Bremont Investments Ltd v. Au Shui Lin and Others
Read the full judgment text of LDCS 5000/2020 on BabelCite. This LDCS judgment was delivered on 20 September 2022.
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 New Kowloon Inland Lot No 5205 (“the Lot”) together with a building erected thereon known as Nos 23 – 34 Rose Street, Kowloon (“the Building”).
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LDCS 5000/2020 [2022] HKLdT 48 IN THE LANDS TRIBUNAL OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION LAND COMPULSORY SALE MAIN APPLICATION NO 5000 OF 2020 __________________________
__________________________ Before: Mr Alex Ng, Member of the Lands Tribunal Dates of Trial: 1 – 3 and 5 August 2022 Date of Judgment: 20 September 2022 __________________ JUDGMENT __________________ 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 New Kowloon Inland Lot No 5205 (“the Lot”) together with a building erected thereon known as Nos 23 – 34 Rose Street, Kowloon (“the Building”). 2.The Building, which comprises 12 contiguous blocks (i.e. Nos 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33 and 34), is a 3-storey residential building over a single storey carport. Vertical circulation within each block is served by 1 common staircase. While each block of Nos 23, 24, 25, 26, 27, 29, 30, 31, 33 and 34 has 2 residential units (i.e. Units A and B) on each residential floor, each block of Nos 28 and 32 has 1 residential unit only per floor. According to the approved building plans, there are a total of 66 residential units and a total of 66 car parking spaces in the Building. 3.Occupation permit No K149/67 was issued for the Building on 13 June 1967, granting permission to occupy its ground floor as car ports for non-domestic use and watchman’s quarters for domestic use, and its 1st floor to 3rd floor as 22 flats per floor for domestic use. 4.According to the records of the Land Registry, the Lot is allocated 66 undivided shares. Each residential unit is given 1 undivided share, making up a total 66 undivided shares. No undivided share is separately allotted to each car parking space, which is assigned together with the corresponding residential unit. SECTION 3 OF THE ORDINANCE – OWNERSHIP OF THE APPLICANTS 5.At the time of filing of the Notice of Application (“NOA”) on 15 May 2020, there were 16 respondents and the applicant owned 80.30% (i.e. 53 out of the total 66) undivided shares in the Lot, more than the threshold of 80% required for building aged 50 years or above. 6.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%. 7.Section 3(5) of the Ordinance provides that the Chief Executive in Council may, by notice in the Gazette, specify a lower percentage in respect of a lot belonging to a class of lots specified in that notice. 8.The Land (Compulsory Sale for Redevelopment) (Specification of Lower Percentage) Notice, made under section 3(5) of the Ordinance (“the Notice”), was gazetted on 22 January 2010 and came into operation on 1 April 2010. Section 3 of the Notice lowered the threshold for compulsory sale of specified classes of lots from 90% to 80%. Those classes of lots include:
9.Since the occupation permit of the Building was issued in 1967, i.e. more than 50 years before the date of application (i.e. 15 May 2020; the relevant date under the Notice), the applicable percentage is therefore 80%. 10.I am satisfied that as at the date of application, the applicant owned on average more than 80% 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 11.At the time of trial, the applicant owned 87.88% (i.e. 58 out of the total 66) undivided shares in the Lot. The following 11 respondents (except otherwise stated, the reference to “the respondents” in the discussion below refers to these remaining respondents) remain in the present action: -
12.The respondents are all represented by Mr Jonathan Lee (“Mr Lee). The respondents do not oppose a sale order and put the applicant to strict proof as to whether the statutory requirements are satisfied under the Ordinance. In terms of valuation, the parties agree on existing use value (“EUV”) of all units in the Building, but they dispute on the assessment of redevelopment value (“RDV”) of the Lot. The respondents rely on the valuation evidence of Mr Denys Kwan (“Mr Kwan”) of C S Surveyors Limited. 13.The applicant is represented by Mr Y C Mok (“Mr Mok”). The applicant appoints Mr Charles Chan (“Mr Chan”) of Savills Valuation and Professional Limited (“Savills”) as its valuation expert, and Mr Benson Wong (“Mr Wong”) of Benson Wong & Associates Limited and Mr K S So (“Mr So”) of K S So & Associates Limited as its building experts. ISSUES FOR DETERMINATION BY THE TRIBUNAL 14.The remaining issues to be decided in this case are as follows:
DETERMINATION OF THE EUV OF ALL UNITS IN THE BUILDING 15.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: -
16.There is no missing owner in these proceedings, and before the trial the parties have agreed on the EUV of all units in the Building. I agree to adopt the EUV as agreed by the parties. EUV of All Units in the Building 17.The EUV of all units in the Building as at the relevant date of valuation, i.e. 9 April 2020, and adopted by this tribunal are appended below: -
18.I accept that the total EUV of the Building is $1,053,955,000. SECTION 4(2) OF THE ORDINANCE - JUSTIFICATION AND REASONABLE STEPS 19.Section 4(2) of the Ordinance provides as follows: -
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.Mr So conducted a structural survey of the Building and prepared a Structural Assessment Report on 12 March 2021. Mr Wong conducted a condition survey of the Building and prepared a Condition Survey Report on 15 March 2021. 22.None of the respondents adduced expert evidence to rebut the reports compiled by Mr So and Mr Wong. 23.Having considered the reports of Mr So and Mr Wong, I accept their expert opinion. The Building, being erected more than 55 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 construction costs 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: -
27.The applicant has made the following offers to the respondents respectively: -
28.The applicant’s offers have made reference the then valuation of Savills and reflected the pro-rata share of the RDV. Mr Mok submits that the applicant has taken reasonable steps in acquiring all the undivided shares in the Lot. I agree. 29.On the evidence available, I accept that the offer prices have reflected the respective proportionate share of the RDV of the Lot and do fall within the range of what may broadly be regarded as fair and reasonable compensation for the interest in question. 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.Mr Chan and Mr Kwan agree to adopt residual valuation method and update their respective RDV assessments as at 30 June 2022. They also agree to develop the Lot on a registered site area of 3,619.47 square meters at plot ratio of 3 and gross floor area of 10,858.40 square meters. The hypothetical development scheme as agreed by them comprises two 7-storey residential blocks, including 4 apartment units on each ground floor to 4th floor and 4 duplex units on 5th to 6th floor of each block, and six 3-storey houses over a carport with 66 private car parking spaces and a clubhouse at basement. 32.They further agree on all saleable areas, ancillary areas and reference units in the hypothetical development and particulars of each comparables, but in the assessment of gross development value (“GDV”) they disagree on the adopted unit rates except for the unit rate of each car parking space at $4,200,000. In the residual valuation, they agree on marketing cost at 3% of GDV, professional fee at 6% on demolition and construction costs, stamp duty and legal cost on residual land value at 4.25% and 0.1%, demolition cost at $13,002,000 (i.e. about $2,200 per square meter), construction cost at 638,998,069 (i.e. about $58,848 per square meter gross), demolition period of 9 months and construction period of 3 years. However, they disagree on interest rate and developer’s profit. GDV of Apartment Units 33.Mr Chan and Mr Kwan propose to analyse 5 comparables and 6 comparables respectively, and 3 of them are common (i.e. Comparables A1, A2 and A3). Since there are not many common comparables, I agree with Mr Chan to further analyse Comparables A4 and A5 in Parc Inverness, though they were transacted in February and March 2020 more than 2 years before the valuation date. I also agree with Mr Kwan to further analyse Comparable A6 in Kadooria and Comparbles A7 and A8 in Ayton. 34.I consider that the location of Kadooia, along Kadoorie Avenue and close to Prince Edward Road West, is similar to that of the Lot instead of much more prestigious as alleged by Mr Chan. There is also no concrete evidence that Comparable A6 should be an anomaly and/or a misled sale just because the transaction included fixtures and furniture and its previous first-hand sale had included substantial rebates from the developer. 35.I consider that the flat mix of Ayton and the better view of Comparables A7 and A8 should not exclude them as comparables. The tender sale of these 2 comparables together would likely attract a discount instead of a premium as alleged by Mr Chan in the then market condition. Further, although there is a possibility that in the first-hand sale market developer would offer substantial commission to the property agent who would then rebate part of it to the buyer, Mr Chan who alleges such high commissions of at least 11% in Comparables A7 and A8 should have a burden of proof, but except for his word there is no other evidence. Nonetheless, the fact that Comparables A7 and A8 were sold by the developer should be particularly noted in the valuation. 36.Mr Chan and Mr Kwan disputes on the conversion of the private lift lobby (i.e. 8 square meters) of Comparable A1 in Primrose. Mr Chan propose a rate of 4/5, but Mr Kwan suggests a lower rate of 1/2. With reference to the floor plan of Comparable A1 and its use as specified in clause 38 of the Deed of Mutual Covenant and Management Agreement, I prefer to adopt the rate of 2/3, and the effective saleable area of Comparable A1 should then be about 129.5 square meters. 37.The 2 valuation experts agree on net consideration (i.e. excluding the value of each car parking space if any at $4,200,000) of each comparable and the adjustment for time with reference to time indices, adjustment for age at 0.5% per 1-year difference, adjustment for actual floor at 0.5% per 1-level difference and adjustment for size at 1% per 10-square meter difference. However, they disagree on the adjustment for location to Comparable A2 in Eden Gate and Comparable A6 in Kadooria, adjustment for facilities to Comparable A1 in The Primose, adjustment for view to Comparable A1 in The Primrose, Comparables A4 and A5 in Parc Inverness and Comparables A7 and A8 in Ayton. 38.With benefit of the site inspection together with the parties, I agree with Mr Kwan that the adjustment for view to Comparable A1 should be -15% instead of -20% as proposed by Mr Chan, but I agree with Mr Chan that the adjustment for facilities should be 3% only instead of the higher rate at 10% as suggested by Mr Kwan. I am of the view the provision of clubhouse facilities in such medium scale upmarket development is not so influential on value, particularly when there is a private club nearby. 39.In terms of view, I also agree with Mr Kwan that negative adjustment should be made to Comparables A7 and A8 towards Kowloon Tsai Park, but the rate should be -15% instead of -10% only as suggested by him or a very substantial rate as proposed by Mr Chan. On the other hand, I agree with Mr Chan that both Comparables A4 and A5 should have open view and some cemetery view, and Comparable A4 would face the cemetery much more directly, but the adjustment rates should be 0% and -3% respectively, instead of 0% and -5% as proposed by Mr Chan. 40.Regarding the adjustment for location, I agree with Mr Chan that Eden Gate at the upper part of Kowloon Tong is better than the Lot, but the adjustment rate should be -2.5% only instead of -5% as proposed by him. Whilst, the location of Kadooria should be similar to the Lot. 41.The valuation of the reference apartment unit is listed in Appendix I of the judgement. The average adjusted unit rate of all 8 comparables is $323,888; the average excluding Comparable A6, which appears out of line, is $311,860; and the average of the 3 common comparbles is $311,532. I consider the adopted unit rate of say $315,000 per square meter is fair and reasonable in this instance, and this should also be the average unit rate of all apartment units in the hypothetical development. GDV of Duplex Units 42.The 2 valuation experts agree on selection of 3 common comparables in Eden Gate. Except for the adjustment for location, they also agree on all other adjustments, same as those for the apartment units. In terms of location, similar to my comment on Comparable A2, I consider that the location of Eden Gate is better than the Lot, but the adjustment rate should be -2.5% only instead of -5% as proposed by Mr Chan and 0% as suggested by Mr Kwan. 43.The valuation of the reference duplex unit is listed in Appendix II. The average adjusted unit rate of the 3 common comparables is $360,524, and I accept the unit rate of $360,000 per square meter. I also accept that the roof thereof should be converted at 1/6 as agreed by the parties. GDV of Houses 44.The 2 valuation experts agree on selection of 3 common comparables in Parc Inverness and No 62 Begonia Road. They also agree on the adjustment for time with reference to time indices, adjustment for location (i.e. 15% to Parc Inverness and 0% to No 62 Begonia Road), adjustment for layout (i.e. 0% to Parc Inverness and 15% to No 62 Begonia Road), adjustment for size at 1% per 15-square meter difference, adjustment for age at 0.5% per 1-year difference and adjustment for facilities (i.e. 0% to Parc Inverness and 3% to No 62 Begonia Road). 45.Regarding the adjustment for house type, I agree with Mr Chan that 5%, instead of 10% as suggested by Mr Kwan, should be made to Comparables H1 and H3, which are terraced houses instead of semi-detached houses as proposed in the hypothetical development. I envisage that there will not be much open space between each semi-detached house in the hypothetical development and the house type in the circumstances would not have substantial impact on value. 46.The 2 valuation experts agree on the adjustment for view to Comparable H1 in Parc Inverness at 0%, but they argue over the view of Comparables H2 and H3 in No 62 Begonia Road. I agree with Mr Chan that the view of the comparables in No 62 Begonia Road is better than the reference house unit, but the adjustment rate should be -2.5% only instead of -5% as proposed by Mr Chan. I envisage that, other than some mature trees, Comparables H2 and H3 would also overlook their nearby public housing blocks. 47.The valuation of the reference house unit is listed in Appendix III. The average adjusted unit rate of the 3 common comparables is $457,374, and I accept the unit rate of $460,000 per square meter. I also accept that the corresponding garden/terrace should be converted at 1/4 as agreed by the parties. RDV of the Lot as at 30 June 2022 48.I agree with Mr Chan that the interest rate as at the valuation date is on a rising trend, which should have increased the hypothetical project finance cost in the residual valuation. Nevertheless, although the interbank rate has been increasing, the prime rate in Hong Kong is being kept unchanged. In the circumstances, I agree to adopt the interest rate at 4.25% per annum only instead of 4.5% as proposed by Mr Chan. 49.Regarding the developer’s profit, I agree with Mr Chan that the property market as at the valuation date is relatively weak because of the Ukrainian War, pandemic and increase of interest rate. The rapid increase of inflation rate in the Western countries and the competition from other countries with lesser infection control over COVID-19 are the major concerns too in Hong Kong. In such relatively uncertain market, it is expected that the hypothetical developer in the residual valuation would demand a higher return in the development project. 50.Nonetheless, I note that the construction period as agreed by the parties is 3 years, which in my opinion should be sufficient, or more than sufficient, for building 2 mid-rise apartment blocks and 6 houses only over a car parking and clubhouse basement in the hypothetical development. I am of the view it is practical to shorten the construction period in the subject residual valuation, which would increase the residual land value. On the condition that the construction period is maintained (agreed) at 3 years, I consider that the lower development risk of a longer construction period should be taken into consideration in the residual valuation and the developer’s profit in this instance should be fixed at 15% as suggested by Mr Kwan. 51.Based on the agreements of the 2 valuation experts and the above determinations, the residual valuation of the Lot as at 30 June 2022 is listed in Appendix IV of the judgment. RDV of the Lot is assessed at $2,075,000,000, equivalent to an accommodation value of about $191,096 per square meter (i.e. about $17,753 per square foot), which should be the reserve price for public auction. ORDERS 52.I have set out reasons why I am satisfied an order for sale should be granted and I therefore make the following orders: -
COSTS 53.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.
Mr Y C Mok, instructed by Howse Williams, for the applicant Mr Jonathan Lee, instructed by Anthony Chiang & Partners, for the 1st respondent, 2nd respondent, 3rd respondent, 8th respondent, 9th respondent, 10th respondent, 12th respondent, 13th respondent, 14th respondent, 15th respondent and 16th respondent
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Cases cited in this judgment