Page 82 - URA Annual Report 2021-22

MANAGEMENT DISCUSSION AND ANALYSIS
Challenges
Challenging Macro-economic Environment
Geo-political issues in 2022 and the resultant surge in commodity prices have compounded the pandemic- induced pressure on the global economy. Some economists have warned of a protracted period of feeble growth and elevated inflations in coming years. Hong Kong as an open economy cannot be immune to these economic challenges worldwide. The US Federal Reserve has announced successive interest rate hikes in 2022 to contain the inflation risks. Given the Hong Kong-US dollar peg, the low-interest rate environment in Hong Kong has started to reverse in the second half of 2022, with observed dampening effect on the local property market. The financial position of the URA with its substantial acquired property holdings is sensitive to price fluctuations in the local property market.
Notwithstanding the adverse economic impact and market uncertainties caused by the COVID-19 pandemic particularly the fifth wave in Hong Kong, the financial health of the URA remained robust with strong asset and liquidity positions. In 2021/22, the URA completed the clearance of seven redevelopment projects. With the upfront payments from the awarded joint-venture tenders, the URA achieved an annual surplus of $6.6 billion, making its accumulated surplus at $43.8 billion as at 31 March 2022 (excluding the $10 billion initial capital injection from the Government).
The growing accumulated surplus position has enabled the URA to undertake larger-scale challenging projects which can bring great benefits to society. They included two large-scale projects in the 21st Annual Business Plan (covering 2022/23) involving around 200 old buildings with about 1,500 domestic property interests.
Despite its prevailing cash reserve, the URA must build sufficient financial reserve for the very large acquisition expenses incurred in these projects. Based on our projection, the projects under planning will involve a financial commitment of about $120 billion. Currently there is only about $27 billion in our cash reserve. Even if we include the upfront payments to be received from the tendered projects in the next few years, there will still be a cash shortfall to cover the projected cost of $120 billion. In this regard, to uphold the self-financing principle as stipulated in the Urban Renewal Strategy, the URA will make full use of all of its financial resources, including borrowing capacities.
Urban Decay Remains a Hard Nut to Crack
Regenerating our ageing built environment is a race against time. Despite the implementation of several major redevelopment projects and massive resources committed to the regeneration of the old districts, our urban renewal effort is still being outpaced by urban decay. With this in mind, a holistic and comprehensive study was conducted to look into the key issues that have been accelerating the pace of urban decay in old districts.
Our study found that building conditions would generally start getting poor when they reached 40 years of age, structural integrity and serviceability would be affected, undermining public safety and liveability. There are over 26,000 building blocks aged 30 years or above in the territory with around 20% (5,200 buildings) identified as in ‘varied’ or ‘poor’ condition. If no rehabilitation or maintenance works is being taken to these dilapidated buildings, more than 20,000 building blocks would be in ‘varied’ and ‘poor’ condition by 2030. It also revealed that the negligence of property owners to conduct maintenance works for their buildings has aggravated the problem of ageing buildings. Complicated by the fact that the plot ratios of the sites of these bulky and high- density aged buildings had generally been fully utilised, leaving only a few in the market that were considered to be favourable for private developers to pursue for redevelopment. The lack of development potential of the ageing buildings had become a stumbling block to private market participation resulting in increasing reliance on the URA to take up this daunting task, thereby slowing down the pace of urban renewal.
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