Balancing progress and property rights: Implications of the Land (Compulsory Sale for Redevelopment) (Amendment) Bill 2023 | Hong Kong

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Background

In Hong Kong, the number of private buildings surpassing the 50-year mark currently exceeds 9600. This figure is anticipated to increase by an average of 620 buildings annually over the next decade. The proliferation of aging buildings raised significant concerns over the safety and deteriorating living conditions of occupants. Since 2018, the government has spent a cumulative sum of HK$190 billion to provide financial assistance for necessary repairs and maintenance. Redevelopment emerged as the most economically viable solution in the long run, prompting the Legislative Council to pass the Land (Compulsory Sale for Redevelopment) (Amendment) the Bill 2023 (the 'Bill') on  18 July 2024.

Amendments to the old Ordinance 

Lowered threshold for the compulsory sale of a lot

The major amendment to the old Ordinance is lowering the threshold for persons owning a specified majority of undivided shares in a lot to make a compulsory sale application of all undivided shares in the lot for redevelopment to the Lands Tribunal. Before the amendment, consensus from 80% ownership is required to trigger a compulsory sale. Under the new law: - 

• A 65% threshold will apply to buildings aged 60 years or above in designated areas of Cheung Sha Wan, Ma Tau Kok, Mong Kok, Sai Ying Pun and Sheung Wan, Tsuen Wan, Wan Chai and Yau Ma Tei; as well as buildings aged 70 years or above in non-designated areas;
•  A 70% threshold will apply to buildings aged 50 to 60 years in designated areas and buildings aged 60 to 70 years in non-designated areas; and
• An 80% threshold will remain in place for buildings aged 50 to 60 years in non-designated areas.

Increased flexibility to combine different types of lots in an application

One notable provision allows an application to encompass two or more lots even if the lots are wholly owned by the majority owner, incentivising larger area redevelopments. The application threshold for adjoining lots will also be calculated applying a weighted averaging requirement. Additionally, the Bill seeks to impose an obligation on the purchaser, or each successor in title of the purchaser, to jointly redevelop the multiple lots sold under a sale order, fostering coordinated redevelopment initiatives. The proceeds of joint sales of these lots will also be apportioned according to their respective redevelopment potential, ensuring each lot’s contribution is fairly reflected.

Streamlined the legal process of the compulsory sale regime

A fast-track arrangement is introduced to grant a sale order to applications where each of the buildings erected on the lots are aged 50 years or above; and all minority owners have filed no-objection notices indicating that the Tribunal needs not consider whether redevelopment of the lots is justified.

Enhanced support to minority owners

The Development Bureau stated that a dedicated office and support centre in collaboration with the Urban Renewal Authority, will be set up by August this year to assist minority owners. One-stop support services at different stages of compulsory sale will be provided to ensure minority owners’ rights are adequately protected. Additionally, those regarded as owner-occupiers will be allowed to occupy their property on the lot for up to 6 months following the lot’s sale, subject to payment of an amount reasonably similar to market rent.

Benefits and concerns 

Undoubtedly, the Bill can expedite the redevelopment of old buildings, addressing the pressing issue of urban decay. The resulting supply of new flats will further improve safety and living conditions for Hong Kong citizens.  With the classification of designated areas, developers will be encouraged to channel resources to districts with serious redevelopment needs.

Dissenting opinions suggest that the implementation of compulsory sales inherently gives rise to conflicts between majority and minority owners. Lowering the threshold will open up the floodgates for disputes, potentially impeding the redevelopment progress and place additional burdens on responsible authorities. Alternatively, the Singaporean approach whereby authorities focus on helping property owners reach collective sale agreements while keeping the compulsory sale thresholds high, may give the Hong Kong government some food for thought.

Conclusion

It is anticipated that financial institutions like banks will exhibit an increased inclination to engage in funding endeavors involving compulsory sale redevelopments. Such involvement may manifest through the provision of bridging loans to facilitate investor clients to attain necessary ownership threshold. Subsequently, project development financing may be pursued in advancement of the redevelopment process.

Should you have any questions, please feel free to reach out to Polly Chu  for a consultation.