SAN HARVARD REALTY LTD. v. DIRECTOR OF LANDS

HEADNOTE

Property law - Crown lands resumption - compensation for ground floor commercial premises - claim for $3,367,000 disputed by Crown who valued property at $1,200,000 - any affect on value of earlier Comprehensive Redevelopment Area zoning or subsequent Resumption Scheme to be ignored - open market value determined under comparative method - Held: Compensation of $1,700,000 awarded plus interest and costs.

IN THE LANDS TRIBUNAL OF HONG KONG

Crown Lands Resumption Reference No.17 of 1994

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JUDGMENT

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1. The Applicant claims compensation under Section 6(2) of the Crown Lands Resumption Ordinance, Cap.124 as the Crown lessee of a two-fifths equal and undivided share of Kowloon Inland Lot No. 110961 and the Remaining Portion of Section A Kowloon Inland Lot No. 1267 being the Ground Floor premises situate at No. 16 Wang Cheung Street, Kowloon, Hong Kong.

2. The subject property was resumed by the Crown pursuant to Section 3 of the Ordinance, under a Notice of Resumption dated 26th June 1992, published in Volume CXXXIV Hong Kong Government Gazette on 3rd July 1992 as G.N. No. 2264 of 1992 and reverted to the Crown on 3rd October 1992. The Applicant originally claimed compensation of $3,000,000 later increased to $3,367,000. The Respondent contended that the open market value was $1,200,000 based on a comparative method valuation of $1,285,930 and an investment method valuation of $1,012,252. A further investment method calculation resulted in a figure of $1,020,000.

3. The subject property was part of a major resumption of more than one hundred properties for the Hong Kong Housing Society's Urban Improvement Scheme. In addition to Wang Cheung Street it also extended to Pau Chung Street, Mau Tau Kok Road, Pak Tai Street, San Shan Road and Sui Lun Street in Ma Tau Kok.

4. The valuation differences between the valuers, principally arose from their selection of comparables and consequential disputes over appropriate adjustments. One factor raised in evidence, in respect of the subject property and some of the comparables, was the effect of the Urban Improvement Scheme.

5. As early as 10th October 1986, amendments to the Draft Ma Tau Kok Outline Zoning Plan S/K10/1, under the Town Planning Ordinance, Cap. 131, were published in the Hong Kong Government Gazette. The amendments designated the properties now being resumed as a Comprehensive Redevelopment Area ("CRA"). This limited owners to redeveloping their lots, in conjunction with adjoining owners, in accordance with the overall scheme.

6. When determining compensation for land resumed under the Crown Lands Resumption Ordinance, which is subject to certain specified provisions of the Town Planning Ordinance, Cap.131, the Tribunal may not take into account any affect of those provisions on open market value. In Lam Kit v. Director of Lands CLR No.215/1994 we have recently dealt in full with those statutory provisions. We confirm that any affect of the CRA or the Resumption Scheme on value must be ignored.

7. The subject property comprised a ground floor shop and adjoining yard of a four storey building built in the 1950s. The shop area comprised 39.1 square metres (421 square feet). The adjoining yard measured 16 square metres (172 square feet). Both Mr. F.C.Tam, B Sc., ARICS, AHKIS, called by the Applicant and Mr. R.A. Pendleton FRICS, FHKIS, called by the Respondent relied on comparables outside the CRA.

8. We confirm that Mr. Tam's original Rule 20 Report valuation of $3,000,000 was increased in a later supplementary Report to $3,367,000. Mr. Pendleton confirmed his original valuation of $1,200,000. However, in a supplementary Report, he pointed out that if certain of Mr. Tam's figures were adopted, they would produce under the Investment Method, a valuation of less than $915,000. If corrections are made to Mr. Tam's inaccurately estimated areas, the resultant valuation would still be under $1,000,000.

9. Mr. Tam elected to rely on surrounding but superior comparables in the Mau Tau Kok area. Mr.Pendleton preferred to apply comparables from the slighty more distant Thirteen Streets locality. This fundamental difference in approach largely explains the variation in their final valuations. It also reflects the similarly different approach by these and another valuer, in two other resumptions within the CRA, recently heard by the Tribunal, namely Lam Kit v. Director of Lands CLR No. 15/94 in which judgment was delivered on 5th May 1995 and Hui Soong Nui and Ho Po Siu v. Director of Lands CLR No.13/94 for which judgment was handed down on 11th May, 1995.

10. We have considered the contents of those judgments and share their conclusion on the law. We have also examined their findings of fact. Although we are considering a different property, the valuers have analysed and relied on the same or related comparables. On the evidence adduced in this application, we arrive at similar findings to those reached by the Tribunal in those earlier cases.

11. The Tribunal's judgment in Hui Soong Nui and Ho Po Siu v. Director of Lands (supra) is particulary helpful for that application concerned No. 9 Wang Cheung Street. The subject property is situate nearby at No. 16 Wang Cheung Street. This street is a cul-de-sac within the CRA. In the latter application the Tribunal, after considering the same or similar comparables found:

"... we are satisfied that the cul-de-sac nature of Wang Cheung Street supports varying values depending on the location of a property within the street. In the absence of any special features affecting the value of a particular property, for those near the entrance of Wang Cheung Street at its junction with Pau Chung Street, a slightly higher unit rate of $4,300 per square foot would be appropriate. On this basis properties towards the middle of the street would have a lower value in the region of $4,000 per square foot while those at the end would decline to about $3,750 per square foot."

12. The Tribunal went on to determine the unit rate for No. 9 Wang Cheung Street at $4,000 per square foot. The square foot rates of $4,300, $4000 and $3750 referred to in that judgment, convert to about $46,300, $43,000 and $40,000 per square metre respectively. We record that in Lam Kit v. Director of Lands (supra), where resumed property was situate in the more valuable Pau Chung Street and also had the added value of being a corner site, the Tribunal determined the unit rate at $53,000 per square metre.

13. We consider that Mr.Tam's best comparable was the first in his list at No.10 Pak Tai Street, Kowloon. We share his view that it is superior to the subject property. After making adjustments of +21% for time and -20% for location, he arrived at a unit rate of $$6,010 per square foot ($64,700 per square metre). The location adjustment was inadequate and this criticism also applied to his remaining comparables which produced even higher rates.

14. Mr. Pendleton repeating his evidence in Lam Kit v. Director of Lands, stated that in his opinion values in that portion of Pau Chung Street, while within the CRA, were higher than the Thirteen Streets, those in Wang Cheung Street were lower. The latter statement was largely based on differences in vehicular access.

15. On the evidence in this application, we share the view expressed by the Tribunal in Hui Soong Nui and Ho Po Siu v. Director of Lands that there is little if any difference. However, in terms of locality generally and after taking into account the better environment to the West of Kowloon City Road, we are satisfied that Wang Cheung Street is superior to the Thirteen Streets area.

16. Mr. Pendleton reached his assessment by giving excessive weight to the through road character of the Thirteen Streets but no weight to their being merely one-way. More importantly, he failed to take into account that Wang Cheung Street was 7.5 metres wide compared to the Thirteen Steets being about 5.5 metres. Further, that Wang Cheung Street was two way and serviced by rear lanes.

17. Mr. Pendleton also failed to make allowance for the fact that after ignoring the affect of rezoning, the Thirteen Streets area is less attractive for redevelopment, compared to the locality of which the CRA now forms part. We find that so far as vehicular use is concerned, the Thirteen Streets and Wang Cheung Street possess different but in value terms comparable access.

18. Mr.Pendleton also referred to several resumption settlements. The settlements for ground floor Wang Cheung Street premises, produced square metre unit rates of $37,000, $36,600, $30,000 and $25,000 adjusted for location only to $39,590, $34,400, $29,700 and $26,750. In contrast, the unadjusted rate for the settlement of the more valuable property at No.95 Pau Chung Street, was $52,500 per square metre.

19. These settlements, while relevant are of lesser weight than market sale transactions. The caution that requires to be exercised when evaluating settlements, is indicated by the adjusted unit rate for No. 23 Wang Cheung of $26,750 per square metre compared to the much higher rate of $39,590 per square metre for No. 24 Wang Cheung Street.

20. No. 24 Wang Cheung Street is the third property from the cul-de-sac end of the Street. Mr. Pendelton's unadjusted rate of $37,000 and adjusted rate of $39,590 per square metre may be compared with the Tribunal's earlier cited findings from Hui Soong Nui and Ho Po Siu v. Director of Lands that the value of properties in the middle of Wang Cheung Street are in the region of $4,000 per square foot (about $43,000 per square metre) and at the cul-de-sac end decline to about $3,750 per square foot (about $40,000 per square metre).

21. When we review the whole of the evidence we are satisfied that there are no special features relating to the subject property to render those earlier general findings inapplicable. We further find, that they are directly supported by the evidence adduced in the present application. The subject property is closer to the middle than the end of the street. When we consider its precise location we find that the appropriate market unit rate of the property is $3,900 per square foot (about $42,000 per square metre).

22. Adopting a unit rate of $42,000 per square metre, we determine the open market value of the subject property, on a vacant possession basis, at $1,725,000 calculated as follows:

Ground floor:
	39.1 square metres @ $42,000 =	1,642,200
Yard:
	16 square metres @ 1/8 rate =	84,000
		$1,726,200
	SAY,	$1,725,000
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23. The subject property was leased for one year from 1st December 1991 at a monthly rent of $7,000 inclusive of rates. Mr. Pendelton valued an estimated net rent of $6750 per month at 7% per annum for 6 months at about $38,500. Mr. Tam adopted the same rate of 10% for capitalisation and deferral in his alternative investment method valuation. Adopting Mr. Pendleton's calculation but at our preferred rate of 6%, we arrive at a slightly higher approximate figure of $40,000.

24. We propose to adopt Mr. Pendleton's deferral rate of 9% for 0.5 years. Accordingly, the value of the lease at $40,000 plus the deferred capital value of about $1,650,000 ($1,725,000 x .95616), produces a total value of $1,690,000. For compensation purposes that sum may properly be rounded up to $1,700,000.

25. On this basis we determine compensation in the sum of $1,700,000. Leave is reserved to apply for the rate of interest, if not agreed, to be determined under Section 17(3A) of the Crown Lands Resumption Ordinance. There will also be an order nisi that the Respondent pay the Applicant's costs on the High Court party and party scale to be taxed if not agreed; to become absolute unless application is made, within 14 days, to the contrary. Liberty to apply is also reserved for any other consequential matters.

Dated this 12th day of May 1995.