Ensuring Fair Shares


Every time someone accuses Ministers or senior civil servants of colluding with big business, they bristle defensively, even indignantly. And then bring forward yet another proposal which favours the big boys at the expense of the little guy.

So it is with the proposal, now being considered by Legco, to lower from 90% to 80% the percentage of property ownership which triggers the option of compulsory purchase of the balance. The property developers say the present threshold is too high, and much needed - or at least very desirable - redevelopment schemes can be thwarted by a handful of existing owners holding them to ransom. The Government seems to be taking their side, probably on the basis of maximizing use of scarce land resources and revenue - both perfectly respectable motives - though it is also able to hide behind the skirts of building safety since the recent Hunghom tragedy.

The subject can seem very dry and boring, so let's bring it down to a human level. Take the hypothetical example of a fairly low rise older block of 40 flats on a site capable of being redeveloped to hold 200.

From the potential developer's perspective, this is a big lump of ageing concrete blocking a substantial profit opportunity. But the perspective of the existing owners is completely different. For them it is home. It is the very centre of their lives, for many probably the biggest investment they will have ever made. They know their neighbours and feel safe together. Their children attend nearby schools. They shop at the local market, and know who has the best fruit, the freshest fish (and who waters the beef to increase the weight). They know all the public transport routes running past the front door. The vast majority of their social networks are based on the fact that they live in this particular spot. Without necessarily articulating the thought, this is the place many of them thought they would live in for the rest of their lives, and then pass on to their next generation.

Enter from stage left the major property developer. Using various front companies he acquires any flats that come onto the market. Then when market conditions best suit him, he sets out to acquire all or most of the remainder. (This is not intended as a judgmental comment: the developer is simply doing what any prudent businessman would). To speed up the process he may offer something over current market price. But in the back of his mind he knows - and the existing owners know - that if the case ever goes to some sort of tribunal, any calculations will be based on the value of a notional 7-year-old property in the vicinity.

Now back to the individual: he looks for a replacement property to purchase in the same area. If he were looking on his own, that might be manageable, but in this case several families are looking at the same time. A sudden surge in localized demand could trigger a rise in prices, or maybe it simply cannot be met except in new properties which would cost far more than the compensation on offer for the existing properties. Stalemate.

Is there a fairer way of dealing with these situations? The developers prefer to settle for cash to achieve a quick and clean settlement. But what if they were obliged to hand over the deeds of a replacement flat in the same area of comparable size in exchange for the one they want to buy? And if the flat were a little larger, a bit more modern and possibly with better facilities (children's play area, swimming pool etc) would that be such a disaster? It would merely compensate the existing owners for the disruption to their lives caused by the need to move house. And from a macro perspective, why shouldn't they enjoy a small share of the development gain unlocked by their willingness to move? Why should it all be left on the table for the big players to scoop up?

Such an arrangement would not be easy to devise and implement, at least at first, but if we were minded to do it - if we chose as a community to place as much importance on social harmony as company profits - it should be possible to overcome these difficulties. Interestingly, when LegCo members suggested the "flat for flat" model during discussion, the Government was quick to rule it out.

There has been a lot of talk in recent months about the growing gap between the haves and the have nots, and the benefits of developing a more harmonious society. Perhaps there would be less damage to social cohesion if we stopped wheeling in the wrecking balls quite so readily. And if the Government is always so quick to favour arrangements which suit the powerful, then I'm afraid it is just going to have to keep flexing those defensive and indignant muscles.


 
Mike Rowse
email: mike@rowse.com.hk