ONBRAVE LTD v. MALKANI, SUNITA BHAGWAN AND ANOTHER

LDCS 27000/2020

[2021] HKLdT 80

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND COMPULSORY SALE MAIN APPLICATION NO 27000 OF 2020

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JUDGMENT

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BACKGROUND

1.  This is the applicant’s application for an order for sale, for the purposes of redevelopment under the Land (Compulsory Sale for Redevelopment) Ordinance, Cap 545 (“the Ordinance”), of all the undivided shares of and in the Remaining Portion and sub-section 11 of section B of Inland Lot No 1216 (“the Lot”) together with a building erected thereon known as No 88 Robinson Road, Hong Kong (“the Building”).

2.  The Building is a 9-storey residential block served by 2 lifts and 2 common staircases. Occupation permit No H168 was issued for the Building on 9 November 1961, granting permission to occupy its lower basement, upper basement, and ground to 6^th floors as 5 flats on each floor for domestic use.  According to the approved building plans of the Building, there are 5 flats planned on each of lower basement, upper basement and ground to 6^th floors.

3.  The Lot together with the Building standing thereon is allocated 50 undivided shares. Each of the 45 flats and each of the 5 roofs is given 1 undivided share, making up a total of 50 undivided shares.

SECTION 3 OF THE ORDINANCE – OWNERSHIP OF THE APPLICANTS

4.  At the time of filing of the Notice of Application (“NOA”) on 24 September 2020, there were 4 respondents and the applicant owned 92% (i.e. 46 out of the total 50) undivided shares in the Lot.

5.  Section 3(1) of the Ordinance prescribes that the minimum percentage of undivided shares that an applicant or applicants should possess before making an application under the Ordinance is 90%. 

6.  I am satisfied that as at the date of application, the applicant owned more than 90% of the undivided shares in the Lot.  I am therefore satisfied the applicant is entitled to make the present application under section 3 of the Ordinance.

THE REMAINING RESPONDENTS

7.  After commencement of the subject proceedings, the applicant had acquired the premises owned by the 2^nd respondent and the 3^rd respondent, and proceedings against them were discontinued.

8.  At trial, the applicant owned 96% (i.e. 48 out of the total 50) undivided shares in the Lot. The following 2 respondents remain in the present action: -

Respondent		Premises
1st Respondent	(“R1”)	Flat B on 6th Floor (“R1’s Property”)
4th Respondent	(“R4”)	Flat E on 4th Floor (“R4’s Property”)

9.  R1 and R4 (“the Respondents”), represented by Mr Anthony Chan, take issues primarily on the valuations as assessed in the application and whether the applicant has taken reasonable steps to acquire all the undivided shares in the Lot.

ISSUES FOR DETERMINATION BY THE TRIBUNAL

10.  The remaining issues to be decided in this case are as follows:

1)     What was the respective existing use value (“EUV”) of all units in the Building as at 14 August 2020, the valuation date adopted in the application valuation report dated 14 September 2020, as assessed in accordance with Part 1 of Schedule 1 of the Ordinance?

2)     Whether the redevelopment of the Lot is justified due to age and/or state of repair of the Building in accordance with section 4(2)(a) of the Ordinance?

3)     Whether the applicant has taken reasonable steps to acquire all the undivided shares in the Lot on terms that are fair and reasonable in accordance with section 4(2)(b) of the Ordinance?

4)     If an order for sale should be granted, what should be the reserve price (i.e. redevelopment value (“RDV”) of the Lot) for the purpose of auction sale?

DETERMINATION OF THE EUV OF ALL UNITS IN THE BUILDING

11.  Pursuant to section 4(1)(a)(i) of the Ordinance, if there is a dispute between the parties on the EUV of the units as assessed in the application, the tribunal shall determine the proper value. Section 4(1)(a)(ii) further provides that, in the case of any minority owner of the lot who cannot be found, the majority owner of the lot is required to satisfy the tribunal that the value of the minority owner’s property as assessed in the application is: -

“(A) not less than fair and reasonable; and

(B) not less than fair and reasonable when compared with the value of the majority owner’s property as assessed in the application.”

12.  There are disputes between the applicant and the Respondents on both the EUV and RDV valuations.  The Respondents rely on the reports and valuations prepared by Mr TC Wong of Albert So Surveyors Limited, whilst Mr Charles Chan of Savills Valuation and Professional Services Limited is appointed by the applicant.

13.  The 2 valuation experts agree on the unit rate of the reference unit (i.e. Flat A on 3^rd Floor) at $166,500 per square meter saleable.  Except for the internal conditions of 5 flats, they agree on the particulars of all units in the Building including the conversion of the roof area at a factor of 1/8. In the comparison between the reference unit and the other units in the Building, they agree on the adjustment for top floor at -3%, the adjustment for size at 1% per 10-square meter difference, the adjustments for view and lighting & ventilation to Units E on Lower Basement and Upper Basement at -4% and -3% respectively, and the adjustment rates for internal condition, but they argue on the adjustments for floor, noise and privacy of some units on Lower Basement and Ground Floor, and view of all Units B, C and D.

14.  With reference to the photos in the valuation reports prepared by the valuation experts and the joint site inspection on 1 November 2021, I agree with Mr Charles Chan the internal conditions of Unit B on Ground Floor, Unit C on 2^nd Floor, Unit D on Upper Basement and Unit E on 4^th Floor (i.e. R4’s Property) as at the valuation date were fair only, but I agree with Mr TC Wong the internal condition of Unit C on 4^th Floor was also fair instead of good as suggested by Mr Charles Chan. Based on the evidence before this tribunal, I believe that all these units would have some defects as at the valuation date and some of the defects might not be as worse as those as inspected recently, more than 1 year after the valuation date.

15.  In the valuation of aged residential building with lift service, I agree with Mr Charles Chan to adopt an adjustment rate of 0.5% per 1-level instead of 1% per 1-level as suggested by Mr TC Wong. I am of the view the adjustment for floor is less sensitive in this instance. In terms of view, I agree with Mr TC Wong that Unit B is better than Units C and D, but the adjustment rates should be 5% for Unit B, 3% for Unit C and 4% for Unit D. I accept that view of the living room in Unit C facing a common corridor is relatively inferior, and view of the living room in Unit D facing the nearby buildings is also unpleasant.

16.  In terms of noise, I agree with Mr TC Wong Units A & E on Ground Floor immediately abutting on Robinson Road is relatively inferior but there should have a minimal adjustment at -1% only because this section of Robinson Road does not have heavy vehicular and pedestrian traffic. In addition to privacy, I consider units on Lower Basement would also have concern over security. I am of the view Units A & E on Ground Floor and all units on Lower Basement should be adjusted at -2% for both privacy and/or security.

EUV of All Units in the Building

17.  The valuation of all units in the Building is listed in Appendix I of the judgment. The EUV of all units in the Building as at the relevant date of valuation, i.e. 14 August 2020, and adopted by this tribunal are appended below: -

Floor	Flat	EUV		Floor	Flat	EUV
LB	A	$15,250,000		3/F	C	$10,530,000
UB	A	$15,650,000		4/F	C	$10,900,000
G/F	A	$14,800,000		5/F	C	$11,280,000
1/F	A	$15,810,000		6/F	C	$10,670,000
2/F	A	$15,890,000		Roof	C	$1,100,000
3/F	A	$15,970,000		LB	D	$17,690,000
4/F	A	$16,050,000		UB	D	$18,150,000
5/F	A	$15,650,000		G/F	D	$18,250,000
6/F	A	$15,730,000		1/F	D	$17,800,000
Roof	A	$1,590,000		2/F	D	$17,890,000
LB	B	$11,120,000		3/F	D	$19,050,000
UB	B	$11,080,000		4/F	D	$17,540,000
G/F	B	$11,470,000		5/F	D	$17,070,000
1/F	B	$11,190,000		6/F	D	$17,170,000
2/F	B	$11,250,000		Roof	D	$1,800,000
3/F	B	$11,990,000		LB	E	$13,750,000
4/F	B	$12,040,000		UB	E	$14,110,000
5/F	B	$11,760,000		G/F	E	$14,790,000
6/F	B	$11,800,000		1/F	E	$15,770,000
Roof	B	$1,300,000		2/F	E	$14,920,000
LB	C	$10,060,000		3/F	E	$15,460,000
UB	C	$10,940,000		4/F	E	$16,000,000
G/F	C	$10,370,000		5/F	E	$15,620,000
1/F	C	$10,420,000		6/F	E	$15,230,000
2/F	C	$10,790,000		Roof	E	$1,320,000

18.  I therefore accept the total EUV of the Building is $643,830,000. 

SECTION 4(2) OF THE ORDINANCE - JUSTIFICATION AND REASONABLE STEPS

19.  Section 4(2) of the Ordinance provides as follows: -

“2. The Tribunal shall not make an order for sale unless, after hearing the objections, if any, of the minority owners of the lot the subject of the application under section 3(1) concerned, the Tribunal is satisfied that—

(a) the redevelopment of the lot is justified (and whether or not the majority owner proposes to or is capable of undertaking the redevelopment)—

(i) due to the age or state of repair of the existing development on the lot; or

(ii) on 1 or more grounds, if any, specified in regulations made under section 12; and

(b) the majority owner has taken reasonable steps to acquire all the undivided shares in the lot (including, in the case of a minority owner whose whereabouts are known, negotiating for the purchase of such of those shares as are owned by that minority owner on terms that are fair and reasonable).”

20.  The applicant must satisfy this tribunal the above statutory requirements are met; otherwise, an order for compulsory sale would not be granted.

Whether development of the Lot is justified due to the age and/or state of repair of the Building

21.  The applicant adduces expert evidence of Mr CM Wong, a structural engineer, of CM Wong & Associates Limited and Mr Benson Wong, a building surveyor, of Benson Wong & Associates Limited. Mr CM Wong conducted a structural survey of the Building and prepared a Structural Assessment Report on 14 May 2021.  Mr Benson Wong conducted a condition survey of the Building and prepared a Condition Survey Report on 17 May 2021. 

22.  None of the respondents adduced expert evidence to rebut the reports complied by Mr CM Wong and Mr Benson Wong.  

23.  Having considered the reports of Mr CM Wong and Mr Benson Wong, I accept their expert opinion. The Building, being erected more than 60 years ago, is in poor condition and has come to the end of its design life.  The design of the Building has become obsolete over time in many aspects, both physically and functionally, and fails to conform to modern safety standards and statutory requirements.

24.  I am also of the view the Building is in poor state of repair and the costs of repair to bring the Building to tenantable condition is disproportionate to the cost of construction of a similar superstructure.   Even if repair works are carried out, such works will bring about a modest improvement only to the existing condition of the Building and the Building will continue remain a sub-standard one.

25.  By reason of the matters set out above, I am satisfied the redevelopment of the Building is justified.   

Whether the applicant has taken reasonable steps

26.  In assessing the reasonableness of the offers, I have considered the case of Capital Well Ltd v Bond Star Development Ltd (2005) 8 HKCFAR 578. In particular, I have considered paragraphs 33 and 36 of the judgment in which   Ribeiro PJ stated: -

“33. In making that assessment the Tribunal is not conducting a valuation exercise. It does not need to adjudicate upon any disputes about the correct valuation principles to be applied. It does not itself arrive at any conclusion as to what figure represents the correct valuation. It merely needs to be satisfied that, on the evidence available, the offer falls within the range of what may broadly be regarded as fair and reasonable compensation for the interest in question. It is obviously necessary to recognise that there will often be differences of opinion on that matter……”

“36. ...... We are of course not suggesting that it is necessary for the offer to “beat” the valuation as if it were a payment into court. What the Tribunal must do is to consider whether, in the circumstances of each case, the offer falls within a band of what represents a fair and reasonable assessment of the value of the minority owner’s interest reflecting a proportionate share of the redevelopment value of the whole site……”

27.  The applicant has made 3 rounds of offers to R1 and R4 on 1 September 2020, 16 July 2021 and 6 October 2021, which have made reference to the valuations of Mr Charles Chan and reflected the then pro-rata share of the RDV. The prices offered on 16 July 2021 and 6 October 2021 were 5% higher than the then Mr Charles Chan’s assessments. The applicant has also made the last round of offers to R1 and R4 on 29 October 2021, which have made reference to the EUV as assessed by Mr TC Wong and the judgment of the tribunal in LDCS 24000 of 2020 dated 28 October 2021. Ms Nancy Ngai, counsel for the applicant, submits that the applicant has taken reasonable steps in acquiring all the undivided shares in the Lot. I agree.

28.  On the evidence available, I accept that the applicant’s offer prices, which have reflected the respective proportionate share of the RDV of the Lot, do fall within the range of what may broadly be regarded as fair and reasonable compensation for the interest in question. Even if R1’s Property is subject to tenancy, it is not unreasonable for the applicant to ask for vacant possession in the applicant’s offers. Further, although I may not agree with Mr Charles Chan each and every item in his assessments, it is a matter of differences in opinion only and his valuations before this tribunal have no serious fault.

29.  I am satisfied the applicant has taken reasonable steps to acquire all the undivided shares in the Lot.

RESERVE PRICE FOR THE AUCTION

30.  By reason of being satisfied that redevelopment of the Lot is justified and that the applicant has taken reasonable steps to acquire all the undivided shares in the Lot, I am satisfied an order for sale should be granted in favour of the applicant.

31.  The 2 valuation experts agree to adopt residual method and update their respective RDV assessments as at 4 October 2021. They agree to develop the Lot on a registered site area of 962.56 square meters and, subject to a setback and right of way of 231.6 square meters, to build a high-rise residential building at the domestic plot ratio of 5 (i.e. gross floor area of about 4,812.8 square meters), but they argue about the optimum hypothetical development scheme particularly the size of each typical flat. They also argue about the number of car parking spaces, the number of residential storeys and the height of the hypothetical building.

32.  In addition to residual method, the 2 valuation experts have also commented on a site transaction (i.e. No 105 Robinson Road), which was sold by auction pursuant to a compulsory sale order. The reserve price for this auction was set by reference to the agreed RDV of the parties. Ms Nancy Ngai submits that the tribunal would not lightly endorse and accept the valuation agreed by the parties or the experts appointed by them without making its own professional and independent judgment on the reasonableness of the agreed figure, and hence a different panel of the tribunal must have accepted that the agreed RDV of No 105 Robinson Road was reasonable and should take account of its auction price for comparison with the RDV of the Lot assessed by the residual valuation.

33.  I consider that Ms Nancy Ngai has overstated what could be reviewed by the tribunal in a judgment.  In a judgment, the tribunal is not carrying out an independent valuation.  Other than the personal knowledge of the member, the tribunal can rely on mainly the facts and information provided by the parties only. In addition, unless there is a mistake and/or an irregularity that could create prejudice, the tribunal would not lightly disregard the opinion of the experts appointed by the parties, particularly when there is no missing owner in the proceedings.  Further, I am of the view that a sale price subject to a compulsory sale order should not be regarded as a market price because of the limitations in judgment and the compulsory sale process.  Nonetheless, other than the general comments of the 2 valuation experts, they have neither relied on No 105 Robinson Road as a site comparable nor provided its details for tribunal’s consideration. This tribunal has not been asked to visit this site too. In any event, there is no sufficient information in this instance for meaningful direct comparison.

34.  In the residual valuation, the 2 valuation experts agree on marketing cost at 3%, interest rate at 4% per annum, professional fee at 6%, demolition cost at $9,874,040 (i.e. $2,200 per square meter gross), and stamp duty and legal cost on land value at 4.25% and 0.1%, but they have different opinion on gross development value (“GDV”) of both flats and car parking spaces, development period, construction cost and developer’s profit.

Hypothetical Development Scheme

35.  Mr Charles Chan proposes to build a 17-storey residential block over a 2-level car parking basement with ground floor planned as entrance lobby, plant room and car park; 1^st floor as clubhouse, lobby, plant room and swimming pool; 2^nd to 14^th floors as 3 residential flats per floor; and 15^th to 16^th floor as 3 duplex residential flats.  Whilst, Mr TC Wong proposes a 21-storey residential block over a 2-level car parking basement with ground floor planned as entrance lobby, plant room, caretaker’s office and loading and unloading bay; 1^st to 2^nd floor as clubhouse, covered landscape area, outdoor swimming pool and plant room; 3^rd to 18^th floors as 1 residential flat per floor; and 19^th to 20^th floors as 1 duplex flat with flat roof and roof.

36.  They argue about (1) whether the typical residential floor should accommodate 3 residential flats or 1 residential flat; (2) whether a lower building with lesser levels and hence higher site coverage and efficiency or a higher building with more levels and hence better view on the higher floors should be built; (3) the size of clubhouse and whether the common area on the clubhouse floor can be exempted from the gross floor area calculation; and (4) the number of car parking spaces to be accommodated in the respective hypothetical development.

37.  I agree with Mr Charles Chan that a single large residential flat of over 200 square meters saleable and with a value of over $100 million is hardly to be marketed in this particular location or at least an extra-long marketing period would be required for sale of all residential flats in the development.  The Lot immediately next to Oaklands Avenue Sitting-out Area and overlooking West End Park and St Stephen’s Girls’ College is better than Nos 94 – 96 Robinson Road in another compulsory sale case LDCS 32000 of 2020, which is surrounded by nearby buildings, but its location is not as prestigious as the locations of those flats in the developments along Conduit Road and Po Shan Road, which are selected by Mr TC Wong as comparables.

38.  Although I agree with Mr TC Wong that, unlike the small flats as agreed and accepted by the tribunal in Nos 94 – 96 Robinson Road, a more prestigious development with larger flats can be built on the Lot because of its better location, I am of the view the typical flat size in the hypothetical development should better be about 100 square meters only, and depending on the design the typical flat size can be larger than that (i.e. about 90 square meters saleable) as suggested by Mr Charles Chan.

39.  At trial, I have asked the 2 valuation experts to assist and prepare another model with 2 residential flats on each typical residential floor for tribunal’s consideration.  Basically, the respective new models proposed by the 2 valuation experts are based on their original models with the same number of storeys and building height. Mr TC Wong further elaborated at trial his proposed development will be served by 3 lifts and 2 common staircases and all units are accessible by 1 main lift with exclusive lobby and 1 common service lift. There will also have 2 duplex flats on 19^th to 20^th floors.

40.  Except for the number of car parking spaces to be built, I accept the new model proposed by Mr TC Wong, which is the optimum hypothetical development on the Lot.  The design with all units accessible by 1 main lift with exclusive lobby and 1 service lift is common in the recently built luxurious residential buildings, which can allow better privacy and maintain the prestigiousness of the development. While Mr TC Wong’s new model can utilize the maximum building height, the size of 111.65 square meters only for each typical residential flat would also lower the lump sum of each transaction, which can make it more marketable.  In fact, some of the comparables proposed by Mr Charles Chan in Arezzo of No 33 Seymour Road and Azura of No 2A Seymour have similar size and/or similar transaction lump sum.

41.  I also agree with Mr TC Wong that the size of clubhouse in such boutique development is not material.  Even if the common area on clubhouse floor is counted as part of the clubhouse and therefore only a smaller clubhouse can be accommodated in the hypothetical development, this will not affect the overall GDV notably.

42.  Nonetheless, regarding the number of car parking space, I agree with Mr Charles Chan that the provision of 36 car parking spaces in Mr TC Wong’s new model is excessive, which is above the minimum number of private car parking space as allowed in the Hong Kong Planning Standards and Guidelines and therefore would not be fully exempted by Building Authority in gross floor area calculation. The design of the nearby development, Babington Hill of No 23 Babington Hill, has adopted the minimum standard only. On balance of probabilities, I accept that the minimum standard should also be adopted in the hypothetical development.

43.  Having reviewed the 4 hypothetical development schemes proposed by Mr Charles Chan and Mr TC Wong respectively, I prefer to adopt the new model proposed by Mr TC Wong and also accept his proposed layouts, and flat reference unit (i.e. a flat of 111.65 square meters saleable). However, by applying the formula in the Hong Kong Planning Standards and Guidelines, only 1 motorcycle parking space and 21 private car parking space (i.e. including 1 disabled parking space) can be accommodated in the hypothetical development.

GDV of Parking Spaces

44.  The 2 valuation experts agree on the market value of a motorcycle parking space at $400,000, but they disagree on the market value of a private car parking space (Mr Charles Chan: $3,200,000 and Mr TC Wong: $4,000,000).  In the direct comparison with comparables, although Mr TC Wong agree with Mr Charles Chan that there should have adjustments for time, floor level and car park ratio, Mr TC Wong considers that reference should also be made to the respective demand and affordability of the residents living in the comparable developments.

45.  Other than the 9 comparables with transaction prices ranging from $2,700,000 to $4,800,000, which are agreed by the 2 valuation experts, Mr TC Wong has adopted an additional comparable (i.e. Car Park No 15 on 1^st Floor of No 1 Po Shan Road) at $6,900,000. In fact, these comparables have a wide range of transaction prices, but there is no further investigation on whether each of these car parking spaces was sold together with a residential flat in the same development or the comparable was an independent transaction, and if there was a separate transaction of a related residential flat, whether or not the allocation of transaction price between the residential flat and the car parking space is reasonable.

46.  Given that the transaction prices are varied and there is no comprehensive analysis, I tend to adopt a board-brush approach in this assessment, and am of the view that the market value of a car parking space is $3,800,000.  This figure has just been agreed by Mr Charles Chan in the case Nos 94 – 96 Robinson Road, which was also heard by this tribunal. Accordingly, I am of the view the market value of a disabled car parking space is $4,150,000 (i.e. about 9.2%), close to the adjustment ratios as suggested by the 2 valuation experts.

GDV of Flats

47.  Given that this tribunal prefers the new model of Mr TC Wong with 2 residential flats on each typical floor, I agree with Mr Charles Chan to adopt the comparables in Babington Hill, Arezzo and Azura only. I consider that the comparables with much larger size and greater lump sum along Conduit Road and Po Shan Road proposed by Mr TC Wong are irrelevant.  Although the comparables in Babington Hill are smaller in size, its location is close to the Lot.  Further, I consider that 3 comparables in Babington Hill, Comparables NR-6 and NR-7 that are located on 1^st floor with flat roof and Comparable NR-10 that has dispute over its view, can be taken out from the analysis because there are 9 other relevant comparables in this development. I also consider that the car parking space of Comparable NR-23 could be adjusted at say, -$3,900,000 before the comparison.

48.  The 2 valuation experts agree on the adjustment for time with reference to property indices and the adjustment for facilities at -0% for Babington Hill, 2% for Arezzo and 0% for Azura. They disagree on the adjustments for location, floor, size, view, age and headroom.  They also argue whether there should have additional adjustments for number of units within the building and nuisance as suggested by Mr TC Wong.

49.  Regarding the adjustment for location, I agree with Mr TC Wong that the Lot is better than Babington Hill, but the adjustment rate should be 5% only instead of 13% as suggested by him.  Although Babington Hill is close to the Lot, Babington Hill is surrounded by nearby buildings and is accessible via a sloping and one-way vehicular street only. The Lot is better than Arezzo and Azura too, but the adjustment rates should be 8% instead of 3% as suggested by Mr Charles Chan and 10% as proposed by Mr TC Wong. Arezzo and Azura are also surrounded by nearby buildings and have a higher building density. Although their accessibility is better than the Lot, their environment is inferior.

50.  Regarding the adjustment for floor, I agree with Mr Charles Chan the adjustment rate at 0.5% per level instead of 1% per level up to 20^th floor and 0.5% per level above 20^th floor as proposed by Mr TC Wong. I consider that the difference in floor is less sensitive in this instance.  I also agree with Mr Charles Chan the adjustment for size at the rate of 1% per 10-square meter difference instead of 1% per 20-square meter difference as proposed by Mr TC Wong.  I consider that the difference in size is more sensitive in this instance.

51.  With the benefit of site inspection together with the parties, I agree with Mr Charles Chan that the view of all selected comparables in Babington Hill, except for Comparable NR-4 that has building view only, would be similar to that of the flat reference unit and nil adjustment should be made in this regard, and Comparable NR-4 should be adjusted at 5% only.  The building view of the comparables in Arezzo and Azura should also be adjusted at 5%, but there should not be any adjustment for the open view of Comparable NR-24, and the open sea view of Comparables NR-21 and NR-23 should be adjusted at -10%.

52.  In terms of age, I agree with Mr TC Wong the adjustment rate at 1% per year instead of 0.5% per year as adopted by Mr Charles Chan.  I consider that the age in the comparison is more sensitive in this instance. In terms of headroom, I consider that the adjustment rate at 5% per 1-meter difference as adopted by Mr Charles Chan is reasonable.

53.  In addition, I agree with Mr TC Wong to make adjustment for number of units within the building to reflect the better privacy and design in Mr TC Wong’s new model, but the adjustment rate to all comparables should be 2% only. I also agree with Mr TC Wong to make adjustment for the temporary nuisance to Arezzo and Azura created by their nearby construction site, but the adjustment rate should be minimal at say 1% only.

54.  The valuation of the flat reference unit (i.e. a residential flat of 111.65 square meters saleable on a mid-floor say, 10^th floor) is listed in Appendix II of the judgment.  The average unit rate of the 20 comparables is $392,987 and the average of the 3 comparable developments is $397,796.   After consideration of the better view on higher floors in the hypothetical development, I consider that the average unit rate of all typical flats should be $400,000 per square meter saleable.

55.  The 2 duplex units on 19^th to 20^th floors should be better than the flat reference unit in terms of floor and view, and their ancillary areas (i.e. flat roof and roof) are also valuable, but there should have negative adjustment for size. Above all, and after consideration of the premium for special as agreed by the 2 valuation experts, I consider that the average unit rate of the 2 duplex units should be $500,000 per square meter saleable, 25% above the unit rate of the flat reference unit.

Residual Valuation

56.  I agree with Mr TC Wong the demolition period of the Building is 0.5 year instead of 0.75 year as suggested by Mr Charles Chan and the construction period of the hypothetical development is 2.5 years instead of 3.25 years as suggested by Mr Charles Chan.  Accordingly, the development period including the demolition period is 3 years. Although some developers may have their own considerations to defer a project and/or are not in a hurry to complete a project, the development period in the subject residual valuation should be the best practical period from the perspective of a reasonable and prudent developer because the GDV is based on current value only without any projection.  Mathematically, a longer development period in a residual valuation with GDV on current value would lead to a lower land value.

57.  The 2 valuation experts agree that the hypothetical development should be of very high quality with the construction cost at the base rate of $35,700 per square meter gross, but Mr Charles Chan and Mr TC Wong propose the total construction cost at $264,641,793 and $263,234,520 respectively. The difference is not significant, and I consider that it is reasonable to take a midway figure of $264,000,000 (i.e. about 54,584 per square meter gross) in this instance.

58.  Regarding the developer’s profit, I am also of the view that it is reasonable to adopt a midway rate of 12.5% (exclusive of stamp duty and legal cost on land value) instead of 15% as suggested by Mr Charles Chan and 10% as suggested by Mr TC Wong. I consider that as at the valuation date residential site market has improved and the hypothetical development project in the Mid-Levels district is a rather secure investment with relatively low risk, but all these are not as good as those suggested by Mr TC Wong.

RDV of the Lot as at 4 October 2021

59.  Based on the agreements of the 2 valuation experts and the above determinations, the residual valuation of the Lot as at 4 October 2021 is listed in Appendix III of the judgment. The Lot is assessed at $1,009,000,000, equivalent to an accommodation value of about $209,649 per square meter (i.e. about $19,477 per square foot).

ORDERS

60.  For reasons given in this judgment, I have set out reasons why I am satisfied an order for sale should be granted and I therefore make the following orders: -

1)  All the undivided shares in the Lot, the subject of the application, be sold by way of public auction for the purposes of redevelopment of the Lot;

2)  Mr Anthony W K Chow and Ms Anna S H Chow, nominated by the applicant, be appointed the trustees (“the Trustees”) to discharge the duties imposed on them as trustees by the Ordinance in relation to the sale of the Lot;

3)  The Trustees be authorized to charge such remuneration for their services in accordance with the terms set out in the letter of Messrs Guantao & Chow dated 29 September 2021;

4)  For the purposes of the sale of the Lot by public auction: -

a)  the sale of the Lot be on the particulars and conditions of sale the same or substantially the same as those set out in the draft Particulars and Conditions of Sale to be approved and initialed by the tribunal; and

b)  the reserve price be set at $1,009,000,000;

5)  Subject to further extensions that the tribunal may subsequently allow upon the application of the purchaser of the Lot or its successor in title, the redevelopment of the Lot and the Building shall be completed and made fit for occupation within a period of 6 years after the date on which the purchaser of the Lot becomes the owner of the Lot; and

6)  Liberty to the applicant, the 1^st respondent, the 4^th respondent and the Trustees to apply to the tribunal for further directions.

COSTS

61.  Following Good Faith ^[1], I make a costs order nisi that the applicant do pay costs of these proceedings to the respondents, on High Court scale with certificate for counsel and including any reserved costs, to be taxed if not agreed.  Unless any parties apply by summons to vary, the costs order nisi shall be made absolute upon expiry of 14 days from the date of this judgment.

[1] Good Faith Properties Ltd and Others v Cibean Development Co Ltd [2014] 5 HKLRD 5340