Developers may struggle to get plans approved

HONG KONG: Developers planning to raze old buildings and develop residential projects on the sites they occupy face a tough new regulatory hurdle to secure approval for their plans.

The developers must now convince the Buildings Department that they have a "realistic prospect of control" before their redevelopment plans can be approved.

But the definition of this condition is vague. Already, the department has rejected a plan from a developer which had secured more than 90% ownership of the property it wanted to redevelop in December.

The requirement — which came into effect on Oct 21 last year — is in sharp contrast to the previous practice, suggesting that the redevelopment game has changed.

Previously, developers wanting to demolish an old building and develop a high-rise project on the site did not have to submit documentary evidence to the Buildings Department to prove they owned the site when seeking approval for a plan.

These redevelopments reached a peak in 2006 and 2007, with developers scrambling to get approval to build tall buildings on sites they did not fully own. One example is Henderson Land Development, which was approved to redevelop Merry Terrace in Mid-Levels into a 270-metre residential building. At the time it submitted the application, Henderson was a minority owner of the estate.

But Henderson's plan was approved and it managed to get around the 115-metre height restriction on the existing building imposed by  the Town Planning Board in March 2008.

Now, developers can no longer exploit the potential for bigger floor areas on the sites they target for redevelopment if they cannot demonstrate 100% ownership of the sites — or a clear prospect of control.

Under the new requirement, an applicant submitting building plans for approval must provide particulars and documentary proof of ownership or the "realistic prospect of control" of the land forming the site.

But one developer has already had trouble meeting this requirement. In a meeting with the Buildings Department on Dec 28, it submitted documents to prove it owned more than 90% of a site in order to get its building plan approved.

The department knocked back its plan as "the applicant did not have 100% ownership of, or realistic prospect of control of, the land forming the site".

In a reply to the South China Morning Post, the department said it considers an applicant has a realistic prospect of controlling land "where they have successfully bid for a site at an auction although they have yet to complete the payment and other land registration procedures, or where they have a reasonable chance of success in a case involving a land exchange with the government".

Thirteen applications were processed during the meeting, but only building plans for sites owned outright by a single owner were approved. The department rejected five applicants that did not have 100% ownership.

Charles Chan Chiu-kwok, managing director of Savills Valuation and Professional Services, believes the new regime on building plans was introduced in a bid to stop developers from dodging the new rules on inflated flats by securing early approval for their plans. Under the new rules, facilities and features such as balconies and clubhouses should not exceed 10% of the total gross floor area of a residential project.

The intention of some developers is obvious.

In the Buildings Department meeting on Dec 28, one applicant planned to redevelop a seven-storey Chinese house with six flats. But it only owned two of the apartments and had no realistic prospect of control of the site. The department rejected the application.

"Developers offer conservative prices for old buildings because of this policy," said Richfield Group project director Elwyn Chan Chi-ling.

One developer said this was a sign of the times. Previously, developers were able to get a clear picture of the prospective size of a redevelopment in terms of the likely allowable gross floor area, he said.

"We could do that before we completed the acquisition and this helped us to form an accurate view of development costs and a realistic estimation of likely profits," he said. "Now, because of the uncertainty, we must assume the most conservative building plan approval to estimate cost and profit figures. Developers are also more likely to offer low prices for old buildings because of the new rules on inflated flats." — SCMP
Looking for properties to buy or rent? With >150,000 exclusive listings, including undervalued properties, from vetted Pro Agents, you can now easily find the right property on Malaysia's leading property portal EdgeProp! You can also get free past transacted data and use our proprietary Edge Reference Price tool, to make an informed purchase.