Urban Renewal Authority 2018-19 Annual Report

6 CHAIRMAN’S STATEMENT However, the road to urban renewal has not been an easy ride during my tenure at the URA. Urban decay is always a pressing problem. The number of building blocks aged 50 years or more is increasing at a staggering rate of 600 annually and will get close to 30,000 by the end of 2046. Urban redevelopment has a long cycle that typically takes eight to 10 years to complete, from commencement, acquisition, construction to completion. With the introduction of a district-based approach to renew old urban district in larger scale projects, the URA will have to deal with more acquisition and relocation cases which are by no means less complex. This will eventually require even longer time to complete the redevelopment cycle. Adding to the challenge is the rising costs that would create an increasingly heavy financial burden for the URA. Acquisition Cost Pushed up by Soaring Market, Impeding Redevelopment The rocketing property price of the past six years has caused a knock-on effect on the cost of acquisition for urban renewal projects. In accordance with its acquisition policy, the URA has been offering a Home Purchase Allowance, which is a higher-than-market offer consisting of the market value of a property plus an ex-gratia allowance commonly known as “seven-year rule”, to affected owner-occupiers of domestic properties. To illustrate, a redevelopment project in Mong Kok commenced in 2013 when I first took up the Chairmanship had an acquisition cost of HK$11,832 per square foot based on the seven-year rule. Within just five years, for another redevelopment project also in the same district, the per square foot unit cost was HK$18,023, representing a 50% increase in the acquisition cost. Rising acquisition cost poses heavy burdens on the financial stability of the URA. In a soaring property market, in order to maintain the same project scale in redevelopment, the URA will need to incur a greater cash flow to match the increase in acquisition expenses. However, the URA’s cash flow was reduced from HK$21 billion in the 2017/18 financial year to HK$18 billion in 2018/19. It is anticipated that the URA will need to deploy HK$34 billion to complete the projects already commenced or planned in the five-year corporate plan which will put further financial burden on the URA given the cash flow for 2019/20 will be reduced by 30% to HK$12 billion. Under the conventional urban redevelopment process, the number of projects available for tender every year varies, depending on the progress of acquisition and rehousing, which is a factor of the project scale and the number of interests and tenants involved in the process. Other external factors beyond the control of the URA, such as the buoyant property market, construction costs and interest rates, also affect the revenue generated from these projects, resulting in a fluctuation of URA’s annual income. In the face of a bullish property market, the income generated by project tenders from previous years would not be enough to fund the upcoming acquisition cost of redevelopment projects of a similar scale. As a result, the URA would be left with no choice but to commence smaller scale projects with higher acquisition cost, hence, undermining the planning benefits to the community. On the other hand, if the property market subsequently plunges, the URA will receive a major blow to its financial stability because projects that commenced with high acquisition costs will bring about financial loss in terms of a ’buy high, sell low’ predicament. While income remains unstable, the URA’s expenditure on acquisition and rehousing of redevelopment projects, building rehabilitation, preservation and revitalisation has been on the rise, causing an unbalanced budget where income falls short of expenses, posing challenges to the financial stability of the URA. However, tasked with the social mission of urban renewal, slowing down the pace is not an option. Instead, the URA endeavours to seek new and innovative solutions in urban renewal to deal with the significant urban ageing issues. Adopting the District-based Approach for a Liveable Neighbourhood In accordance with the Urban Renewal Strategy, urban regeneration is not just about redeveloping dilapidated buildings, but more importantly, rationalising land use in old districts by adopting a district-based approach for maximisation of planning benefits. Since 2016, the URA has launched six redevelopment projects in To Kwa Wan that together have created an area totalling 22,000 square metres for a comprehensive and holistic redevelopment plan. This large-scale neighbourhood enables more efficient land use planning for residential,