TNAG-0669-FCO40-818-Policy-on-housing-and-resettlement-in-Hong-Kong-1977 — Page 106

CONFIDENTIAL &

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Annex B

Residual Method of Land Valuation

The value of land is that price which the developer is prepared to pay, and this in turn largely depends on the use envisaged for the land by the developer. For sites of the type under consideration, the developer would usually maximise the commercial side of the development in order to obtain maximum profit. However, in respect of public housing estates the primary aim is to provide as much accommodation as possible and, at the same time, it is necessary to provide institutional buildings and open space for educational, recreational, medical, health and welfare etc. purposes.

Thus it is not possible to exploit the full commercial potential of public housing estates if the main aim of providing housing for the needy is to be achieved.

To apply the principle of full market value, as understood in the commercial development world, to land to be used for public housing, is considered to be inappropriate in such circumstances, since such land values would tend to be inflated because more profitable usage opportunities would always exist.

It is necessary therefore to identify a method of land valuation which is simple, and which produces a value which, in all the circumstances, can be considered as reasonable.

It is considered that an appropriate approach is to accept the existing development on a public housing estate as the optimum development for the site and to ascertain the value of the estate (land and buildings) by capitalisation of the total rateable value (the estimated income). From this value of land and buildings is deducted the developers' outgoings (cost of construction, fees, interest on capital outlay and developers' profit) leaving as the residue the derived value of the land.

The

In order to examine the effect of this method, it has been applied to a small selection of the Authority's most recent estates. indications are that, using this method, the value of the land equates approximately to five times the 1977-78 total rateable value and that the value of land per square foot of site area, varies between $100 to $200 per square foot depending on location etc. The land values referred to in this memorandum and the Annexes have been assessed at five times the 1977-78 rateable values, in order to indicate the order of the value involved. More precise valuations using the residual method will be undertaken if the proposed financial arrangements between Government and the Authority are agreed.

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