Page 72 - Urban Renewal Authority 2023-24 Annual Report

MANAGEMENT DISCUSSION AND ANALYSIS

Challenges

Market Uncertainty Casting Shadows over Urban Renewal Sustainability
In 2023/24, the economy and property market of Hong Kong faced a challenging situation as the post-COVID
recovery was slower than expected and uncertainty loomed. This was exacerbated by persistent global inflation,
the lagged effects of sharp monetary tightening, high interest rates, and ongoing geopolitical tensions. In
February 2024, the withdrawal of the Government’s demand-side management measures for residential
properties rejuvenated the real estate market temporarily. Yet the Centa-City Leading Index was still down by 16
percent over the year. The sentiment among potential homebuyers was submerged under a deluge of
unfavourable economic news and persistently high interest rates. Besides, the supply of residential flats remained
sufficient and the disparity between rental yields and interest income continued to dampen property investment
demand, impeding the property market from rebounding.
The high interest rate environment not only weakened homebuyers’ purchasing power and property investment
demand but also made it more difficult for developers to obtain financing at reasonable costs, resulting in
developers’ more conservative strategies in bidding and pricing for new development sites. As a result, land
prices remained sluggish as seen in six failed tender exercises for land sales carried out separately by the
Government, MTR Corporation and the URA due to low bidding prices or no submissions received.
Against the aforesaid challenges, the URA had only one project tender awarded in 2023/24, namely Shing Tak
Street/Ma Tau Chung Road Development Project (CBS-1:KC) for the redevelopment of Civil Servants’ Co-
operative Building Society (CBS) buildings. The upfront payment of HK$1.9 billion from this tender could only
cover 56 percent of the project costs, resulting in a loss of nearly HK$1.5 billion. Amid the sustained property
market downturn, the URA is facing high uncertainty in the result of its future project tenders, thereby adversely
affecting the funding available for implementation of new projects. The URA will closely monitor the market
situation, prudently manage its cashflow, and timely adjust the project implementation programme to ensure
financial sustainability.

On the other hand, the “Seven-Year Rule” continues to create a heavy financial burden from its redevelopment
projects as it implies hefty acquisition costs of owner-occupied domestic properties calculated based on the
value of a notional seven-year-old replacement flat situated in the same locality. The combined forces of a
downward market trend and the “Seven-Year Rule” will inevitably put the sustainability of urban renewal work
under pressure as the revenue generated from projects cannot cover the acquisition cost.

Urban Renewal Remains a Steep Hill to Climb
As the speed of urban decay continues to outpace our redevelopment efforts, urban renewal remains a steep hill
to climb.

Currently, Hong Kong has about 13,000 residential/composite buildings aged 50 years or above, and this
number is expected to increase to around 28,000 by 2046. Despite that buildings in Hong Kong are mainly
reinforced concrete structures designed to have a serviceable life of around 50 years and more, many buildings,
aged below 50 are deteriorating rapidly and in dilapidated conditions of various degrees, threatening public
safety, especially for those lacking proper management and maintenance. This was mainly caused by the low
level of awareness and commitment to building maintenance due to property owners’ lack of knowledge,
capability and financial reserve. The situation has been worsened by the prevalence of sub-divided units in many
old districts, creating a grave burden for the building structures and sewage systems, and degenerating the
overall building conditions and living environment of its residents.

Adding to the aggravating problem is the excessive development intensity and the low redevelopment potential
of most of the older building clusters which are unattractive for private developers to pursue redevelopment.
Moreover, the pressure on finding sufficient rehousing resources remains high given the high population density,
especially in old urban districts and the long waiting time for public housing in general. In view of the pressing
and deepening problem of urban decay and the complexity of the situation, the URA would not be able to take
on the challenging task of urban renewal alone. Collaborative efforts from all relevant stakeholders including the
Government, private developers, building owners and the public are urgently required to make urban renewal
sustainable.

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