22 October 2016
According to a government agency, only 85 percent of the civil servant housing estates in Hong Kong have redevelopment value.
According to a government agency, only 85 percent of the civil servant housing estates in Hong Kong have redevelopment value.

Will the redevelopment plan for civil servant estates work?

With property prices continuing to rocket upward, the Hong Kong government has been seeking to boost supply through various means.

Development of Northwest New Territories and fresh land reclamation efforts were some of the proposals outlined, but many of the ideas were later deemed to be not feasible.

After a few years of study and research, the government has now thrown up a plan for redevelopment of civil servant housing estates.

Will the plan work and unlock fresh supply into the property market?

Civil servants have long been requesting the government to redevelop their housing estates, which had been built many decades ago.

The civil servant cooperative scheme was set up in 1952 as one of the benefits for local civil servants. Government employees were granted land at a concessionary premium—usually a third of the market value.

On top of the lower-than-market land price, the government also lent money at low interest rates to facilitate the construction.

In those years, 10 to 12 government employees were enough to set up a civil servant cooperative building society. But in order to resell the flats, the property owners must agree to dissolve the society beforehand. The process is time-consuming, usually taking more than a year for completion.

There are currently around 240 such cooperative building societies in the city, and 173 of them have not been dissolved yet.

The Development Bureau has noted that only 85 percent of them have redevelopment value. It is expected that redevelopment could boost supply by 4,000 units, which seems a drop in the bucket.

The Bureau has assigned the Hong Kong Housing Society to take charge of the redevelopment project.

It works like this: the Housing Society will acquire the civil servants’ flats at market price plus 10 percent premium. It will then pay back the land premium to the government on behalf of the property owners, in order to redevelop the site to build subsidized housing in the future.

But there are a few criteria for the Housing Society to initiate such redevelopment projects.

The overriding principle is that the Housing Society should not lose a dime on the projects. Also, the project has to attain 100 percent ownership approval, and the construction site has to be over 10,000 square feet.

Wong Pak-yan, a representative of the civil servants cooperative building society, called the criteria too harsh.

“To get 100 percent ownership approval is extremely difficult. Some retired civil servants have emigrated to other countries, and some of the elderly are unable to deal with paper work,” he said.

Wong urged the government to lower the threshold to 80 percent.

Due to shortage of housing, the redevelopment of civil servant housing estates has come under spotlight as many of those estates are in prime locations, such as the Mid-levels and Kowloon Tong, apart from places such as To Kwa Wan and Sham Shui Po.

But the government’s insistence on land premiums is coming in the way of property firms from redeveloping the sites through the private market.

Transactions of civil servant flats in the secondary market are very few.

An agent from Midland Realty in To Kwa Wan told the Hong Kong Economic Journal that there are only a small number of transactions in this particular housing market yearly.

One recent transaction happened in April. The owner applied for assessing the land premium payable in order to be able to sell the flat in the secondary market.

The 1,248-square-foot flat was finally sold for HK$9.9 million (US$1.28 million), “but after deducting the HK$4.8 million land premium, the owner could only get HK$5.1 million, which makes it quite impossible for him to buy another similar size flat in the same district,” the agent said.

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EJ Insight writer

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