Wong So Heung and Another v. The Director of Lands
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LDLR 11 OF 2008 IN THE LANDS TRIBUNAL OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION Lands Resumption Application No. 11 of 2008 _______________ BETWEEN
________________ J U D G M E N T ________________ The Application 1.This is an application by the Applicant for compensation in respect of the property known as Shop A on Ground Floor (with Cockloft or Store A therein), No. 54 Tonkin Street, Kowloon, Hong Kong (“the Property”), which was reverted to the Government on 30 October 2004 under the Lands Resumption Ordinance, Cap. 124 (“the Ordinance”) for the implementation of Development Proposal K25 by the Urban Renewal Authority, in association with the Hong Kong Housing Society, at Po On Road / Wai Wai Road, Shum Shui Po, Kowloon, pursuant to a gazetted Government Notice ( G.N. No. 4848) dated 21 July 2004. 2.On 26 November, 2004, the Government offered the Applicants a sum of $3,446,000 as the final settlement of all claims in this application. This was rejected by the Applicants, who later lodged a claim in the sum of $4,660,000, which was based on a valuation report prepared by Jointgoal Surveyors Ltd. 3.The Applicants submitted to the Lands Tribunal on 18 December 2008 under the Ordinance the present application, for the determination of the amount of compensation payable. The Respondent opposed the application on the grounds that (A) the Applicants were not entitled to compensation and (B) without prejudice to Ground (A) the Applicants’ claim was excessive. The Issues 4.At the beginning of the hearing, the parties made clear that the only dispute was on the valuation of the Property as at the relevant valuation date. Two expert witnesses were called by the parties, i.e. Ms. Lau Pik Yu Isabel (“AW”) for the Applicants and Mr. Lai Wah Chi (“RW”) for the Respondent. They managed to agree on (1) the use of the suitable method of valuation, commonly known as the “term and reversion” valuation, being the sum of (a) the value of the remaining term of the tenancy and (b) the reversionary interest assessed by discounting the Open Market Value (“OMV”) of the Property at an appropriate discount rate; (2) the Effective Area of the Property, being 58.178 sq. m., (3) the adoption of a number of common comparables (4) the timing adjustments for the comparables (being based on the Rating & Valuation Department’s published Private Retail Price Indices). At the end of the hearing, AW revised her valuation to $4,640,000 whilst RW revised his to $3,450,000. 5.The parties have the following valuation issues that would have to be determined by this Tribunal:
The choice of the best comparables by the experts 6.Counsel for the Applicants summed up in a table appended in his Opening Submission the comparables adopted by both AW and RW, their unadjusted unit rates, their individual adjustments for each factor, the total adjustments to the comparables and the resulting adjusted unit rates of the comparables. I shall not reproduce in this Judgment the same. Suffice to say that the experts have managed to agree a great deal including the adoption of 6 common comparables which were accepted by both parties to be suitable. Adoption of the best comparables by the Tribunal 7.It is common ground that the location of the Property is not superior to any of the comparables. The experts however disagreed as to whether AC5, AC7 and AC9 should also be adopted as the suitable comparables. 8.With the benefit of inspecting the location of the Property, those of the comparables and the general area, I find and decide that AC5 and AC7 should not be accepted as the suitable comparables for the valuation of the Property because the location characteristics of these comparables were very different from that of the Property, notwithstanding the short absolute distance between AC5 & AC7, and the Property. 9.As for AC9, it is in fact another transaction of the same property of AC2/RC5 (42 Tonkin Street), some 9 months post the valuation date. The Respondent submitted that this should be discarded on the following grounds: (1) the same property was already represented by AC2/RC5; (2) it was transacted further away from the valuation date than AC2/RC5, the latter of which was preferred on the principle that the closer the comparable to the valuation, the lesser the time adjustment would be required; and (3) the actual transaction price of AC9 when compared with AC2/RC5 show a great difference in value due to the timing difference alone and as the RW has also accepted in principle the use of the RVD’s index for the time adjustment, AC9 should be discarded on the ground of consistency. I agree to discard the use of AC9. 10.To summarize, I decide for reasons set out above that the best comparables for the present valuation exercise should be AC1/RC6, AC2/RC5, AC3/RC4, AC4/RC3, AC6/RC2, and AC8/RC1. Adjustments of the comparables by the Tribunal 11.I have also summarized below the adjustments I consider to be appropriate for the 6 adopted comparables: - Table 2 – Adjustments of comparables adopted by the Tribunal
*Based on the Effective Area of Comparable AC8/RC1 computed by AW 12.I have noted and accepted the experts’ agreements on the adjustments for time for all the comparables, with the exception for AC2/RC5 (due to the adoption of the different dates of transaction). I will consider below the differences in adjustments by AW and RW for that comparable as well as for the other factors in respect of all or some comparables. Location 13.As normally the case for valuation of this type, this is the main area of dispute between the experts, apart from the choice of the most suitable comparables. 14.I agree that the Property, located near the end of Wai Wai Street, is interior to the parts of Shun Ning Road or the junction of Tonkin Street and Shun Ning Road where all the commonly adopted comparables are located. 15.AW suggested adjustments of between nil and -30% to the comparables while RW proposed adjustments of between -10% and -35%. However, since AW and RW held different views to the specific adjustment for every comparable, with the exception of AC4/RC3, the resulting differences are quite large. In this valuation exercise, having regard to the suggested percentage adjustments to the comparables and with the benefit of site inspection on the first day of hearing, I have set out in the Table 2 above my adopted adjustments to the comparables on the factor of location, ranging between -10% and -30%. Quantum (i.e. Size) 16.The experts had agreement that there should not be any adjustment for AC1/RC6. They differed in opinion for the other comparables. Having considered their approach and the adopted adjustments, I accept the opinion of RW and his figures. Layout/frontage 17.The experts have set out in their reports their adjustments for these factors. They have elaborated their stance in the examination in chief and cross examination. On the whole, as I find the evidence of RW to be more credible and reasonable, I agree with his adjustments. Building Age 18.I also agree with RW that no adjustment to the comparables for this factor of adjustment is required. Adopted date of transaction of a comparable 19.Whilst both AW and RW used the RVD’s indices as the basis of their time adjustments, they differed in opinion as to whether the date of transaction as shown in the earlier date of the Provisional Sale and Purchase Agreement should be used. I accept the approach of RW to use the earlier date because (1) this was the date of the sale price was actually agreed; (2) the date of the provisional agreement was available from the Sale of Purchase Agreement which was subsequently signed and registered in the Land Registry. This should be the case of AC2/RC5. The yields used in the “term and reversion” valuations 20.AW adopted the figure of 5.4% as the appropriate yield for discounting the reversionary interest. This was based on the RVD’s Indices for Retail Market Yields in October 2004. RW criticized the use of this yield. Instead, he compared the rates of return of AC4/RC3 and AC2/RC5, which were 6.75% and 5.80% respectively, and after adjustment came up with a figure of 8% for the Property. 21.RW’s approach could be applied if the Property and the comparables were very similar. However, since both experts agreed that the Property was inferior to all of the comparables identified in the area and RW only used very limited data to arrive at his estimate of the yield, I am in favour of the AW’s approach of using the more objective RVD’s figure of 5.4%. 22.Since both experts agreed the difference between the term yield and the reversionary yield to be 0.5%, I agree to apply the term yield of 4.9%. 23.Therefore, in the valuations below, I apply the yield of 4.9% to the agreed net monthly rent of $19,724 for the remaining term of 0.8849 year and add to the resulting term value the discounted value of the OMV of the Property, discounting at the yield of 5.4% for the same period of time. Effective Saleable Area of comparable AC8/RC1 24.The experts could not agree on the effective saleable area of AC8/RC1. They agreed on the saleable areas of the ancillary accommodation: the cockloft and the yard. Also, they agreed on the “rule of thumb” factors for converting the ancillary accommodation into the effective saleable area of the comparable. However, they could not agree on the saleable area of the shop proper. According to the plans and calculation schedules produced by them, AW computed an area of 69.32 sq. m. whilst RW show an area of 73.17 sq. m. Unfortunately, while the copy building plan produced by RW show certain dimensions of the shop, there was no dimension for certain areas of the smaller portions at the back. As a result, I could not clarify the calculations produced by RW whereas on the face of the figures shown by AW, I could verify her figures by scaling off the plan myself. Therefore, at the end, I accept RW’s figures. Based on her figures, I estimated the effective saleable area of AC8/RC1 to be 76.70 sq. m. In the analysis in Table 2 above, I use this figure. Valuation of the OMV of the Property on vacant possession basis 25.Applying the average of the adjusted unit rates of the adopted 6 comparables, in the amount of $66,361 sq. m. as set out in Table 2 above to the agreed effective area of the Property at 58.178 sq. m., it gives the OMV of the Property, on vacant possession basis, as $3,860,750 which is rounded to $3,860,000. Valuation of the OMV of the Property subject to tenancy 26.The Property was subject to an existing tenancy at the date of valuation. Adopting the commonly agreed methodology and valuation parameters of AW and RW as set out in their valuation reports, the OMV of the Property subject to tenancy is estimated as follows:
Orders 26. Accordingly, I order that the Respondent do pay the Applicants compensation for the Property in the sum of $3,885,000. Cost order nisi that the Respondent do pay to the Applicants the costs of this Application, to be taxed on High Court Scale if not agreed, with Certificate for Counsel. Cost order nisi shall become absolute if there is no application made by either party to vary the order within 14 days. The matters of professional fees and interest shall be reserved, with liberty to apply by either party.
Mr. Roland LAU, instructed by Messrs Kong & Tang, for the Applicants Mr. Jin Pao, instructed by the Secretary for Justice, for the Respondent | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||