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Speech by SDEV at General Practice Division Valuation Conference 2014 of Hong Kong Institute of Surveyors (English only)

Following is the speech by the Secretary for Development, Mr Paul Chan, at the General Practice Division Valuation Conference 2014 of the Hong Kong Institute of Surveyors today (June 28):

President Mr Simon Kwok, Chairman Mr Joseph Ho, members of the General Practice Division of the Hong Kong Institute of Surveyors (HKIS), ladies and gentlemen,

It is my honour to have been invited to attend this very first Valuation Conference held by the General Practice Division (GPD). And I would like to thank the GPD for giving me the opportunity to speak at this meaningful event.

The GPD is a highly professional organisation. Just like GPs in the medical field, you GPs in the surveying field have to equip yourself with the wide spectrum of skills required for tasks covering, for example, site acquisition and assembly, land and property transactions, the implementation of property developments under leases, and the sale and marketing of completed developments.

I confess I only have a basic notion of a professional surveyor's duties, but I have had my fair share of experience with the valuation of assets.  Collecting and analysing data on a range of variables including size, location, and infrastructure make this part of valuation quite science-like. After looking at all the data, coming up with a specific valuation requires intuition, insight and personal judgment. Mastering this requires talent, hard work, time and experience, but I am sure that the practitioners of this professional stream would surely agree that, at the end of the day, it is worth the effort.

The fact that the GPD's first thematic conference is focusing on valuation shows how important this aspect is to the industry, even more so when it is being held as a Hong Kong Institute of Surveyors 30th anniversary event. I would like to take this opportunity to talk about how the Government goes about doing it.

First of all, I'm sure you are all aware that one of the major land administration initiatives announced in this year's Policy Address concerned arbitration. Insofar as it is applied to the settlement of premium in lease modifications, this is uncharted waters for both the Government and stakeholders. This is why we have to proceed very carefully, starting with the Pilot Scheme for Arbitration on Land Premium to try it out.

The Development Bureau and the relevant government departments, including the Lands Department and the Department of Justice, have kept in touch with the stakeholder groups, including the HKIS, to listen to their views.  We are now in the final stage of preparing the implementation framework, which will include matters such as the scope of arbitration, composition of the Arbitral Panel, the appointment mechanism, the proposed timeframe for completing arbitration cases and the documentation required to support the arbitration process.

The pilot scheme aims at providing an additional avenue to facilitate early agreement of the premium arising from a lease modification or a land exchange, thus expediting the supply of land and housing units. The determined premium in the arbitral award would be final and binding on both the applicant and the Government. In the finalisation of the implementation details, issues concerning impartiality, credibility, and avoidance of conflict of interest will be carefully considered by the Government having regard to the views received from the stakeholder groups. To be launched in July, the pilot scheme will be reviewed from time to time and further improvements to the scheme may then be considered as appropriate.

While we have a pilot scheme regarding valuation in the pipeline, the valuation process, as advised by my Lands Department colleagues, is the daily bread and butter of the Valuation Section of the Lands Department. I will not shy away from the fact that there are bound to be disagreements of the land value assessed. Not having your profound knowledge and experience, I am not qualified to articulate on the details of the valuation process. Nonetheless, I understand a modicum of the rationale and established practice behind the Government valuation process. I will try to elaborate a little.

The Government undertakes the valuation of land for a wide variety of purposes - for land sale, lease modification, land exchange, short-term tenancy, and to assess statutory compensation for land resumption. Among them, the assessment of land value for land sale is perhaps the most straightforward, but only insofar as this does not involve bilateral negotiation or appeals. We look at the full market value and set the reserve price on a current date basis, and the disposal may succeed or fail depending on whether the highest bid put forward by bidders in the open market meets the reserve price. An important aspect is that the reserve price is set in an impartial, independent and professional manner by the valuation experts of the Lands Department. As we have no control over how the market might respond, there is no guarantee that there will be a successful bidder for each and every land sale site. The success or otherwise of a tender involves market dynamics and individual bidders' own strategic considerations.

Land premium for lease modification and land exchange can be complicated because the mechanism rightly allows appeals and negotiations. The key factor, in three words, is "enhancement in value". Simply put, the land premium reflects the increase in the land value as a result of the modification of the lease conditions. An obvious example is the relaxation of the user restriction clause in the lease conditions from non-residential to residential use. There are sometimes concessions in the form of nominal or reduced premium, but these are subject to policy support in pursuance of the public good. Common concessionary cases are housing sites for urban renewal projects, and land grants for charitable or religious purposes.

Statutory compensation is a class by itself because we will assess the land value for a date stipulated under the relevant ordinance, rather than on a current date basis. As the land administrator for the Government, the Lands Department also handles special purposes valuation works. Land grants for utility companies and petrol filling stations are examples.

You may have noticed that what I have said so far covers how land valuation is applied for different purposes. Now I will touch on the interesting bit - how we arrive at the land value in the very first place.

In assessing land value, our professional estate surveyors in the Lands Department take into account the development potential allowed under the land lease, planning parameters under the outline zoning plan, other relevant statutory controls such as requirements of the Buildings Ordinance, and last but not the least, market conditions. With all these data at the back of their minds, our professional colleagues will exercise their judgment to select suitable market transactions as comparable to the subject piece of land and make adjustments as appropriate before concluding on the land value. That said, I must emphasise that nothing is done arbitrarily. Besides adhering to their own professionalism, as civil servants they keep to the strictest standards, whether in terms of avoidance of conflict of interest, accuracy, independence, impartiality or confidentiality.

Regarding the five markers I just mentioned, I would like to take this opportunity to elaborate a bit on "independence". Take premium assessment as an example. As I said earlier, premium reflects the increase in the land value as a result of the modification of the lease conditions. How lease conditions are formulated in the first place will very much determine whether subsequent lease modification might be needed, and if so, have a direct bearing on the associated premium assessment. In order to ensure the unfettered professional assessment of premium (i.e. land value enhancement), our professional surveyors do not get involved in the formulation of lease conditions. Or, to use legal jargon, there is a "Chinese Wall" in place so that they can discharge the valuation work in an independent, focused and thus impartial manner. The current practice on premium valuation within the Lands Department is that valuation is not decided by the Director of Lands or any single individual, but is determined collectively by a valuation conference or committee.

The premium assessment mechanism of the Lands Department has in fact been reviewed by the ICAC, testifying to its procedural integrity.

Yes, it is an airtight mechanism.  But it is airtight as much as it is dynamic.  Over the years, many enhancement measures have been introduced, especially those which aim at settling disagreements over land value. In order to help reach a verdict, in the course of a valuation appeal, a platform for negotiation with the appellant on a "without prejudice" basis has been introduced with a view to allowing full opinion exchange and establish common ground on assessment.  Furthermore, in an effort to further expedite the premium agreement process, we will launch the Pilot Scheme for Arbitration on Land Premium next month as mentioned in the earlier part of my speech.

As a last note, I would like to add that the GPD has been the right hand of the HKIS in keeping our surveyors up to speed. In celebrating the 30th anniversary of the HKIS, I must also congratulate the GPD on its achievements both within the HKIS and in the community. I know that my colleague Karen from the Lands Department will speak later, and I'm sure that you will find what she has to say much more interesting and thought-provoking. Thank you very much.

Ends/Saturday, June 28, 2014
Issued at HKT 13:03