Co-operative Development Scheme:
An option for accelerating housing supply in New Development Areas of the New Territories
(pdf version available for download)
1. The affordability of housing in Hong Kong has long been a major public concern because of its impact not only on the community’s quality of life, but also the sustainability of the city’s economic competitiveness. While views on how best to contain the problem in the short term are varied, most are agreed that any workable long-term solution must involve increasing the supply of developable land. In this light, the Government’s proposal to develop new towns in North East New Territories (“NENT”) can only be viewed as a step in the right direction. Yet, whether a major policy initiative can ultimately reach its intended destination hangs on its execution, starting with securing buy-ins from key stakeholders. On this critical point, NENT development has not achieved the start that the community needed.
2. As opposition to NENT development has escalated from vociferous to violent, the Government desperately needs to find a way to convert antagonists into protagonists. The present paper outlines an alternative approach to NENT development that involves and incentivizes local villagers and small land owners in affected areas in the development process, thereby mobilizing the local community to help drive the policy initiative and deliver the intended benefits to Hong Kong as a whole.
3. Doctoral Exchange recommends that a Co-operative Development Scheme (CDS) be implemented with the following features:
(a) small land owners within a New Development Area (“NDA”) in NENT, for instance, may aggregate their lots to be held by a jointly-owned co-operative development company (“CDC”);
(b) where the combined lots have reached a total aggregated area exceeding 70% of a particular size (e.g. 4,000 m2 or even 8,000 m2, depending on how scattered the land parcels might be), the land owners, through a Co-operative Development Scheme (CDS), can negotiate with the Government for in-situ or non in-situ land exchanges by way of Surrender and Regrant; and
(c) the CDC may then apply for lease modifications to enable developments for predominantly residential or other gainful purposes in line with the planning intentions of the respective draft statutory zoning plan.
III. Background and Argument
4. According to the Government’s draft plans; about 102 hectares of land in NDAs of NENT can be used for housing development. Upon development, these areas can provide some 60,000 housing units, offering accommodation for about 175,000 population; 40% of these housing units would be private development.
5. In the development of NENT, the Government has proposed to adopt an enhanced Conventional New Town (“CNT”) approach. Under this approach, land owners with a lot size of 4,000 m2 or more can apply for lease modifications and/or land exchanges. The Government’s rationale is that the approach would help advance housing land supply without compromising comprehensive planning, certainty and timely provision of supporting facilities, while safeguarding fair treatment of existing occupants on the private land1.
1 See paragraph 8 of the paper LC Paper No. CB(1)925/13-14(07), “Background brief on the proposed Kwu Tung North and Fanling North New Development Areas” issued by the Legislative Council Secretariat for the Panel on Development for the meeting on 25 February 2014
6. Since its announcement, the plan to develop NENT has met with immense criticism and resistance from the community. In particular, there are suggestions that the enhanced CNT approach is heavily slanted towards big developers who have long acquired and hoarded land in NDAs in NENT, thereby denying participation by small, local land owners. Consequently, the local community would not be able to enjoy the benefits that the development could bring.
7. The members of Doctoral Exchange have maintained an extensive network of relationships in the NENT. Through them, it has been learnt that land ownership in
NENT is largely scattered and fragmented. The typical size of an individual private lot is rarely even close to 4,000 m2. Secondly, fragmented ownership means that private lots that adjoin each other are exceptions rather than the rule. In some cases, the pockets of land between private lots may even be under absentee ownership or are in the process of adverse possession.
8. While acknowledging the enhanced CNT approach can provide flexibility for more integrated and speedy development, Doctoral Exchange is of the view that the criteria imposed may be incompatible with the practical circumstances, and the threshold of application for lease modification is out of reach for small land owners within the planned NDAs of NENT. Furthermore, the enhanced CNT approach seems to have overlooked the human element, especially relevant in the context of development projects in the New Territories (“NT”).
9. Land owners in NT are mostly local villagers or indigenous villagers, whose properties were passed down to them across many generations. Many of these villagers still embrace the deep-seated notion that, as keepers of ancestral legacy, they are duty-bound to pass the land on to their descendants. They are therefore reluctant to accept land resumption by the Government or acquisition by developers that would henceforth deprive them of the claim to the ancestral land. Any high-handed approach to development would foment resentment among the local community, resulting in a counter-productive situation.
10. In light of the foregoing analysis, Doctoral Exchange recommends an alternative option to facilitate NT development, which would allow small local land owners to participate in the development process and share in the benefits therefrom.
IV. The Co-operative Development Scheme
11. To address the issues identified above, Doctoral Exchange proposes that the Co-operative Development Scheme (CDS) be implemented as a complementary option to the enhanced CNT approach. Under CDS, owners of adjacent private lots within an NDA may form a co-operative development company (CDC), which would hold the land titles of the lots of the participating land owners. Once the size of the aggregated lots reaches 70% of a particular threshold (e.g. 4,000 m2), the owners would be allowed to negotiate with the Government for in-situ or non in-situ land exchange and lease modification to allow for a predominantly residential development project on the combined lot. For the owners of the remaining 30% of the combined lot, they could choose to have their lands resumed by Government under its current proposed mechanism. The Government could then integrate these lots and perhaps bundle them together with other government lands in between the application lots into the new grant of a CDS.
These owners could also negotiate for non in-situ exchange for a nearby site within the same NDA which has already been zoned for residential development purpose.
12. Doctoral Exchange acknowledges the fact that the lots concerned may not be adjoining one another, and the application site may still not be contiguous. However, it should be noted that in most cases, the intervening lots would likely be under absentee ownership. The Government can resume those lots in the normal manner, with the compensation being temporarily held by the Financial Secretary Incorporated pending identification and contact with the land owners concerned. The CDC can then ally with a developer or construction company to undertake the development and seek planning and building permissions as appropriate.
V. Advantages and Benefits of the Scheme
13. Doctoral Exchange believes that local villagers in NT would find the Scheme attractive because:
(a) the full area of their lots could be utilized for gainful development. Through in-situ or non in-situ land exchange, practically all of the combined lots could be dedicated for a predominantly residential use;
(b) participating lot owners would be able to preserve their ownership of the land, and the subsequent development. They could also share in the profit of the project, although land owners will have to face the development risks in the same way as any land developers; and
(c) the lot owners’ equity share of the CDC, which may encompass the ownership of the concerned site, could be passed on to their descendants as their legacy. These indigenous lot owners would be able to take pride in saving and enhancing their ancestors’ assets for future generations.
14. The Government could also stipulate the building covenant period of these developments and monitor the timely delivery of residential units developed therefrom. This would mean accelerating the realization of the Government’s housing supply target.
15. The Scheme would encourage diversity of development and tap into the collective wisdom and creativity of the local land owners and their community in the design and construction of their development, and it is more likely that a successful community preserving the existing social network and characteristics can be built with a greater degree of local participation.
16. The Government would benefit from a reduction in transaction costs from the proposed Scheme as hefty land resumption cost arising from the administrative process and cash outlay during lengthy negotiations with stakeholders can be saved. Furthermore, the Scheme can be implemented with slight modification of existing policies without necessitating any changes to the prevailing planning or land legislation.
17. The Government will not lose a cent in terms of land sale proceeds, as the land premium to be paid by the CDCs would in no way be less than those recovered through land auctions.
18. The Government will benefit from effectively and swiftly removing most of the obstacles in the way of funding and planning approvals, site clearance and construction, as the antagonists would now become the protagonists. Compensations to tenants and occupiers of temporary structures would then be much simpler as the participating land owners would take the initiative to resolve these problems.
VI. Public Reaction
19. Doctoral Exchange believes that the community at large would be less likely to object to the Scheme as it would allow more community participation in the local development of NT. Equally important, the Scheme can help dilute the perception that the Government is colluding with big private developers in lucrative residential development projects at the expense of wider public interest.
20. The early delivery of the much needed developable lands and hence the housing stock will foster a healthier property market.
21. In conclusion, the introduction of CDS, as an option for development in NT in general and NENT in particular, promises to help the Government advance its policy objectives by lighting a path of execution that empowers local stakeholders to contribute to solving an issue for the broader community.
About Doctoral Exchange
Doctoral Exchange is a public interest research collective founded in 2006 by a group of doctoral students and graduates with a shared respect for Hong Kong’s heritage of excellence and a common conviction in the city’s continuing role on the global stage. Regular meetings are held to discuss the latest hot topics and explore innovative solutions to entrenched challenges. The founding members, with expertise and professional training in disciplines ranging from architecture, urban planning, finance, business, logistics and education, are committed to conducting research without ideological or political biases in order to identify pragmatic, outside-the-box solutions for complex issues of concern to the community. Such an approach is desperately needed as the current space for public dialogue and deliberation has been dominated by special interest obstructionism, fanned by politicians and a media contingent bent on sensationalism rather than clarifying the issues for the public they serve.