Page 72 - URA Annual Report 2020-21

MANAGEMENT DISCUSSION AND ANALYSIS
Challenges
Volatile Economic and Operation Environment
The persistent and unpredictable development of COVID-19 since early 2020 has adversely affected both global and local economies. It compounded the lagging effects of the Sino-US relationship tension that had been weighing down the overall financial situation. All of which have contributed to the economic recession in most part of 2020 and increased volatility in the property market, bearing implications on URA’s financial stability.
The pandemic has posed challenges to URA’s operation at the same time. In terms of project commencement, three redevelopment projects originally scheduled for commencement in the fourth quarter of 2019/20 were deferred to 2020/21 to reduce the risk of infection through interpersonal contacts during freezing surveys. A few statutory approval processes of URA’s ongoing projects were delayed due to temporary suspension of Government offices and deferral of public hearings/consultations. Extra efforts and resources had to be mustered to minimise the adverse impacts on our projects, especially in terms of financial viability.
Notwithstanding the short term fluctuations, the property market has continued to follow a largely upward path since 2003, and has seen an about six-fold surge in prices for all classes of accommodation in the private domestic market (see Figure 1). With the blooming property market, the URA has been acquiring building stock at soaring prices, making it more vulnerable to market downturn. Meanwhile, the URA is obliged to bear higher development costs by acquiring properties under the ‘seven-year rule’ and is subject to ex-gratia payments markedly higher than those incurred by private sector developers. Moreover, the URA is required to commence acquisition as soon as possible after authorisation by the Secretary for Development or approval by the Chief Executive in Council. This practice exacerbates the risk of ‘buy high, sell low’ since the URA lacks flexibility to slow down the acquisition process in view of unfavourable market conditions.
To mitigate the risk, the URA has explored the possibility of advanced tendering for projects, such that the tender award of one project will time with the acquisition of another within the same financial year as a way of fund hedging. Oak Street/Ivy Street Project (YTM-011) was selected to pilot the advanced tendering and the response was promising. URA will continue to explore suitable project(s) for advanced tendering.
Figure 1:
Private Domestic Price Index
2001 – 2021 (up to June) – All Classes*
450 400 350 300 250 200 150 100
50 0
Year
* Source: HKSAR Government, Rating & Valuation Department, Hong Kong Property Review Monthly Supplement, July 2021
68 URA ANNUAL REPORT 2020-21
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Price Index