Yuen Shu Wing v. The Director of Lands
|
LDLR 1 to 4 OF 2004 IN THE LANDS TRIBUNAL OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION Lands Resumption Application No. 1 of 2004 _______________ BETWEEN
_______________
IN THE LANDS TRIBUNAL OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION Lands Resumption Application No. 2 of 2004 _______________ BETWEEN
_______________ IN THE LANDS TRIBUNAL OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION Lands Resumption Application No. 3 of 2004 _______________ BETWEEN
_______________
IN THE LANDS TRIBUNAL OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION Lands Resumption Application No. 4 of 2004 _______________ BETWEEN
_______________ Coram : H. H. Judge YUNG, Presiding Officer of the Lands Tribunal and Mr. W. K. LO, Member of the Lands Tribunal Dates of Hearing : 25 October 2005, 13, 14, 15 & 18 December 2006 and 18, 19 & 20 March 2007 Date of Judgment : 18 April 2007 ________________ J U D G M E N T ________________ Background 1.The 4 applicants (“Applicants A1, A2, A3 and A4”) in the captioned 4 proceedings covered by this Judgment were the registered owners of 4 properties (collectively “the Properties”) at Tai Tok Tsui Road. The Properties were resumed by the Government under the Lands Resumption Ordinance (“the Ordinance”) for the implementation of the Development Scheme K3 at Cherry Street by the Urban Renewal Authority (“URA”) vide Government Notification No. 1487 dated 26 February 2003. The Applicants applied to the Tribunal for determination of compensation payable under the Ordinance. The proceedings were consolidated for hearing. The Applicants called for the evidence of an expert valuation surveyor Ms. Tam Wai Ling Mary (“Ms. Tam”) whilst the Respondent called for the evidence of another expert surveyor Mr. Lai Wah Chi (“Mr. Lai”). The Properties 2.The Properties were 4 ground floor shops situated at various buildings on the western side of Tai Kok Tsui Road near its southern end, in the block between Fu Kwai Street to the north and Cherry Street to the south. The subject buildings were completed in 1955. The Properties fell within the URA’s K3 Scheme, which involved 32 blocks of tenement buildings and 565 households. The Properties resumed are the following: -
3.Although the parties agreed to adjust the ancillary cockloft and yard areas of the Properties and had these added to the original saleable areas to arrive at the effective saleable areas, there were negligible differences between the experts in their estimates of the effective saleable area figures. The parties did not agree as to which sets of figures should be adopted by this Tribunal. However, since the figures used by Mr. Lai were larger than those used by Ms. Tam they were adopted by this Tribunal as this would be to the Applicants’ favour. Therefore, in this Judgment, the Tribunal shall adopt the following set of effective saleable areas which were used by Mr. Lai in his reports: -
4.According to the information provided by the Applicants, as at the date of valuation, A1 Property, A2 Property and A3 Property were vacant whilst A4 Property was subject to a tenancy expiring on 31 July 2003 at a monthly rent of $11,000 exclusive of rates and was occupied for commercial purposes. The valuation issues 5.This is purely a valuation exercise. Both experts used the same direct comparison method of valuation. It is also common ground that according to section 12(a) of the Lands Resumption Ordinance, Cap. 124, the compensation payable by the Respondent to the Applicants for each of the Properties resumed should be taken to be the open market value (“the OMV”) of the respective property at the relevant valuation date of 7 June 2003. Although the experts chose different comparables in their valuations, they still assisted the Tribunal by giving their opinion on the adjustments that would be appropriate if the Tribunal should at the end decide to adopt any of the comparables used by the other side. The latest valuations of the OMV of the Properties by the 2 experts as shown in their valuation reports are as follows: -
6.The valuation issues include the following: -
Choice of comparables 7.There were between the 2 experts a total of 9 sale comparables of ground floor units in Tai Kok Tsui area. Ms. Tam gave evidence that her chosen 4 comparables AC1 to AC4 were the better comparables because they were located on the same side of Tai Kok Tsui Road, a thoroughfare in the area, of wide pavement and several lanes for vehicles that generated a lot of pedestrian flow for the Properties and the comparables alike. On the contrary, Ms. Tam said that none of the comparables (i.e. RC1 to RC5) chosen by her counter-part Mr. Lai was fronting directly onto Tai Kok Tsui Road. They were fronting instead onto side streets that were of very different character from Tai Kok Tsui Road. As such, they were inferior to the Properties resumed. It was also submitted by the Applicants that Comparable RC5 was a transaction that was cancelled on 8 April 2003, shortly after the signing of an agreement for sale and purchase on 13 February 2003. 8.During the final submission, the Applicants conceded to abandon Ms. Tam’s Comparable AC4 because the Applicants accepted Mr. Lai’s evidence that the comparable, comprising a small ground floor entrance and a much larger first floor premises, was not a good comparable for the Properties. Therefore, the Applicant submitted that the Tribunal should instead concentrate on the remaining 3 comparables adopted by Ms. Tam, i.e. AC1, AC2 and AC3. 9.On the other hand, Mr. Lai gave evidence that since the relevant valuation date of 7 June 2003 fell within the SARS period during which there were very drastic fall and rebound of ground floor property prices due to the effects of SARS on the economy as a whole and the property market in particular. Therefore, it would be prudent only to choose those comparables the transaction dates of which were very close to the relevant valuation date in order to avoid the problem of making substantial time adjustment, which in any event could not be assessed easily. 10.In addition, Mr. Lai suggested that since the pedestrian flow outside a particular ground floor property would have a great bearing on its value, the Tribunal should only adopt those comparables that had pedestrian flow similar to the Properties. In this regard, Mr. Lai said that although the Properties were located on the western side of Tai Kok Tsui Road, they were located near the southern end of the road and hence only enjoyed inferior pedestrian flow than the comparables located on the much better middle and the northern stretches of the road. On the other hand, as far as location characteristics was concerned, the Properties were very similar to his chosen comparables, which were all located on the side streets branching off from Tai Kok Tsui Road. 11.The comparables identified by the experts, after eliminating AC4 are as follows: -
12.We have the following findings for the comparables: - (i) Comparable AC1 It is common ground that this comparable, located at the junction of Tai Kok Tsui Road and Ivy Street, occupies a better location of Tai Kok Tsui Road even though there is a difference in opinion between the 2 experts in the degree of difference. We agree with Mr. Lai that this middle part of Tai Kok Tsui Road is in fact the busiest part so far as pedestrian flow is concerned and that the character of the pedestrians there are different from those passing the Properties, who are mainly on their way to the Olympic MTR Station. On the other hand, the Properties are located at the southern end of Tai Kok Tsui Road near Cherry Street, which is isolated from other parts of Cherry Street by the heavy through traffic and the highway structures. We further accept on balance the evidence of Mr. Lai that most of the pedestrians exiting from the Olympic MTR Station would prefer to use Hoi King Street, Fu Kwai Street and Pok Man Street for leading to the middle and northern parts of Tai Kok Tsui Road because these routes are shorter than going through Cherry Street, and hence passing through the Properties. Apart from the location differences, the transaction of this comparable was agreed on 17 June 2002 about 1 year prior to the relevant valuation date for the Properties. Also, the saleable area of this comparable is about 4 times of each of the Properties. Both of these 2 factors would require large adjustments if this comparable were to be used. Therefore, we agree to discard this comparable in this valuation exercise. (ii) Comparable AC2 and AC3 Based on Mr. Lai’s opinion, the Respondent submitted that as the relevant date of valuation for the Properties was 7 June 2003, right at the middle of the SARS period when the market was quiet as well as fluctuating, the price indices obtained around that period of time was not that reliable. The Respondent actually cited the price indices at pages 200 and 201 of the trial bundle to show that there was a constant drop of price since 2002 but the market rebounded sharply after July 2003, in support of his contention that any comparable transaction beyond June 2003 should not be adopted as comparables for the present valuation exercise. Hence, the Respondent submitted that transactions as close to the relevant date as possible should be used and that those transactions further away (which otherwise could be considered as suitable comparables in terms of time as they are, for instance, only a few months away) should be excluded in order to avoid the need to rely on time adjustments using the said price indices. For the above reasons, the Respondent submitted that Comparables AC2 and AC3, which were transacted on 21 November 2003 and 19 December 2003 respectively, should be discarded. On the contrary, we find that they are good comparables because similar to the Properties, these 2 comparables were also located on Tai Kok Tsui Road, on the stretch towards the northern portion of the road, away from the much busier middle part between Ivy Street and Tai Tsun Street. Also, we note that assuming that they were to be adopted by the Tribunal, Mr. Lai’s suggested adjustments for location (-25% for AC2) and frontage (-35% for AC3) would be much higher than his suggested time adjustments (-13% for AC2 and –17% for AC3). On the whole, we do not agree to discard the use of these 2 comparables because of the time differences and the difficulties of making time adjustments. (iii) Comparables RC2 and RC3 We agree with the evidence of Ms. Tam that the character of location of these 2 comparables are very different from that of the Properties. Anchor Street is a side street on the eastern side of Tai Kok Tsui Road. The pedestrian flow between these 2 comparable shops of Fu Dor Loy Sun Chuen Stage II and the Properties are quite different too. Therefore, we decide that it is not appropriate to include them in the analysis below. (iv) Comparable RC4 Similarly, we agree with the evidence of Ms. Tam that this comparable, which is located at Ka Shin Street, should be discarded because its character of location is very different from that of the Properties. Ka Shin Street, although in closer vicinity to the Properties than other comparables, is very much an inferior narrow side street with the ground floors used almost exclusively for lower order workshop and storage purposes. As such, it is quite different from Tai Kok Tsui Road, not even the quieter, southern part of the road where the Properties are located. (v) Comparable RC5 The Respondent submitted that as the transaction of this comparable is a cancelled transaction, it should be discarded for consideration. We agree not to use this comparable in this valuation exercise. 13.In summary, after eliminating Comparables AC1, RC2, RC3, RC4 and RC5, 3 comparables chosen by the experts remain. They are: AC2, AC3 and RC1. Adjustments for the comparables 14.The 2 expert surveyors adjusted the comparables for various factors of adjustments: time, location, headroom, size, frontage, layout and building age. The major area of difference was in the adjustment for location. They did not only differ in the quantum of adjustment but, rather unusually, also on the direction of adjustment as well. For the time adjustment, Ms. Tam helpfully provided 2 sets of adjustments, one based on the Jones Lang Lasalle Index and the other based on the Rating & Valuation Department’s Index. Apart from these, the differences in adjustments between the 2 experts were not that much. 15.We will now discuss below the various factors of adjustments, the quantum of adjustments as suggested by the 2 experts as well as our adopted adjustments.
Tribunal’s adjustments of the adopted comparables 16.Adopting the adjustments as summarized above, we have analysed the adopted comparables, as follows: - Table 1 – Analysis of adopted comparables
Valuation of the Properties on vacant possession basis 17.Applying the average adjusted unit rate of the 3 adopted comparables to the agreed effective saleable areas for the Properties give the following results of open market values on vacant possession basis: -
18.The open market values of 3 of the Properties (i.e. A1 Property, A2 Property and A3 Property) on vacant possession basis arrived at above will be the compensation sums payable by the Respondent to the Applicants A1, A2 and A3 for the resumption of their respective Properties since it is common ground that these Properties were on vacant possession basis at the relevant valuation date. Whether A4 Property should be valued on vacant possession basis or subject to the actual tenancy as at the date of valuation? 19.However, for A4 Property, it was common ground that the property was subject to a tenancy as at the date of valuation. There was a dispute between the parties as to whether the compensation payable to the Applicant A4 for his A4 Property should simply be the open market value of that property on the basis of vacant possession. Mr. Lai disagreed contending that according to the general valuation principle, in assessing the open market value of a property at a particular valuation date, one should take into account the effect of the tenancy subsisting. Hence, Mr. Lai suggested that the Tribunal should adopt the traditional method of valuation for a property subject to a tenancy by valuing the summation of the value of the term interest and the value of the reversionary interest. 20.The Applicant submitted that it would not be right to adopt the method to value the A4 Property for the following reasons:-
21.In deciding on whether the A4 Property should be valued to reflect its state of occupation and tenancy at the relevant valuation date, we are dealing with the issue of the definition of the Open Market Value of the Property. We decide that since the market will always give allowance as to whether vacant possession can be given at a certain date of valuation, we have to give regard to this fact. We note that even Ms. Tam did not dispute the tradition method of valuing a tenanted property as put forward by Mr. Lai, i.e. the summation of term interest and reversionary interest. Also, it is irrelevant to say that in carrying out the valuation, the Tribunal has to decide on other debatable points such as the appropriate discount rate and the Years Purchase (“YP”) factors. As for any valuation, the Tribunal will have to decide on the inputs, particularly when there are differences between the experts. 22.It was common ground that the A4 Property was subject to a tenancy expiring on 31 July 2003, at a monthly rent of $11,000. Also, Mr. Lai accepted under cross examination that if not for the Scheme affecting the Properties, the rental fetched by the A4 Property could be higher. Taking the higher end of Mr. Lai’s estimates, to the benefit of the Applicants, the rental without the Scheme would be about $11,000÷(1 - 30%), or $15,714, say $15,700 per month. We are prepared to use this estimated rental as a starting point. 23.As we accept Mr. Lai’s assumption that as it would take 6 months to serve a Notice to Quit to the tenant of a commercial property such as the A4 Property at the valuation date, we agree to his methodology of valuing the A4 Property. 24.Furthermore, we agree with Mr. Lai’s rationale for adopting 9% and 10% respectively for valuing the term interest and the revision. Hence, our version of the valuation of the A4 Property, on the same basis as that used by Mr. Lai with the exception of the change of monthly rental and the OMV on vacant possession, is as follows: - Term value
Reversing value
Orders 25.Accordingly, we order that the Respondent do pay the Applicants A1, A2, A3 and A4 compensations for the resumed Properties in the sums of $2.874 million, $2.874 million, $2.867 million and $2.822 million respectively. The matters of professional fees, interest and costs shall be adjourned to a date to be fixed by the Registrar, with liberty to apply for any other ancillary and consequential matters.
Mr. C. Y. LI, instructed by M/S Robertsons, for the Applicant. Mr. Simon LAM, instructed by the Department of Justice, for the Respondent. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Further hearings and rulings under LDLR 1/2004