time

For the minor time differences, both surveyors agreed to make adjustments following the “Private Domestic – Price Indices for Selected Popular Development” published by the Rating & Valuation Department.  I agree and adopt their suggested same adjustments.

View

Both surveyors made no adjustment for Comparables Nos. 2, 4 and 9, and made the same adjustments of –5% and 3% for Comparables Nos. 8 and 11 respectively.  I agree to adopt the consensus view of both surveyors for the comparables.

Orientation

Mr. Chung made an adjustment of –3% each for Comparables Nos. 8 and 11 whilst Mr. Alexander-Webber made more modest adjustments to Comparables Nos. 2, 4, 8, and 11.  I adopt Mr. Alexander-Webber’s suggested figures.

Internal Condition / Defects

Both the Appellant and Mr. Chung gave evidence that the Property was in a state of disrepair.  Mr. Chung suggested an adjustment factor of –4% for all his comparables.  Mr. Alexander-Webber stated that based on the internal inspection of the Property and the adopted comparables by his staff, he made adjustments of –2% to each of the 5 adopted comparables.  I decide to take the average of their suggested percentages, i.e. –3% for all the adopted comparables.

Noisy Condition

Mr. Chung said that this factor is a duplicating factor.  On the other hand, Mr. Alexander-Weber opined that this factor is unique to Comparable No. 11 by virtue of its location.  I agree to his view and allow this adjustment.

Determination of the Prevailing Market Value of the Property

14. I sum up all the adjustments for the 5 adopted comparables in the table below, arriving at the adjusted unit rate for each comparable:

15. The average of the adjusted unit rates of all the 5 adopted comparables is $22,276 per sq. m.  Applying this unit rate to the saleable area of the Property of 33.7 sq. m., I estimate the Prevailing Market Value of the Property at the relevant valuation date of 8 September 2004 to be $22,276 x 33.7 sq. m., or $750,701.  This I round off to $750,700 (Hong Kong dollars seven hundred fifty thousand and seven hundred).

Costs

16. In the submission on costs, both parties asked for costs in their favour.  The Appellant submitted that he asked for costs in the lump sum of $33,500 whilst the Respondent asked for costs, to be taxed if not agreed.  There is no specific provision on costs under the Ordinance, so the provisions under the Lands Tribunal Ordinance (Cap. 17) apply.  Next, I find that there is no reason that I should depart from the normal rule that costs follow event.  Finally, after considering all the circumstances of the case, I find that the Respondent should pay costs to the Appellant, to be taxed if not agreed.

Orders