Redevelopment of buildings under Civil Servants’ Co-operative Building Societies Scheme

About two years ago, some owners of buildings developed under the Civil Servants’ Co-operative Building Societies (CBSs) and Legislative Council (LegCo) members urged the Government or the Urban Renewal Authority (URA) to “positively intervene” and facilitate the redevelopment of CBS buildings. Their argument is two-fold: First, these CBS buildings are generally located in the urban area and of moderate building height. Redevelopment of these CBS sites can increase the gross floor area and in turn increase the supply of residential units. Second, these buildings are generally over 40 or 50 years old and lack building facilities such as lifts, posing access problems for elderly owners. Redevelopment can give them an opportunity to move to buildings with lifts and be spared everyday inconvenience. They thus see a case for the Government’s positive intervention to facilitate the redevelopment of CBS buildings to achieve a win-win result for all.

The Government, in collaboration with the Hong Kong Housing Society (HKHS), has completed a study on the redevelopment of CBS buildings and has come up with a pilot scheme to facilitate CBS building redevelopment, which was announced some time ago. We also attended LegCo panel meetings to explain the scheme and listened to public views at deputation hearings. Notwithstanding, there are still some stakeholders, including CBS flat owners, who criticise the Government for making no concession on the issue of land premium charging and continue to urge the Government to implement exceptional measures in exceptional circumstances on account of the above-mentioned arguments.

First of all, let me briefly explain the unique historical context of the CBS scheme. The CBS scheme was launched in 1952. Under the scheme, the Government would grant land at a concessionary price (usually at one-third of the full market value) to eligible civil servants to build residential buildings in the form of co-operative societies. These eligible civil servants could apply for Government loans to pay for the land and building costs. If the owners wish to sell their flats (including selling for redevelopment) in future, they have to pay back to the Government the difference in the land premium. Repayment of an outstanding land premium is an established government policy. This is similar to the arrangement introduced later for the sale of Home Ownership Scheme (HOS) flats, under which HOS flat owners have to pay back to the Government the outstanding land premium when they sell an HOS flat.

For the elderly CBS flat owners to move to newer buildings with lifts, depending on whether the respective CBS has been dissolved or not, the owners can move out by transferring the right of occupation of their CBS units to other eligible civil servants through CBS membership transfer, or they can repay the Government the outstanding two-thirds land premium and sell their flats in the open market. For the latter option, currently there is a waiver arrangement for the owners to apply for deferring payment of the outstanding land premium until after signing sale and purchase agreements of their flats. The owners may use the sale proceeds from the sale of their flats to buy a new flat. The location, age, facility provision and size of their new flat will be subject to their own wishes and means.

As regards the owners’ and legislators’ view that the Government should consider leveraging on the premise of increasing housing land supply and adopt exceptional arrangements for the redevelopment of CBS buildings, based on the study we have conducted, the redevelopment potential of the CBS buildings as a whole is not as high as generally perceived. Among the 178 CBS sites under dissolved CBSs but yet to be redeveloped, only 85 have the potential for redevelopment, i.e. having a redevelopment ratio at or above two such that the project may at least break even. Redeveloping all these 85 sites will only yield a maximum of 230 000 square metres of additional floor area, while the actual additional floor area might be even less as these sites are scattered across the territory and subject to different site constraints. Assuming that the size of each redeveloped unit is 50 square metres, upon redevelopment, there will be a net gain of over 4 000 units, or an average of just 50 more units per site. As such, even from the perspective of increasing housing land supply, it is hardly justifiable for us to depart from the established policy of land premium charging.

As for the proposal for the URA to take on the redevelopment of CBS buildings, we have to understand that the URA’s redevelopment projects have been granted land premium payment waivers for any increase in development density, and this is a form of subsidy from public funds. The objective of this policy is to facilitate the redevelopment of buildings in poor and dilapidated condition for the purpose of urban renewal, so as to benefit the community as a whole. Compared to the average old buildings in the urban area, particularly those with sub-divided units and in dilapidated condition, CBS buildings are relatively well kept, are more spacious and have a less imminent need for redevelopment. If the URA accords priority to redeveloping CBS buildings, would it be a proper use of limited public funds? Would it be fair to the owners of the other old buildings with more imminent redevelopment need? Would it meet public expectations? In fact, if the CBS flat owners think that their buildings are in dilapidated condition, they can seek redevelopment by the URA under the URA’s Demand-led Redevelopment Project Pilot Scheme. Provided that they meet the eligibility criteria, their buildings may be selected for redevelopment.

Some people might argue that reclamation for land formation also requires much public spending, so why is the Government so uncompromising in its stance over deploying public funds to help redevelop CBS buildings? First, as mentioned above, CBS flat owners have already been granted land at a concessionary premium in the past to build the CBS buildings. If the Government now waives the two-thirds outstanding land premium stipulated in their leases, would there be concern over double benefits? Would it be fair to the owners of HOS flats (or other subsidised housing schemes) who have to repay the outstanding land premium before selling their flats in the open market? Furthermore, for other old buildings, if development density could be increased through redeveloping these buildings, their redevelopment would similarly result in an increase in housing supply. As redevelopment of these other old buildings now also involves premium charging, does it mean that the Government should likewise offer premium waivers or concessions for the redevelopment of these other old buildings?

We understand that CBS flat owners still think that the pilot scheme launched by the Government and the HKHS has much room for improvement. We will continue to listen to different views and explore ways to improve the scheme details. Meanwhile, there are measures being introduced by the URA and the Lands Department to assist CBS flat owners to discuss redevelopment arrangements with interested private developers. Details are available at http://www.legco.gov.hk/yr14-15/english/panels/dev/papers/dev20150526cb1-860-6-e.pdf . On the question of proper use of public funds, we hope that the public can understand that we have to uphold our principle of allocating limited public resources to meet the most imminent needs.

2 August, 2015

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