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To enable the making of a decision on a land value, the Lands Department will carry out territory wide research and analysis of land and unit sales, examination of sales brochures, regular monitoring of constructions costs and interest rates.

Speaking at a press briefing today (Friday) on the assessment of land premiums, the Acting Director of Lands, Mr. Nigel P. Burley said that land value is related directly to the permitted use of a plot of land.

This is determined by the lease conditions, planning conditions as governed normally under the relevant Outline Zoning Plans and the Building (Planning) Regulations.

'Any lease in Hong Kong which restricts the nature and scale of development below that permissible under the relevant planning and building controls can normally be changed to enable the full potential to be achieved,' Mr. Burley said.

'Minor changes to leases would be effected by letter and major changes by surrendering the old lease in exchange for a new one. In either case, they are broadly called "modifications" he explained.

'All modifications will attract a premium, although in many cases, where the change is minor or the lessee is a charitable or non-profit making institution, then the premium would be a nominal $1000.'

Also speaking at the press briefing, Deputy Director (Specialist), Mr. John S. Corrigall said the following is one of the common approaches to assist the valuer to form an opinion of the land value:-

- establishing the maximum permissible building nature and bulk under lease conditions and prevailing planning;

- assessing a total value of the completed development by comparison with sales of other buildings and units; and

- deducting from the above the construction costs, interest charges, and normal deferrals, and allowing a profit margin as an incentive to proceed with the development.

Mr. Corrigall said: 'The residual balance represents the land value.'

'Such assessments are also influenced by the differing opinions as to the likely sale prices, differing construction costs in terms of materials and speed of development, varied profit margins, and the differing views as to the future economy.'

On modification premium assessment, Mr. Corrigall said: 'The Lands Department assesses the land value on the before basis, i.e. under the existing lease and the after basis, i.e. under the modified lease, and the full difference between these two figures is the modification premium.'

Premiums are assessed by different tiers of officers within the Department comprising qualified valuers and technical staff engaged collectively in analysis, assessment, research and negotiation.

A recommendation will then be presented to a Valuation Committee or a Valuation Conference depending on whether the assessment is under or over $50 million and this will be chaired by an assistant director or deputy director respectively.

'The Department will make a written offer to the lease holder or his agent who can appeal with justifications and/or make a counter offer,' Mr. Corrigall said.

In cases where the applicant or their agent is unable to accept the premium, and an appeal for a lower figure is submitted, an Appeal Conference is held, chaired by a different individual to that chairing the original Committee or Conference to consider the points raised in the appeal.

He pointed out that however when the appeal/counter offer is considered, it is possible that the premium may go up to take account of the prevailing market conditions.

The applicant/agent is always welcome to attend the Appeal Conference in person to submit his case and answer questions but will leave before the final decision is made.

On the suggestion of an external arbitration, Mr. Corrigall said the Department is not opposed to the concept but has reservations on its effectiveness.

'Arbitration procedures tend to be lengthy and for the system to work, the award would need to be binding on both parties.'

'Introduction of any external appeal or arbitration procedure would require careful consideration, and consultation with concerned parties,' he added.

Whilst the Department is fully prepared to confirm that negotiations are 'in hand', nevertheless a modification is a contractual negotiation between landlord and tenant and should not be disclosed to any third party until the deal is done and the results registered in the Land Registry. Lands Department respects the applicant's confidentiality and right to privacy.

'The Lands Department is continually monitoring procedures to ensure effectiveness, but there is no current intention to radically change the system of valuation,' he said.

End/Friday, August 20, 1999

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