View Point Development Ltd. v. Secretary for Transport
Read the full judgment text of LDRW 4/2001 on BabelCite. This LDRW judgment was delivered on 7 November 2002.
1. This is an application by the Applicant for compensation under the Railways Ordinance, Cap.519 in respect of Lot Nos. 361-375, 385, 387 s.A, 387 s.B ss.1(P), 387 s.B ss.2, 387 s.B ss.3, 387 s.B ss.5, 387 s.B R.P.(P), 387 s.C ss.1 s.A, 387 s.C ss.2 s.A, 387 s.C ss.3 s.A and 387 s.C R.P.(P) in Demarcation District No. 122 ("the Lots"). The Lots were resumed under the Railways Ordinance for the purpose of the West Rail (Phase 1) Scheme.
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LDRW000004/2001 LDRW 4/2001 IN THE LANDS TRIBUNAL OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION Railways Ordinance Application No.LDRW 4 of 2001 _______________
_______________ Coram: Deputy Judge WONG, Presiding Officer of the Lands Tribunal,Mr. W. K. LO, Member of the Lands Tribunal Date of Hearing: 16, 17, 18 & 21 January 2002, 28 February 2002 and 8 & 18 May 2002 Date of Judgment: 7 November 2002 ________________ J U D G M E N T ________________ Background 1.This is an application by the Applicant for compensation under the Railways Ordinance, Cap.519 in respect of Lot Nos. 361-375, 385, 387 s.A, 387 s.B ss.1(P), 387 s.B ss.2, 387 s.B ss.3, 387 s.B ss.5, 387 s.B R.P.(P), 387 s.C ss.1 s.A, 387 s.C ss.2 s.A, 387 s.C ss.3 s.A and 387 s.C R.P.(P) in Demarcation District No. 122 ("the Lots"). The Lots were resumed under the Railways Ordinance for the purpose of the West Rail (Phase 1) Scheme. 2.The Lots were part of the land included in the West Rail (Phase 1) Scheme and were first referred to in Government Notification No. 1629 dated 27 September 1997 published in the Government Gazette on 3 and 9 October 1997. A number of amendments and corrections of the Scheme were subsequently made and gazetted. Since then, the Lots have reverted to the Government on 16 January 1999. 3.The Lots, except Lot No. 373, were Old Schedule "agricultural lots" in the New Territories held under a Block Government Lease. Lot No. 373, with an area of 0.45 acre, or 1,821.1 sq.m., was demised as agricultural land under New Grant No. 2522 dated 6 June 1917. 4.The Lots comprised two separate groups of contiguous lots, described by the Respondent's expert, Mr. Hong Kwok Hei Kenneth ("Mr. Hong") of Chesterton Petty Limited, as "the Large Site" (i.e. Lot Nos. 361 to 375 and Lot No. 385) and "the Small Site" (i.e. Lot No. 387 s.A and the others). The Lots were situated close to Sheung Cheung Wai in Ping Shan of Yuen Long. They were accessible by a vehicular track leading to Ping Ha Road. The track, being part of the Ping Shan Heritage Trail, physically divided the Lots into the Large Site and the Small Site. The Large Site fronted onto Tin Fuk Road, a main road in the area separating Tin Shui Wai New Town from the Lots, whereas the Small Site fronted onto the track. Both the Large Site and the Small Site were used for car parking purposes as at the date of resumption. The resumption affected all of the land of the Large Site and about half of the land of the Small Site. The parties have no dispute over the registered site areas and the resumed areas of the Lots, the details of which are summarized as below: -
5.The Lots were designated for "Undetermined" use in the Draft Ping Shan Outline Zoning Plan No. S/YL-PS/2 dated 19 September 1997. Prior to that, the Lots fell within the "Unspecified Use" area under the Draft Ping Shan Development Permission Area Plan No. DPA/YL-PS/1 dated 18 June 1993 and the approved Development Permission Area Plan No. DPA/YL-PS/2 dated 28 May 1996. These plans preceded the first Draft Ping Shan Outline Zoning Plan No. S/YL-PS/1 which was exhibited on 14 June 1996. Under the said first Draft Plan, the Lots were also designated for "Undetermined" use. 6.The Applicant acquired the Lots by a number of agreements for sale and purchasce during the period from October 1997 to July 1998. The details of these transactions were set out in page 381 of Exhibit "AR-1". The total purchase price of the Lots, which had a total registered area of 22,739.6 sq.m., was $154,660,908. 7.On 15 January 2000, the Applicant appointed Messrs. Lawson David and Sung Surveyors Limited to submit to the Respondent a compensation claim in respect of the Lots in the sum of $194,800,000 plus interests, professional fees and costs. As the parties could not reach any agreement after the expiry of 7 months from the receipt of the claim, the Applicant filed an application to the Lands Tribunal on 28 March 2001 for the determination of the amount of compensation under Section 34(7) of the Railways Ordinance. Summary of the Applicant's claim and the Respondent's valuation 8.On 18 September 2001, Messrs. Lawson David and Sung Surveyors Limited assessed in their valuation report (pages 40 and 41 of Exhibit "AR-1") that the Applicant's total claim for the Lots was in the sum of $286,300,000. 9.Subsequently, Mr. Sung Tze Wah ("Mr. Sung") of Messrs. Lawson David and Sung Surveyors Limited filed a Supplementary Report dated 5 December 2001 (pages 304 to 314 of Exhibit "AR-1"), in which he estimated that if the Lots were to be used for open car park, the open market value would be in the sum of $199,900,000. 10.On 14 January 2002, Mr. Sung reviewed his valuation in light of the valuation report of Mr. Hong. He revised his assessment from $286,300,000 to $296,700,000 (see Exhibit "AR-2"), the break-down of which was as follows: -
11.Mr. Hong in his Rule 20 Report dated 21 September 2001 (page 225 of Exhibit "AR-1") estimated that the compensation amount for the Lots in their Existing Use and reflecting the best use with the benefit of vacant possession as at the resumption date was HK$33,820,000. Alternatively, Mr. Hong opined that if the open car park use was the best use of the Lots, then the compensation amount should be HK$36,600,000. 12.Subsequently, Mr. Hong in his report dated 19 November 2001 reviewed his valuation and was satisfied with the approach and the basis of valuation as set out in his first report dated 21 September 2001. However, he discovered certain mathematical errors in his report. As a result, he revised his valuation of the Lots, in their Existing Use and reflecting the best use with the benefit of vacant possession as at the resumption date, from $33,820,000 to $34,420,000 (page 356 of Exhibit "AR-1"). 13.Alternatively, Mr. Hong was of the opinion that the open market value of the Lots, assuming residential development was the best alternative use in a no zone world, with the benefit of vacant possession as at the resumption date, was $35,169,985 or say $35,200,000 (page 356 of Exhibit "AR-1"). 14.In summary, the Applicant claimed that the compensation for the Lots resumed, including compensation for severance of the remaining unresumed portion of the Lots, should be in the sum of $296.70 million; whilst the Respondent submitted that the compensation to the Applicant should only be $36.60 million, which was the highest of the Respondent's valuation on different alternative bases. For ease of reference, we tabulate the main variables used in the parties' valuations as follows: -
15.As summarized above, there were huge differences between the valuations of the two expert surveyors. They were mainly due to (i) the different assumptions as to the permitted zoning of the Lots, i.e., the planning permissions that would have been given to the Lots in the absence of the West Rail Scheme and the resumption thereunder, (ii) the difference in the choice of comparables which were based on the different assumptions as to their zoning and permitted uses, and (iii) the choice of car parking rental comparables in the assessment of the open market values of the Lots on the basis of car parking use. Before going through their evidence in details, we shall first set out below the few legal issues and principles behind the method of assessment of compensation for resumption of land in Hong Kong in general and in the context of this case in particular. The statutory provisions on compensation 16.We first consider the statutory provisions on the assessment of compensation. For the resumption of the Lots, which were instituted under the Railways Ordinance, the basis on which compensation is to be assessed is set out, inter alia, in Item 1 in Part II of the Schedule to that Ordinance as follows: -
17.Under the said Item 1, it is also provided that persons who may claim compensation for their respective losses are: -
18.The statutory provisions for assessment of compensation for land taken under the Railways Ordinance are therefore set out in the Lands Resumption Ordinance, Cap.124. The relevant provisions in the Lands Resumption Ordinance are: -
19.In the Draft Ping Shan Outline Zoning Plan, the Lots were zoned "Undetermined", which is the zone specified in Section 4(1)(e) of the Town Planning Ordinance, Cap.131. Section 12(aa) of the Lands Resumption Ordinance actually requires that no account shall be taken of the fact that the Lots were zoned "Undetermined" as it was specified in Section 4(1)(e) of the Town Planning Ordinance. However, Section 4(1)(b) of the Town Planning Ordinance is not included in Section 12(aa) of the Lands Resumption Ordinance, so "zones or districts set apart for use for residential, commercial, industrial or other specified uses" as stipulated in Section 4(1)(b) of the Town Planning Ordinance can be taken into account. 20.Hence, we find that one of the basic assumptions we have to make is that in assessing the open market value of the Lots on the basis of the alternative highest and best use, we must ignore the then exiting "Undetermined" zoning and assume that the Lots were in the "no zone" world. However, does it mean that we have to assume that there is no planning control at all in such circumstances, or that, for the purpose of assessing compensation for land resumed, the Lots must be assumed to be zoned for "residential, commercial, industrial or other specific uses"? We find the answers to both questions to be negative. Obviously, it would be illogical to assume that there is no planning control of user or density in our society. Neither party actually submitted that because of Section 12(aa) of the Land Resumption Ordinance, which required the Tribunal to ignore any "Undetermined" or "Green Belt" zoning but not any residential or commercial or industrial zoning, the Tribunal must assume, by default, that the resumed Lots could have a residential zoning. We find that after ignoring the then existing "Undetermined" zoning of the Lots, we still have to consider whether in the "no scheme" and the "no zone" world, the land would have been zoned residential and if so, what type of residential zoning. Summary of case laws of recent years on the principles of compensation 21.Counsel for the Applicant summarized in their Opening several court decisions which established the basic principles of compensation for land resumption in Hong Kong. The relevant cases, in chronological order, are as follows: -
22.The Applicant submitted that in the case of Dragon House Investment Ltd., the Lands Tribunal cited with approval a passage from the judgment in Suen Sun-yau case and the decision of the Lands Tribunal in Yin Shuen Enterprises Limited v. Director of Lands. In the Nam Chung Appeal, the Court of Appeal cited the same passage (partly reproduced above) from the Judgment of H.H. Judge Cruden in the Suen Sun-yau case with approval. The Court of Appeal also upheld the Lands Tribunal decision in the Yin Shuen Enterprises Limited case. 23.Therefore, the Applicant submitted that the Dragon House Investment Ltd. case was good law and should be followed. The Applicant said that since Mr. Sung followed the judgment of the Lands Tribunal in that case by assuming firstly that the Lots were in a "no zone" world, and then considering the location, accessibility and the surrounding environment of the Lots to find out their real present value, the approach of Mr. Sung was correct in the circumstances. Effect of Section 12 (c) of the Ordinance 24.In Yin Shuen Appeal, Rogers V.P. dismissed the arguments on behalf of the Director of Lands that section 12(c) of the Ordinance precluded an assessment being made which included a hope value. In the words of Rogers V.P. in the judgment of Yin Shuen Appeal [2002] 1 HKC 304 at 312, lines B to D,
25.The Applicant submitted that the Court of Appeal's judgment in Yin Shuen Appeal and Nam Chun Appeal should be followed, whereas the Respondent submitted that as the Tribunal was bounded by the judgement in these two appeals on the construction of section 12(c), the Tribunal should treat this issue as argued and decided against the Respondent. We agree with the parties' submission and hold that section 12(c) did not preclude against the valuation of the Lots by direct comparison approach using sales of comparable land as evidence of the open market value of the Lots. Issues before the Tribunal 26.As rightly put by the parties, we have to determine the value of the Lots on two different bases, firstly, the open market value of the Lots on the basis of its then existing use, as a commercial open car park and secondly, the open market value of the Lots in the "no scheme" and the "no zone" world, on the basis of its alternative highest and best use, as envisaged by the market. The compensation payable to the Applicant shall be the higher of the two valuations. 27.The first valuation involves the investment method of valuation, which requires the assessment of the full open market rental value of the Lots and its capitalization by an appropriate multiplier. 28.The second valuation mainly involves the valuation of the Lots on direct comparison basis. We have to decide what amount of compensation, if any, would have to be paid to the Applicant by the Respondent, in respect of the Applicant's remaining land that had been severed by the resumption. 29.The most difficult question associated with the second valuation, as pointed out by the Respondent's counsel, Mr. Miu, in his Final Submission is whether the Lots, as perceived by the market, possessed the actual potential for residential development at the time of resumption in January 1999. In other words, we have to find out, in the eyes of the market, what the zoning of the Lots at the date of resumption would be, on the basis that the West Rail scheme and the resumption thereunder be ignored (in light of the "Pointe Gourde" principle, which was commonly accepted by the parties to be applicable in the present case) and that the zoning of the Lots were not zoned "U" (pursuant to Section 12(aa) of the Lands Resumption Ordinance). The answer to this question is essential because it will assist us to decide which should be the best comparables for the purpose of assessing the open market value of the Lots assuming the alternative highest and best use in the "no zone" and "no scheme" situation. More specifically, it will assist us to decide whether the comparables used by Mr. Sung, which were agricultural lots all zoned "R(B)" (i.e. for medium density residential) or the comparables used by Mr. Hong, which were agricultural lots all zoned "R(D)" (i.e. for low density residential) should be used in the valuation on the basis of potential alternative highest and best use. Basis of Assessment of Open Market value 30.We agree with Mr. Miu that the following principles of valuation apply for land resumption in Hong Kong, as set out by H.H. Judge Cruden in his book, Land Compensation and Valuation Law (2nd Edition, 1999) at pp. 96-102: -
31.We note that the following passage in Rogers V.P. Judgment of Yin Shuen Appeal [2002] 1 HKC 304 at page 313, lines D - E provides us guidance to the choice of comparables in the valuation of the Lots: -
32.Since the Lots and all the comparables considered by the parties in this case were "agricultural" lots with similar lease conditions, it is clear from the above quotation that the comparables to be taken by us as the starting point for the assessment must be true comparables in terms of town planning restrictions. 33.The Applicant referred us to the following passage in the Judgment of Nam Chung Appeal [2002] 1 HKC 304 at 320, line F to 321 line A, in which Rogers V.P. said: -
34.The Applicant submitted that the above quoted words of Rogers V.P. could be applied to the Lots in the present case. In a nutshell, Mr. Sung said that in applying the above process of assessment, he found that the best comparable sites which had most similar attributes (i.e. location, accessibility and surrounding) to the subject Lots were the comparables he had adopted, namely the comparable land zoned "R(B)" located in the same planning area of Ping Shan. For the same reason, the Applicant submitted that Mr. Hong's comparables should be rejected since their physical attributes were not as similar to the Lots as Mr. Sung's comparables. 35.On the contrary, Mr. Hong opined that the zonings of the comparables were of primary importance. After analysis, Mr. Hong concluded that the best zoning for the Lots in the absence of the West Rail Scheme and the resumption was no more better or higher in density than "R(D)" (i.e. low-density residential). Therefore, he reckoned that the choice of those comparable sales of land with zoning similar to the potential "R(D)" zoning for the Lots were much more relevant than choosing those comparables which were similar to the Lots in terms of location and/or other physical attributes. 36.In our opinion, Rogers V.P. only confirmed that the Lands Tribunal was entitled to value the agricultural lots in question by comparing them with comparable sites which were similarly restricted and the restrictions included lease conditions, town planning orders and other attributes of the land in question. We therefore consider that we have to decide which are the best comparables in the present case. That is, if there were in existence different sets of comparables of different physical attributes and different zoning attributes (actual or most probable potential zoning, in the eyes of the market), which category of comparables should be used? Basis for the choice of the comparables 37.We understand that Mr. Sung's initial basic approach, as stated in his valuation report (Exhibit "AR-1", page 31), was to find the best comparables by considering the physical attributes of the Lots and the comparables. In Mr. Sung's supplementary statement and his evidence at the hearing, he also considered that, in his opinion, the Lots would have been zoned "R(A)" with a maximum plot ratio of 5, in the absence of the West Rail Scheme and the resumption and in the "no zone" world. He therefore opined that his chosen comparables, which were all of "R(B)" zoning, were much more appropriate as they were closer to "R(A)" zoned land than Mr. Hong's comparables which were zoned "R(D)". 38.In our opinion, the vendors and purchasers of any land in the market should recognize, as a matter of paramount importance, the zoning of such land, including the actual zoning at the times of sale and purchase, the historical zoning as well as the potential zoning. This is the situation so long as the present system of planning control still exists in our society. They are invariably of over-riding importance than other attributes of the land, including their lease restrictions, physical characteristics and other attributes. In other words, the players in the market would normally have regard to the zoning issue as of number one importance. The lease modification, if necessary, becomes a matter of formality, even though it may affect the viability of the development project, entail the payment of a premium and affect the other costs of development. The physical attributes may generally affect the costs of development and the value of the completed developments. Other than that, the physical attributes, including its location, accessibility and the surrounding environment, usually have an important bearing on the zoning potential of the land. 39.As an illustration, we all know that residential building lands of a similar zoning (for example, "R(A)") at different locations may have different values on "unit area of land" basis, or on the commonly agreed "accommodation value" basis, which is the value of land per sq.m. of developable gross floor area of completed development. Similarly, agricultural lands of a similar zoning at different locations may also have different values on unit area basis. Yet, it is common knowledge in the valuation profession that the difference in value between lands (such as residential lands with similar zoning) at different locations is much less than the difference in value between lands at similar locations but of different status of lease conditions and/or planning restrictions (such as lands in the same intersection but with "residential" zoning and "green belt" zoning). 40.Although the constituency of this Tribunal is not the same as the Tribunals hearing and giving judgments in the cases quoted earlier in this Judgment, we note and agree with the Respondent that in those cases, the Tribunal faced a situation that was quite different from the present case as regards the zoning of the land in question. In Nam Chun or Yin Shuen, the land had been zoned "R(A)" in the previous OZPs before their actual resumption by the relevant authority for the building of public housing estates. In Dragon House, the land had been zoned "CDA" which permits residential and commercial development. In Tang Yin Kwong, the land had been zoned "R(C)" prior to the resumption. Hence, we find that in the above quoted cases, the Tribunals decided to use comparables of land that were of similar attributes, i.e. of similar zoning, of similar lease conditions (as both were similarly demised "agricultural" lots), and of similar physical attributes. By contrast, the Lots in the present case has never been zoned "R" in any of the OZP or any other non-statutory plans before the resumption. 41.Further, we find in the above quoted cases, the Director of Lands mainly contested those cases over the issue of whether under Section 12(c) of the Lands Resumption Ordinance, that valuation could not be carried out on the basis of direct comparison of sales of comparable land if the latter were found to contain development potential. Therefore, unlike the present case, there were no or little arguments or debates on the potentiality of zoning of the land resumed in those cases. 42.We find that there is an important difference between this case and the other cases quoted by the Applicant in that for the subject Lots, there was no history of its being zoned for residential uses, or any use permitting building development, such as "CDA". It is therefore very arguable that we should compare the Lots directly with sales of other land that have a residential zoning, such as the comparable sales quoted by Mr. Sung, unless the players in the market were generally satisfied that the Lots were as secure, as far as zoning is concerned, as the comparables which all have actual residential zoning. 43.Hence, in the present case, notwithstanding the opinion of Mr. Sung, we still have to ask ourselves, at the outset, whether sufficient evidence has been adduced that the market will accept that for the Lots, in the absence of West Rail Scheme and the resumption and in the "no zone" world, they will be zoned for high-density residential (i.e. "R(A)" zoning) to a density of plot ratio 5, as suggested by Mr. Sung, or their best zoning will be low-density residential (i.e. "R(D)") as suggested by Mr. Hong. We shall consider this below. Absence of planning certificate system similar to that of England 44.Mr. Miu stated in his submission that the primary issue facing us could have been avoided if Hong Kong had a similar statuory framework as in England, U.K. Basically, in England, any aggrieved owner/claimant, whose land was compulsorily resumed could apply to obtain a planning certificate under Section 17 of the Lands Compensation Act 1961. That Certificate may certify that planning permission for residential development might reasonably have been expected to be granted in respect of the said land if the land were not proposed to be acquired by any authority (see London Borough of Enfield v. Lavender Garden Properties Ltd. [1968] 2 All ER 401 at 401D). Such a certificate would have the effect of "what would otherwise be no more than a chance may be treated as a certainty" (in the words of Diplock L.J. in London Borough of Enfield at 406D). Unfortunately, we do not have similar statutory provisions in Hong Kong. 45.Mr. Miu further submitted that "since we do not have similar provisions in Hong Kong, the possibility of residential permission being granted must always remain a chance. There is no statutory conversion of that chance into a certainty. Therein lies that danger of comparing SS (the Lots) with land which had been zoned "R(A)" or "R(B)". For those "comparables", the residential zoning was a fact and a certainty. For the SS, it was a mere "hope"." Hence, it was suggested that, even if the historical transaction prices of the Lots were to be used as a basis of comparison, certain adjustments should be made to reflect the difference between "a certainty" and "a chance". 46.The Applicant disagreed that there should be any adjustment to the comparables once the Tribunal found that the Lots would have been zoned "R(A)", in the absence of the West Rail Scheme and the resumption and in the "no zone" world ignoring the existing "Undetermined" zoning for the Lots. There would be no need for any adjustment to reflect the so-called difference between "a certainty" and "a chance", as submitted by the Respondent. 47.We agree with the Applicant's submission in this regard. As set out earlier, we are going to determine what the zoning of the Lots would have been, in the eyes of the market, in the "no scheme" and the "no zone" world. It would be quite absurd to say that once we have arrived at the most probable zoning, one would still have to adjust for the difference between the comparables which had certainty in the zoning and the Lots, where the probable zoning remained a chance only. Besides, both surveyors did not make any allowance for such adjustments in their valuations either. We do not therefore find it necessary to make such adjustment in the circumstances. 48.We agree that as part of the assessment process, we are actually asked to give a determination on what should have been a planning decision. We are fully aware of the difference between determination in a planning inquiry and determination in a Lands Tribunal hearing. We are also aware of the fact that although this case involves the determination of the most probable, highest and best alternative planning use (i.e. an alternative zoning) in the "no zone" world, the parties chose not to call any planning expert. However, it is a matter of their choices as to how they wish to conduct their cases. The Applicant's case regarding the most probable zoning of the Lots 49.We heard evidence from both surveyors regarding their opinion as to the most probable zoning of the Lots, assuming there were no West Rail Scheme and no resumption and that the Lots were not zoned "Undetermined". The Applicant summarized in the final submission that "the Applicant has proven on a balance of probabilities that the Lots have attributes that give them a potential for residential development. The probabilities are that the Lots would be so developed if not for the West Rail scheme." The attributes, submitted the Applicant, include the following: -
50.Basically, the Applicant submitted that the Lots formed a piece of level, flat and paved land, of roughly rectangular in shape. The Town Planning Department's survey in 1993 only revealed that a small part in the middle of the Lots was a pond but it would be unrealistic to believe that part of the Lots would become the fish ponds again if there was no West Rail Scheme. Whilst admitting that the Lots were used as a temporary car park at the relevant date, the Applicant submitted that it was ridiculous to assume that the Lots would remain as a car park, in the absence of the West Rail Scheme. In addition, it was suggested that the agricultural land was not traded for its use as a car park. 51.Mr. Sung gave evidence that although the Lots were agricultural land, a merged site of the same size seldom appeared in the market. In general, large merged sites in single ownership in the N.T. were extremely scarce and such merged sites were sought after by developers because they had greater potential for higher density developments. Even when the market was falling, as was the case in 1999, developers wished to acquire such merged sites as land bank for future use. 52.Besides, Mr. Sung emphasised that the Lots were located in between two major road junctions, namely the junction of Tin Fuk Road and Long Tin Road, and the junction of Tin Fuk Road and Ping Ha Road in Tin Shui Wai area. They were easily accessible since they were bounded by 3 trunk roads: Ping Ha Road, Tin Fuk Road and Long Tin Road. The Lots actually abutted Tin Fuk Road, where developments on the other side are high-rise, high-density residential developments. The Lots were also clearly close to Tin Shui Wai New Town to the north, Yuen Long to the east and the proposed Hung Shui Kiu New Town to the west. 53.In particular, Mr. Sung gave evidence that there was pressure for development on suitable sites such as the Lots when Yuen Long and Tin Shui Wai New Town were expanding. The Lots were included in the district boundary of Tin Shui Wai New Town. As the Tin Shui Wai New Town was to develop further, it was likely that the area south of Tin Fuk Road, where the Lots were situated, would be the direction of growth of the town. Alternatively, since Yuen Long had been expanding and the Lots were situated in the path of growth between Yuen Long and Tin Shui Wai, he opined that it would be natural for the Lots to be included, in the absence of the West Rail Scheme, as the growth area of Yuen Long or Tin Shui Wai New Town. Mr. Sung also produced evidence to show that "the nearby areas to the site including Yuen Long South, Au Tau-Kam Tin and Hung Shui Kiu were identified within the North West New Territories Broad Based Study Area as potential long-term strategic growth areas. Mr. Sung therefore concluded that it would be natural for the Lots to be zoned for high density residential use (i.e. "R(A)" use). 54.Mr. Sung also gave evidence that the Tsui Shing Lau Pagoda, a listed building, was in fact outside the boundaries of the Lots. It was suggested that even if they were within the Lots, there was no reason that residential zoning could not be permitted just on that ground. It was possible, for example, to fuse the new and the old together in the same site. 55.Mr. Sung pointed out that the immediate neighbourhood was characterized by a large number of residential developments, including a large number of high-rise developments (Kingswood Villa, public housing estates and Home Ownership Scheme estates) across Tin Fuk Road in Tin Shui Wai. There were other mixed uses nearby: commercial complexes, telephone exchange, football field/stadium and a District Park. It was also suggested that the existing hill marked "Green Belt" in the OZP, the slope and the cemeteries jointly provided a natural buffer for the area to the east of the Lots. According to Mr. Sung, there was no problem at all with the provision of infrastructure, sewage, drainage, etc. if the Lots were all zoned "R(A)". 56.Finally, Mr. Sung commented on the history of the zoning of the Lots. He opined that the then existing "Undetermined" zoning of the Lots in various Ping Shan OZPs were caused by the West Rail Scheme as any other zoning would have affected the Scheme. Likewise, this was the main reason for the Town Planning Board to refuse to grant approvals to various planning applications affecting the Lots in the last few years. Other than this reason, which should be excluded in view of the "Pointe Gourde" principle, Mr. Sung opined that there was no reason that approvals for "R(A)" zoning for the Lots could not be forthcoming. The Respondent's case regarding the most probable zoning of the Lots 57.Mr. Hong disagreed with Mr. Sung that Yuen Long South, Au Tau-Kam Tin and Hung Shui Kiu were all strategic growth areas. Rather, from the current Ping Shan Outline Zoning Plan S/YL/PS/3 of 28 May 1999, it was clear that "future expansion of population in the Area will be concentrated in existing villages and the Hung Shui Kiu area, and along Castle Peak Road." 58.Mr. Hong produced two planning studies which showed that the Lots did not fall within any "Supplementary Housing Sites" or "Major Strategic Growth Areas" (Exhibit "R-1", Figure 28 and Exhibit "R-2"). Although the Lots came under the NWNT in the "Territorial Development Strategy Review, Executive Summary" published by the Planning, Environment and Lands Branch in 1998 (Exhibit "R-1") which was intended "to help meet long-term housing needs", it was submitted that if any development of the Lots were based on the Territorial Development Strategy Review, it would be so far ahead (year 2006 and beyond) that it would not be realistic to take that into consideration when we consider the potential of the Lots at the relevant date. 59.The Respondent further submitted that from all the planning studies and reports, there was no evidence that the Lots came within any designated growth area. 60.The Respondent submitted that although the Lots were close to Tin Shui Wai, it was never part of the Tin Shui Wai New Town. Although Exhibit "A-9", an extract from a publication of the Territorial Development Department called "Tin Shui Wai/Yuen Long Development Programme 2000/2001 Edition", showed that the Lots were within the District Boundary of Tin Shui Wai, the Respondent said that another map in the Programme (Map M9 of Exhibit "R-8") showed that the Lots really fell within the Yuen Long-Tuen Mun Corridor (North) Planning Area (as Planning Area 33). The clear evidence was that the Lots had all along been included in the various editions of Ping Shan Outline Zoning Plans as part of Ping Shan Planning Area, but not as part of Tin Shui Wai New Town. Therefore, the Respondent submitted that for future development of Tin Shui Wai, it would be taking place over Areas 3, 30 and 31 in the Development Zone and the Reserve Zone to its north (see paragraph 5.1(ii) on page 1.7 of Exhibit "R-8"), that is, in a northerly and westerly direction but not likely to be in a southerly direction towards the Lots, to the south side of Tin Fuk Road. 61.The Respondent rejected the Applicant's arguments that because of the physical attributes of the lots in terms of its size, level, location, accessibility and proximity to major roads, the surrounding environment, as well as its being located in between Yuen Long Town and Hung Shui Kiu, and close to Tin Shui Wai, the Lots must have attracted an "R(A)" zoning. The Respondent submitted that residential development might have taken place, had there been no requirement for planning permission to be obtained in the first place, but town planners were entitled or might incline "to zone large blocks of flat land for residential development, and restrict developments on narrow strips of flat land close to the hills." 62.Regarding the provision of infrastructure and sewage, etc., the Respondent disagreed with the Applicant that the development of the Lots would not create any problem simply because the scale of any development over the Lots would be minimal when compared with the whole provision of infrastructure, etc. Similarly, the Respondent rejected the suggestion that the development of the Lots would not create any problem just because the population on the Lots would be very little when compared with, for instance, the entire population of the Tin Shui Wai New Town. 63.Mr. Hong also stated that the reasons for rejecting the two planning applications and the planning review involving the Lots were based on the planning intentions of the Ping Shan area, and other infrastructural constraints, and were consistent with the planning objectives. Review of planning documents affecting the Lots 64.We do not find the area and territorial wide planning documents adduced by the parties of much use in our determination as to what the Lots would have been zoned in the "no scheme" and the "no zone" world. They were generally too broad-brush in approach. We agree with the remarks made by the Planning Appeal Board, chaired by Mr. Justice Litton (TPA No. 12/1994, unreported, 14 September 1995) on the usefulness of TDSR, which was conducted on a territory-wide strategic level. In paragraph 13, the Board observed: -
65.Notwithstanding the above observation, we agree with the Respondent that even if Tin Shui Wai did grow at the relevant date, it was not necessary that the growth would take place in the southerly direction towards the Lots. On the contrary, since the Lots were outside the Planning Area of Tin Shui Wai and there were sufficient undeveloped land in that town, the growth would more likely take place in the northerly and westerly direction. 66.We think that the delineation of Planning Areas must play an important part in district planning or else, it would be pointless to divide the region or district into various Planning Areas. Previous applications for planning permission for the Lots 67.Mr. Hong summarized the history of planning applications of the Lots in his report, as follows: -
68.During the hearing, much time has been spent on the details of these planning applications, including both the decisions and the minutes of these meetings. 69.The Applicant submitted, "the previous application for planning permission for residential developments relied on by the Respondent are irrelevant or should be approached with extreme caution". The Applicant said that whilst the Town Planning Board and its Rural and New Town Planning Committee were bounded by law to look at the "U" zones and the West Rail, the Tribunal is bound by law to assume that the Lots were in a no zone world and to disregard the "U" zone and the West Rail. As such, the Applicant concluded that it was for this Tribunal to determine whether the Lots had any potential for a high density residential development, on the date of resumption; however, the results of the previous planning applications for the Lots had no or extremely limited value as pieces of evidence in this case. 70.We disagree with the Applicant's submission in this regard. If we follow the Applicant's logic that the previous planning applications involving the Lots were irrelevant, it would mean that we could only consider the physical, location and environmental attributes of the Lots. As we have explained earlier, the Lands Resumption Ordinance only requires us to ignore the then existing "Undetermined" zoning of the Lots, it does not enable us to say that the Lots must have one of the residential, commercial or industrial zonings. In stating that we have to consider the Lots in the "no zone" world, in addition to assuming that there was no West Rail Scheme and no resumption, we find that we simply cannot brush aside all the previous planning applications and decisions as irrelevant. We therefore decide to consider these previous applications in more details below. We will take into account the parties' evidence and submissions on these applications. 71.The decision letter for review of the second application was dated 28 June 1996, only about 15 months before the publication in the Government Gazette of the West Rail (Phase 1) Scheme, and about the same time before the first and second acquisitions of the parcels of the Lots by the Applicant. We therefore think that it is particularly worthwhile to study the grounds given by the Town Planning Board for not approving the Applicant's application, as follows: -
72.Mr. Hong cited the above reasons as his basis that in the absence of the West Rail, and in the "no scheme" world, the Lots would unlikely be rezoned for "R(A)" use at the relevant date. He was of the view that the Town Planning Board intended to uphold the planning intentions of the PSDPA and since the Lots fell outside the favourable growth area, the chance for residential development was low. 73.On the other hand, we also find in the Applicant's Final Submission the following very detailed analysis as to why the Respondent's approach of relying on the planning applications to the Town Planning Board was a totally flaw: -
Evidence of other planning applications and approvals for land in the same OZP 74.Mr. Hong set out in his report dated 19 November 2001 (Exhibit "AR1", pages 358 to 362) the results of planning applications for residential development within the Ping Shan Development Permission Area ("PSDPA"). We note that there have been a total of 15 applications considered by the Town Planning Board during the period from October 1993 to June 2000 and the following table summarizes the results of the applications: -
75.Among the few successful applications, two of the sites were situated in the "U" zones close to Castle Peak Road whilst another site was one of the "CDA" zones of Hung Shui Kiu. The remaining site, also located close to Castle Peak Road, involved a change of use from "V" to "R". On the other hand, the latest s. 16 and s. 17 application in respect of a "U" zoned site were rejected in November 1998 and November 1999 respectively. Mr. Hong suggested that the above results demonstrated the determination of the Town Planning Board to uphold the planning intentions of PSDPA Plan, including the persistent disapprovals of residential developments outside the favourable growth areas of the PSDPA Plan. 76.We find that some of the Applicant's remarks on the results of the previous planning applications for the subject Lots were apparently also applicable to the Respondent's above submissions on the results of the planning applications for other sites in Ping Shan. 77.However, on balance, we find that we accept the Respondent's submission that the results of these applications in Ping Shan did not support the Applicant's case. It is plain to us that the Town Planning Board has in the last few years only approved changes of zoning for residential purposes for a few sites along Castle Peak Road. The most probable zoning of the Lots in the absence of West Rail Scheme and the resumption 78.In our opinion, we prefer to accept the evidence of Mr. Hong. We find that at most, the Lots would be zoned for low-density residential use at the relevant date, assuming that the Lots did not have an "Undetermined" zoning, and assuming that there was no West Rail Scheme and no resumption. 79.We find that the history of zoning of the Lots supports Mr. Hong's opinion. The other piece of evidence was the applications and approvals for re-zoning in the Ping Shan Area, as produced by Mr. Hong in his report. 80.The Lots were never zoned for residential purpose or other purpose permitting development before. Since the first Draft Outline Zoning Plan (No. S/YL-PS/1, dated 14 June 1996) came into existence, it was zoned "U"(Undetermined). Before that, the Lots were zoned for "Green Belt" use under the Yuen Long Plain Development Statement Draft Final Report ("YLPDS") and "Unspecific" under the Draft Ping Shan Development Permission Area Plan No. D/PA/YL-PS/1 dated 18 June 1993. 81.The Applicant pointed out that it could be seen from the Explanatory Statement to the Ping Shan Outline Zoning Plan that the planner had the West Rail in mind when zoning the area "U"(Undetermined). In response to this, the Respondent submitted, "The YLPDS therefore showed the last/latest zoning for the SS before the West Rail had been taken into account. This must be the best indicator of what zoning the SS would have attracted if there had been no WR Scheme." The Applicant's answer to that was, firstly, YLPDS was a too out-dated document to be of any relevance. Indeed, the Applicant said that the Draft Ping Shan Development Permission Area Plan dated 28 May 1996 was also out-dated. True, it was replaced by the first Draft Ping Shan Outline Zoning Plan No. S/YL-PS/2 first exhibited on 14 June 1996. Unfortunately, the Lots were then already zoned "Undetermined" in the first Draft Outline Zoning Plan. 82.In addition, the Respondent said that following the introduction of town planning by our society, "the urban and sub-urban development area must be defined somewhere. Wherever the delimiting line is drawn, owners of land falling on the wrong side of the line will feel unhappy because they can no longer share in the planning gain. But that is not a reason for not drawing the line." We agree to the above and find that the law does not require us to assume a vacuum so far as planning is concerned. 83.Besides, we do not share the same opinion as the Applicant that when the owners of the Lots applied for planning permission for low density development in the past, they might have been refused because members of the Town Planning Board would consider that any approval might affect the West Rail. For example, it was alleged that even though the West Rail might not be given as the reason for rejection, the Board members could well have regard to the West Rail in making their decision. Since the law requires us to disregard the effect of West Rail, so we should also disregard the results of the previous planning applications. We find that this argument is flawed because it assumes that the Board was not discharging their statutory obligations under the Town Planning Ordinance. There is no evidence before us that the Town Planning Board did take the West Rail into account. 84.In addition, we accept the evidence that for re-zoning proposal cases within the same planning area of Ping Shan, only a few cases were approved. Of these few cases, they were located along Castle Peak Road. 85.We find that in any Outline Zoning Plan, there is a variety of zonings under which different uses are permitted as of right or can be permitted upon application and approval by the Town Planning Board. For residential zoning, there can be a range of densities. There is however no evidence that the Town Planning Board, in deciding the relevant zoning and density of a piece of land, will only consider the location, accessibility and surrounding environment of the said land. 86.We note that according to the preamble of the Town Planning Ordinance, it is enacted "to promote the health, safety, convenience and general welfare of the community by making provision for the systematic preparation and approval of plans for the lay-out of areas of Hong Kong as well as for the types of building suitable for erection therein and for the preparation and approval of plans for areas within which permission is required for development". 87.Therefore, the Board, in reaching its decisions on zoning or re-zoning of any piece of land, should have regard to such consideration as to, for instance, the medium and long term planning intention for the planning area, social aspects of the uses, balance of growth and development, in addition to the consideration as to the physical attributes of the land in question and their accessibility. 88.In the present case, if we take Tin Fuk Road as a dividing line, we do not agree with Mr. Sung that since the land to the immediate north were zoned "R(A)", it must follow that the Lots, which were situated to the south side of Tin Fuk Road should be of the same zoning. The Town Planning Board should have taken into consideration other factors before it could reach its decision on the proper zoning for the Lots. However, in the final analysis, we find that there was insufficient evidence that the Town Planning Board would have changed its position regarding the long term planning for the Lots, in the absence of the West Rail Scheme, the resumption and in the "no zone world". 89.On the balance of probabilities, we do not find that the Applicant had shown to our satisfaction that in the "no scheme" world, the Lots would have been zoned for high density residential use, i.e. "R(A)" zoning. We therefore accept the Respondent's submission that "at most, low-rise, low density residential development with insignificant adverse impacts on the environment, traffic and drainage of the area, such as an "R(D)" development with plot ratio of 0.2, might have been permitted". Valuation of the Lots by Mr. Sung on the basis of open car parking use 90.Mr. Sung produced a supplementary report dated 5 December 2001 in which he estimated the open market value of the Lots to be $199,900,000 on the assumption that all the Lots were to be used for open car park use at the date of resumption. 91.Mr. Sung commented that the comparable rents Mr. Hong had used were inappropriate as they were rents for renewals of short-term tenancies but were not rents actually agreed in the open market. He said that they were not available in public record and therefore could not be verified. Presumably they were existing tenancies granted some years and were renewed by the Lands Department as revised rents assessed by the Lands Department. Besides, the renewal of Short Term Tenancies was usually on a quarterly basis, which explained why the rents were low when compared to the new Short Term Tenancies by open tender on a much longer terms. Also, Mr. Sung considered that the "zoning approach" adopted by Mr. Hong to account for the size factor of the Lots was not appropriate. The large size of the Lots, according to Mr. Sung, should be an advantage, not a disadvantage. In addition, the first two rents quoted by Mr. Hong, being dated March 1998 and April 1998, were out-dated for the purpose of assessing the open market rent of the Lots as at 16 January 1999. 92.It seemed to Mr. Sung that the comparable tenancies quoted by Mr. Hong excluded the parking of container vehicles, whereas the Lots, being large in size and situated in a prime location with good accessibility to major trunk roads and close to residential development, but not far away from industrial areas and container yards, should be very suitable for parking of any kind of container vehicles, container tractors and container trailers, as well as parking for private cars and commercial vehicles. Hence, Mr. Sung concluded that for the valuation of the open market rent of the Lots for open car parking purpose, the open market tender results of Government tenancy land should be preferred. 93.Mr. Sung compiled in his report (Exhibit "AR-1", pages 326 to 328) a list of 10 open market tender results of short-term tenancies of Government land in the New Territories, all let by the Lands Department. They had the dates of award (presumably the same or close to the dates of commencement of these tenancies) between 28 April 1998 and 29 September 1999. Two of these tenancies were located in Yuen Long, six in Tuen Mun and the remaining two in Sheung Shui. They ranged in analysed unit rates of $330 to $1,291 per sq.m. per annum. 94.Mr. Sung opined that the two tenancies in Yuen Long (i.e. STT 1567 and STT 1569) were very good comparables for the Lots. As for the location, Mr. Sung found that these two comparables, "being close to or not far away from developments on the fringe of Yuen Long town centre is better than the subject lots." He also found the layout of the Lots "to be better because of their regular shape and ample space for circulation and manoeuvring". As to the use, the Lots are much better because "there are no restrictions on the type of vehicles, be they private cars, lorries, container vehicles, tractors or trailers, etc. being parked on site" whereas there are restrictions for STT1567 and STT1569. 95.After making adjustments for location, layout, use, as well as time and quantum, Mr. Sung assessed the average adjusted unit rent of his two best comparables to be about $795 per sq.m. p.a. He applied this unit rate to the total area of the Lots of 20,542.4 sq.m., giving an estimate of the open market rent of $16,331,208 per annum. Based on the yield of 6.67% for a single car parking space in Kwan Lok San Tsuen, Mr. Sung considered it appropriate to add a premium of 1.5% to reflect the very good location of the subject Lots, resulting in a 8.17% as to be the appropriate yield for the capitalization of the open market rent of the Lots. Hence, he estimated the open market value of the Lots as $16,331,208 x 100 / 8.17, or $199,892,387, rounded to $199,900,000. Valuation of the Lots by Mr. Hong on the basis of open car parking use 96.In Mr. Hong's first valuation report, he reported on the Existing Uses of the Lots as shown in the aerial photographs taken on 19 June 1993. He summed up that the Existing Uses of the Lots, as defined in the Town Planning Ordinance to be the uses in existence immediately before the publication of the Draft Ping Shan Development Permission Plan No. DPA/YL-PS/1 dated 18 June 1983, were fish pond, vacant land and open car park. He also drew our attention that although planning approvals for the car park use were obtained on 22 May 1997 and 12 December 1997 for part of the Small Site and part of the Large site plus some adjoining Government land, both planning permissions were granted on the same temporary basis for 1 year and subject to conditions. And, one of the conditions was that, upon expiry of the approval period, reinstatement of the application site to the satisfaction of the Director of Planning or the Town Planning Board was required. 97.Mr. Hong estimated the open market value of the Lots on the basis of open car parking use, on two different assumptions. In the first valuation, it was worked out on the assumption that the whole of all the Lots (i.e. the Large and Small sites together) could be occupied for open car parking use without the need for planning approval. In the second valuation, the market value of the Large Site excluding Lot Nos. 362 and 363 were assessed on the basis of open car parking use whilst the Small Site and Lot Nos. 362 and 363, however, were valued based on the fish pond use. According to Mr. Hong, the reason for making this distinction was the requirement to obtain a planning permission for the site filling works for the Small Site and Lot Nos. 362 and 363 of the Large Site which involved a "hope value". This "hope value", as submitted by Mr. Hong, had to be disregarded under the provisions of section 12(c) of the Lands Resumption Ordinance. However, we decide that, following the decision of Yin Shuen Appeal, this distinction is unnecessary. 98.Mr. Hong found 5 short-term tenancy renewals to be appropriate comparables, the details of which were shown in pages 269, 281 and 282 of Exhibit "AR-1". Two of the comparable tenancies, located at Kiu Tau Wai and Sheung Cheung Wai, were very close to the Lots while the other three comparables were located in Tin Tze Estate and Tin Wah Estate, in Tin Shui Wai. They had areas in the range of between 3,500 sq.m. and 6,110 sq.m. and unadjusted unit rates of between $296 and $450 per sq.m., or an average unit rate of about $389 per sq.m. 99.Mr. Hong made adjustments to his comparables in respect of the factors of time difference, location, layout, accessibility and quantum. The last adjustment for quantum was made with reference to an assumed standard zonal area of 4,542.6 sq.m., but not with reference to the actual area of the Lots, since he would make a separate adjustment on the quantum aspect later on. He arrived at an average adjusted unit rate of about $307 per sq.m. 100.Mr. Hong considered that since there was a huge difference between the size of the Lots and those of the comparables, it would be appropriate to use a "zoning approach", somewhat similar to what have been frequently used in the valuation of high street shops of different depths, to reflect the size of the Large Site. He divided the Large Site of the Lots into three zones and attempted two scenarios in his valuation. In the first scenario, he assumed 4 zones, with each zone having an area of about 4,540 sq.m., which was about the average size of his 5 comparables. The second zone commanded half of the zonal rental of the first zone, the third zone half of the second zone and the fourth zone the same as the third zone. In the second scenario, he assumed 3 zones, each with an area of about 6,060 sq.ft. Each "back zone" commanded 2/3 of the zonal rental of the previous zone. 101.Finally, Mr. Hong opined that it would be more appropriate to adopt the results of his analysis for size adjustment based on the first scenario. That is, he estimated that after making the size adjustment based on his "zoning approach", the average after-adjusted unit rate of his 5 comparables, at $307 per sq.m. became $178 per sq.m. Mr. Hong calculated that this figure of $178 represented a downward adjustment of 40% when compared with the adjusted unit rate of his Comparable 3. However, we find his quantum adjustment by way of this "zoning approach" tantamount to an additional size adjustment factor of about -58 % when compared with the average adjusted unit rate of all 5 comparables. 102.According to the evidence of Mr. Hong, if he had not used this "zoning approach", he would have adopted a very large discount, to the extent of 50% to account for the large size of the Lots. In support of his quantum adjustment, Mr. Hong said that his Comparables 4 and 5 show that for a difference in site area of about 18%, the unit rental rates already show a difference of about 75%. So, it would be reasonable to adopt a large discount to reflect the fact that the Lots are many times the size of the Comparables. 103.In Yuen Long Fish Merchant's Association Limited v Secretary for Transport (unreported, reference LDMR44/2000), the Tribunal decided that a yield of 9.17% per annum should be applied to capitalize the annual market rental of the site. Mr. Hong said that in view of the much larger size of the Lots and the likelihood of not receiving the full market rent to the whole site, it would be appropriate to use a yield of 10% per annum. 104.In the Respondent's submission, it was pointed out that since Mr. Sung's two rental comparables were located in Yuen Long Town, they were not good comparables for the Lots. Also, the Respondent questioned the evidence of Mr. Sung that the Applicant had not bothered to collect any rent from the occupier who had been operating the car park on the Lots as the intention of the Applicant was to develop the land. The Respondent said that it was incredible that the Applicant would not bother to collect rent that was worth $16 million per annum, as estimated by Mr. Sung. Also, the Respondent submitted that according to the audited accounts of the car park operator, Mei Wah, which operated a car park on the Lots shortly before the relevant time, Mei Wah only managed to have an audited yearly income ranging from $1.6 million to $2.3 million. Hence, Mr. Hong's estimate of an annum rent of $3,660,000 was considered by the Respondent to be very generous. Our determination of the open market value of the Lots on the basis of open car parking use 105.We agree that since the two rental comparables adopted by Mr. Sung are located in Yuen Long Town, they are not good comparables. On the contrary, Mr. Hong's comparables are much closer in character and are also close geographically located closer to the Lots than the two Yuen Tong Town comparables. In particular, two of his six comparables were located in Kiu Tau Wai and Sheung Cheung Wai, just adjacent to the Lots. 106.We do not agree that when Mr. Hong's comparables were not available to the public, those tenancies could not be used as comparables. Since it is not mandatory to register tenancies of short duration, most of the tenancies are not registered in Hong Kong. Yet, the valuation profession are valuing these tenancies for various reasons, including statutory reasons all the time. It is a matter of fact for us to decide as to whether we should accept certain tenancy evidence presented by the parties. In this case, we did not receive evidence or submission that the tenancy evidence produced by Mr. Hong were incorrect. Besides, we find that Mr. Hong is a honest witness and we have no reason to believe that either Mr. Hong or the persons who provided him with the details of those tenancy renewals were deliberately misleading the Applicant and this Tribunal. 107.However, we do not find the evidence given by Mr. Hong regarding the annual income of Mei Wah to be useful for the purpose of assessing the full open market rent of the Lots. Although the average annual income results were derived from the audited accounts of Mei Wah, the car park operator who used to occupy the Lots before, we have grave reservations on relying the accounts, which were apparently made for an entirely different reason. 108.Also, we find the "zoning approach" not convincing. Whilst we agree in principle that for a very large site, a car park operator may charge different rates for different areas, we do not know and therefore cannot agree that if the rents should be halved back or two thirds "halving back" the further one goes into the Lots from the main road. It is also theoretically quite different between high street shops and parking lots since for the shops, we are talking about the behaviour of the average shoppers who tend not to walk further into the shops whilst for the car parks, it will be much easier to go further when one is sitting inside a car. 109.We therefore prefer to use the traditional approach of adjusting the size of the Lots. We note that this is somewhat subjective but subjectivity in valuation is part and parcel of the whole exercise since valuation is never an exact science. Unless certain adjustments can be supported by, for instance, such other data as price index of property values to account for time differences, or the availability of close comparables in which only one difference could be identified and quantified, valuation surveyors have to make subjective judgments from time to time. So, our valuation can be no exception from the norm. Mr. Hong's "zoning approach", although using more assumptions and calculations in the process, was, in my view, very subjective when he decided that values were "halving back" and that the individual zones were of such and such depths. 110.We have considered if there is any need to allow for the layout and user, as suggested by Mr. Sung. The areas of the comparable tenancies adopted by Mr. Hong were all regular in shape and pose no problem in manoeuvring, hence no particular allowances for layouts of the comparable sites are considered to be necessary. As to the possible user of the comparable tenancies and the Lots, we find that although Comparable 1 (STT No. 1364) includes the parking of container vehicles and tractors, we find that its unit rental rate is not different from the other five comparables which do not include such user. Therefore, we also do not allow for the user difference. 111.We agree with Mr. Hong that there is no need to adjust for time and layout. We also accept Mr. Hong's direction of adjustments for location and accessibility as well as quantum although we have different view as to the percentage differences. Our adjustments are as shown in the table below: -
112.From the above analysis, although the average of the two comparables (Comparable Nos.1 and 3), which are closer to the Lots than the other three comparables, are slightly less than the average of all five comparables, we decide to adopt the latter figure as the unit rental rate for the Lots. 113.As to the yield to be adopted for the capitalization of the estimated full open market rent, we prefer to accept Mr. Hong's estimate of 10% rather than Mr. Sung's 8.17%. We do not agree that the yield for open car parking lots such as the subject Lots should be based on the average market yield for offices and retail properties. 114.Thus, the open market value of the Lots is assessed as follows: -
Valuation of the Lots on the basis of direct sales comparables, i.e. alternative potential low density residential development 115.For the reasons set out before, we decide that the highest and best alternative potential development for the Lots would not be for "R(A)" development. In the circumstances, we accept with the Respondent that the alternative potential development for the Lots would only be for "R(D)" uses. Therefore, we agree with Mr. Hong that the best comparables would have to be sales of land having the same "R(D)" uses, notwithstanding that these comparable lands of "R(D)" zoning might not share the same physical attributes as the Lots. The latter are, as far as valuation is concerned, matters for which adjustments might be required. We have had the benefit of seeing the adjustments proposed by Mr. Hong. We find that they are on the whole reasonable and we do not have any reason for not accepting his adjustments. 116.However, we disagree with Mr. Hong that since two of his comparables were not in line with the others, they should be discarded. On the contrary, we find that these two comparables are in line with each other. Although these two comparables, with a median of $4,467 per sq. m., are quite different from the other comparables, which cluster around a median figure of $1,712 per sq.m., we find that we should not exclude them just on the ground that they are not in line with the rest. 117.We reproduce below a summary of the Mr. Hong's "R(D)" comparables and his adjustments, as set out in his valuation at page 399 of Exhibit "AR-1": -
118.We calculate that the overall average of the adjusted unit rates of the 6 comparables, at $2,630 per sq.m. should be taken as the unit rate for the assessment of the open market value of the Lots on the bases of alternative potential low density residential use as at the relevant date. Consideration of the sale prices of Government land auctioned in 1999/2000 119.We have stated in the beginning of this Judgment that there was a huge difference between the values adopted by Mr. Sung and Mr. Hong. Mr. Hong stated in his valuation report that the open market value of the Lots, at the unit rate of $13,576 as assessed by Mr. Sung was excessive and unrealistic when one compared the said rate with the results of the Government auctions for land of comparable size designated for low density residential use. Mr. Hong said that there were three such pieces of land, two in Tuen Mun each sold for a unit price of around $20,000 per sq.m. whilst one in Tai Po sold for around $10,000 per sq.m. Hence, Mr. Hong argued that Mr. Sung's valuation was unrealistic and could not be right. 120.It would be too simple and therefore incorrect just to compare the end result of Mr. Sung's valuation with the auction results of land capable of low density residential development. This is because Mr. Sung's assumption of potential permissible residential development density for the Lots was of a plot ratio of 5, many times higher than what were permitted for the said 3 lots of auctioned land. 121.Similarly, we do not find that it serves any useful purpose to estimate the value of the Lots on the basis of the estimated "accommodation value" and compare that with the derived "accommodation values" of comparable sales, including sales of auctioned sites. For the subject Lots, and other lands of similar lease conditions and planning restrictions, their planning status and hence their finalized densities, unlike those of "building" lots, were not confirmed. They are seldom sold in the market on the basis of their exact potential permissible gross floor areas, i.e. on "accommodation value" basis, as for building land. Consideration of the similar sized transaction in 1999 122.Mr. Hong reported that his colleague had carried out research of all the agricultural land transactions of more than $10 million in consideration, for the period from 1995 to 2000. The findings were that "the number of agricultural land transactions dropped sharply after 1997 from a total of 90 cases to 43 and 45 cases for the years 1998 and 1999 respectively. The total numbers of transactions in the range of $50m to $100m are 6, 5 and 4 for 1997, 1998 and 1999 respectively, whilst in the over $100m range, the respective transaction numbers were 3, 0 and 1." Mr. Hong concluded that these findings demonstrated that agricultural land transactions were popular only in a speculative market. Also, the larger the transaction sum was, the lesser the number of transactions would be. In fact, only 1 transaction of over $100m was recorded throughout the bearish market of 1998 and 1999. (It should be noted that a total of 6 transactions of over $100m were noted in 2000, which rules out the possibility of lack of available sites in the preceding two years). 123.Mr. Hong further analysed the only over $100m transaction, which sale was registered on 31 July 1999. It covered a total of 45 lots in Demarcation District Nos. 107 and 109, zoned for either "Unspecified" or "Agricultural". It had a total consideration of $159,858,945 and a total site area of 68,199.8 sq.m., giving a unit transacted rate of $2,344 per sq.m. Mr. Hong added that according to the advice from the District Lands Officer, Yuen Long of the Lands Department, some of the lots of that transaction were included in an application for comprehensive development with a plot ratio of 1.2115, which was approved by the Town Planning Board on 19 October 2001. Mr. Hong calculated that, based on the transacted price and the said information from the District Lands Officer, that sale was equivalent to a unit rate, on "accommodation value" basis, of $1,935 per sq.m. As such, this is substantially lower than Mr. Hong's estimate of the open market value for the Lots. Therefore, Mr. Hong said that his valuation should be considered to be "at the upper end of the market value and is an appropriate value for the Resumed Lots." 124.We agree that the quoted transaction was useful as a guide to the open market value of the Lots at the relevant date on two reasons. Firstly, it is the only similar transaction of over $100m involving agricultural land in the N.T. in the year 1999. Secondly, the lots included in the transaction was at the time of the transaction on 31 July 1999, zoned for either "Unspecified" or "Agricultural". As such, it was most probable that the said lots in that transaction were sold and purchased on the basis of its alternative highest and best use, probably for residential use. Therefore, it was quite similar to the Lots in this case. We appreciate that there was a difference in location between the lots included in that transaction and the subject Lots. However, as explained earlier in this judgment, this location factor and other physical attributes were of less importance when compared with the planning attributes. Therefore, on the whole, we consider that that transaction gives an indication of value to the value of the Lots at the relevant date. Valuation of the Lots on the basis of its historical acquisition costs 125.The Respondent submitted that if the Tribunal found that the Lots would have been granted planning permission for medium or high-density residential development, there was no logical reason for not adopting historical transaction prices of the Lots in 1997/1998 as the comparables. The Respondent further submitted that since the comparables used by Mr. Sung were all zoned "residential" whilst for the subject Lots, "the obtaining of the requisite planning permission (in addition to the waiver of the restrictive covenant) remained a chance". Therefore the fair market value for the Lots should be based on the transacted prices of the Lots in 1997/1998, with a market discount to reflect the chance or risk that planning permission might not be obtained. In this connection, the Respondent suggested that there was no better way to work out this discount than to take the market discount that the Applicant had achieved in the acquisition of the Lots, hence the appropriateness of using the transacted prices as the basis of valuation. To reflect the time difference between 1997/1998 and the date of resumption, Mr. Hong used the price index for residential property published by the Rating & Valuation Department as the basis for adjusting the transacted prices. In this manner, Mr. Hong estimated that the sum of the time-adjusted transacted prices of all the Lots to be $102,341,884 (Exhibit "AR-1", page 381). The Respondent submitted that it was the fair market value for the Lots on the assumption that (i) the Tribunal agreed that planning permission would have been given to the Lots for medium to high-density residential development and (ii) that the actual historical transacted prices should be used as a basis of comparison. 126.The Applicant submitted that the Respondent's above approach was flawed because the Lots were not purchased all at once but at different periods of time. Since merged sites were sought after by developers and had a great potential for development, submitted the Applicant, the Lots were worth much more collectively than individually, as succinctly put in H.H. Judge Cruden's book, Land Compensation and Valuation Law in Hong Kong (page 116), as follows: -
127.The Applicant said that the transacted prices for the Lots in 1997/1998 should be taken as the starting point. Contrary to what the Respondent submitted, the historical prices should however be adjusted upwards since they had become one huge site of 22,729.6 sq.m. in size under one ownership. The Applicant did not expressly say in their final submission their suggested extent of upward adjustment that should be applied. 128.The Respondent responded that at the date of resumption, the market condition was worse than the situation in the previous years. It would therefore be difficult for a willing seller to dispose of a very large piece of assembled land, such as the Lots, in the market. Besides, the Respondent said that the major part of the land assembly in the present case was not actually done by the Applicant but by its predecessor. After the 2nd purchase in November 1997, the Applicant already had a large rectangular strip of land on which development could take place. The Respondent submitted that the Applicant's proposition that the value of a whole piece of land assembled from many smaller lots should be worth more than the sum of the value of the individual parts might be true in general. However, in this case, since "the critical mass had been achieved by November 1997 and what were subsequently added were like icings to a cake". The subsequent additions were not essential and therefore did not add to the value of the whole beyond their individual value. 129.We agree with the Respondent's observation that after the second acquisition, the Applicant already managed to assemble a sizeable plot of contiguous lots, capable of physical redevelopment, barring any lease, planning and other government controls and restrictions. The assembled land already extended to about 14,730.6 sq.m. with a total purchase price of $107,187,400. 130.However, in our view, what is important is that the Applicant at that time should have been fully aware of the West Rail Scheme. According to the evidence adduced by Mr. Hong, the Lots were part of the land included in the West Rail (Phase 1) Scheme that were first referred to in Government Notification No. 1629 dated 27 September 1997 and published in the Government Gazette on 3 and 9 October 1997. A purchaser of such a large chunk of land with an area of roughly about 15,000 sq.m. and a total purchase price of over $107 Million should have been very cautious of the planning intention, as well as any Government or institutional proposals for the area, which might affect directly or indirectly their assembled land. So, although the time of the said Government Gazette was quite close to the date of the first and second acquisition of the land, which form part of the Lots (details in page 381 of Exhibit "AR-1"), we find that the Applicant should be fully aware of the details of the West Rail Scheme. As for the acquisitions subsequent to the second acquisition, their agreement dates were between 2 December 1997 and 3 July 1998. Hence, the Applicant should also be aware of the West Rail Scheme at the time of these subsequent acquisitions. 131.It is trite law in compensation valuation on compulsory acquisition that the effects of the scheme underlying the resumption have to be ignored. Indeed, the expert surveyors for both parties agreed with that principle, commonly known as Pointe Gourde principle. However, if we were to use the historical transacted prices as the basis for comparison as a starting point, we are at a loss to know how a surveyor could manage to ignore, or to isolate and to exclude the effects of the West Rail Scheme. For this reason, we decide that it is not satisfactory at all to base on the historical transacted prices in our attempt to gauge the compensation payable to the Applicant at the date of resumption. Conclusion of value of the Lots on the basis of highest and best potential alternative use for low density residential development 132.Summing up, we have found earlier that the unit rate of the open market value of the Lots, based on the direct sales comparison method, i.e., the analysis and adjustment of the "R(D)" comparables identified by Mr. Hong, was $2,630 per sq.m. This unit rate, incidentally, was supported by the overall unit rate of comparable transaction in 1999 of another large cluster of lots. However, we have decided that we cannot arrive at any conclusion on the value for the Lots by looking at the auction results of 3 plots of building land (at around $10,000 and $20,000 per sq.m.) designated for low density residential development purpose. Finally, we have also decided that it is unsatisfactory to base on the historical transaction prices of the individual parcels of the Lots to arrive at the open market value of the sum of the Lots at the relevant date. 133.Hence, in the final analysis, we decide that the best estimate we can get for the value of the Lots on the basis of their potential alternative highest and best use for low density residential development, is to multiply the total area of the Lots of 20,542.4 sq.m. with the estimated unit rate of $2,630 per sq.m. This results in the value of $54,026,512, which we round up to $54,030,000. Compensation for severance 134.The remaining land of the Small Site after the resumption comprises 3 separate parcels, i.e. Lots Nos. 387 s.B ss1 (P), 387 s.B R.P. (P) and 387 s.C R.P.(P.) ("Remaining Land"). They are agricultural lots having a total area of 2,197.2 sq.m. 135.The Applicant submitted, "The remaining lots would experience difficulties in development because of Government's policy of protecting proposed railway routes administratively...The remaining Lots have lesser development potential because they no longer abut Tin Fuk Road." The Applicant accordingly submitted that the diminution in value of the unresumed and severed land, estimated by Mr. Sung to be 75% of the open market value of the Lots actually resumed, in the sum of $22,000,000, should be a fair and just assessment of the loss or damages suffered by the Applicant due to severance. 136.Mr. Hong opined that there would be no diminution in value of the Remaining Land after the resumption. The Respondent submitted that on the basis of open car parking use, the Lots and some neighbouring lots were used and occupied by Mei Wah for car parking use at the relevant time. Therefore, even though the three parcels of the Remaining Land could not, after the resumption, be used as car park by themselves because of their small sizes, they could be combined with the neighbouring sites for the same car parking use as before. The Respondent also submitted, "It was clear from the aerial photos, and from Mr. Hong's evidence, that the vehicular access to the SS (the Lots) was never from Tin Fuk Road but from Ping Ha Road. It would appear from AR1 p.249 that at least the access to lot 387 S.B RP (which was close to Tsui Shing Lau) has remained." 137.As to the open market value of the Remaining Land on the basis of alternative potential use for low-density residential development, the Respondent submitted that there would be a betterment rather than a loss since the West Rail Scheme improves the transport facilities for the area including the Remaining Land. Also, the Respondent said that although the Remaining Land became incapable of development by itself, it could form part of another land assembly involving other neighbouring land, if the Applicant's assertions were right in the first place. Therefore, on the basis of potential residential development, submitted the Respondent, there should be no diminution in value. 138.We find that on the basis of open car parking use, both parties agreed that the Remaining Land by itself was incapable of being used as before. However, the Respondent said that there was evidence that at the relevant date, the Remaining Land was together with neighbouring land (other than the Lots) used for car parking purpose. We find that there was no apparent reason that this neighbouring land would not continue to join with the Remaining Land to form a parking lot, which could also continue to have an access to Ping Ha Road. This is because their use for open car parking was definitely the highest and best use of the land in the interim. Therefore, we agree with the Respondent that no diminution in value of the Remaining Land would result. As such, no compensation in respect of diminution in value of the Remaining Land is payable. 139.However, on the basis of alternative potential use for low-density residential development, we agree with the Applicant that it would be obvious that there was some diminution in value of the Remaining Land. However, although the Lots were assembled land extending to over 20,000 sq.m., we find that the Remaining Land did not in fact form the integral part of the Lots resumed. They were lying on the perimeter of the Small Site towards the south end of the Lots. Their location and configuration also suggest that they would unlikely be developed as part of a large estate, for example, without some modification of lot boundary by way of land exchange with Government or requiring further acquisition by the owner. It would equally be possible that the Remaining Land be amalgamated with other neighbouring land to form another piece of assembled site in the future. We appreciate that that may take time and as such, we find that there would be some diminution in value to the Remaining Land. However, we do not agree that the extent of diminution should be 75% of their value, as suggested by Mr. Sung. Rather, we consider that on balance, a 25% diminution in value appears to us to be more appropriate. 140.Therefore, we estimate the diminution in value of the Remaining Land, for the alternative potential low density residential development use, as follows: -
Conclusion of compensation amount payable to the Applicant 141.We have determined above the compensation amount payable to the Applicant on two bases, firstly, the use of the Lots for the then existing open car parking use; and secondly, the use of the Lots on the basis of potential alternative use for low-density residential development. 142.We estimated the value of the Lots resumed on the first basis to be $49,450,000. We also decide that there was no diminution in value to the Remaining Land on the first basis. 143.On the second basis, we estimated the value of the Lots resumed to be $54,030,000 and the diminution in value to the Remaining Land to be $1,450,000, giving a total of $55,480,000. 144.On reconciliation of these two estimates, we decide that we should adopt the higher of the two figures, i.e. $55,480,000 as to be the compensation amount payable by the Respondent to the Applicant for the resumption of the Lots including severance to the Remaining Land owned by the Applicant. Orders 145.Accordingly, we order that the Respondent do pay the Applicant compensation for the resumed Lots, including compensation for the severance of the Remaining Land, in the sum of $55,480,000. The matters of professional fees, interest and costs be adjourned to a date to be fixed by the Assistant Registrar, with liberty to apply for any other ancillary and consequential matters.
Representation: Ms. Audrey EU, SC and Mr. Anthony ISMAIL, instructed by M/S Kao, Lee & Yip, for the Applicant. Mr. Nelson MIU, instructed by the Secretary for Justice, for the Respondent. Remarks: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cases cited in this judgment