RICS professional guidance, Hong Kong Development management

RICS professional guidance, Hong Kong

Development managementHong Kong supplement to RICS guidance note, March 2016

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RICS guidance note

DevelopmentmanagementHong Kong Supplement to RICS UK guidance note

1st edition, March 2016

Published by the Royal Institution of Chartered Surveyors (RICS)Parliament SquareLondonSW1P 3ADwww.rics.orgNo responsibility for loss or damage caused to any person acting or refraining fromaction as a result of the material included in this publication can be accepted by theauthors or RICS.

ISBN 978 1 78321 143 2

© Royal Institution of Chartered Surveyors (RICS) March 2016. Copyright in all or part ofthis publication rests with RICS. No part of this work may be reproduced or used in anyform or by any means including graphic, electronic, or mechanical, includingphotocopying, recording, taping or Web distribution, without the written permission ofthe Royal Institution of Chartered Surveyors or in line with the rules of an existinglicense.

Typeset in Great Britain by Columns Design XML Ltd, Reading, Berks

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ContentsRICS professional guidance ........................................... 11 Introduction ................................................................ 3

1.1 Hong Kong supplement overview......................... 31.2 Purpose of this supplement to the guidance

note...................................................................... 32 Phases of the development management

process from a Hong Kong perspective................. 42.1 Introduction .......................................................... 42.2 Developer’s initial concept, site acquisition

strategy and outline appraisal (phases 1, 2 & 3)... 42.3 The planning and land administration process

(phases 4 & 5) ...................................................... 43 Development appraisal ............................................. 6

3.1 Introduction .......................................................... 63.2 Valuation of development land, Hong Kong

(HKGN 1).............................................................. 63.3 Development agreement ...................................... 6

4 Planning, land administration and buildingcontrol......................................................................... 74.1 Introduction .......................................................... 74.2 Permitted development/planning applications ...... 74.3 Land administration process in Hong Kong ......... 74.4 Buildings Ordinance and Building (Planning)

Regulations .......................................................... 74.5 Exempted houses in the New Territories .............. 8

5 Development finance ................................................ 95.1 Introduction .......................................................... 95.2 Development finance in Hong Kong..................... 9

6 Procurement............................................................... 106.1 Introduction .......................................................... 106.2 Procurement from a Hong Kong perspective ....... 106.3 Composition of the developer’s professional

team..................................................................... 106.4 Tendering and selection process .......................... 106.5 Forms of appointment available............................ 10

Development management

ii Hong Kong Supplement to RICS UK guidance note

Acknowledgments

RICS would like to thank the following for theircontributions to this guidance note:

Michael Ko, MRICS

Denys Kwan, FRICS

Clement Lau, FRICS

Stanley Lo, FRICS

Mark Staples, MRICS

iiiHong Kong Supplement to RICS UK guidance note

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RICS professional guidance

International standardsRICS is at the forefront of developing internationalstandards, working in coalitions with organisations aroundthe world, acting in the public interest to raise standardsand increase transparency within markets. InternationalProperty Measurement Standards (IPMS –www.ipmsc.org), International Construction MeasurementStandards (ICMS), International Ethics Standards (IES) andothers will be published and will be mandatory for RICSmembers. This guidance note links directly to thesestandards and underpins them. RICS members areadvised to make themselves aware of the internationalstandards (see www.rics.org) and the overarchingprinciples with which this guidance note complies.Members of RICS are uniquely placed in the market bybeing trained, qualified and regulated by working tointernational standards and complying with this guidancenote.

RICS guidance notesThis is a guidance note. Where recommendations aremade for specific professional tasks, these are intended torepresent ‘best practice’, i.e. recommendations that in theopinion of RICS meet a high standard of professionalcompetence.

Although members are not required to follow therecommendations contained in the guidance note, theyshould take into account the following points.

When an allegation of professional negligence is madeagainst a surveyor, a court or tribunal may take account ofthe contents of any relevant guidance notes published byRICS in deciding whether or not the member acted withreasonable competence.

In the opinion of RICS, a member conforming to thepractices recommended in this guidance note should haveat least a partial defence to an allegation of negligence ifthey have followed those practices. However, membershave the responsibility of deciding when it is inappropriateto follow the guidance.

It is for each member to decide on the appropriateprocedure to follow in any professional task. However,where members do not comply with the practicerecommended in this guidance note, they should do soonly for good reason. In the event of a legal dispute, acourt or tribunal may require them to explain why theydecided not to adopt the recommended practice.

Also, if members have not followed this guidance, and theiractions are questioned in an RICS disciplinary case, theywill be asked to explain the actions they did take and thismay be taken into account by the Panel.

In some cases there may be existing national standardsthat may take precedence over this guidance note.National standards can be defined as professionalstandards that are either prescribed in law or federal/locallegislation, or developed in collaboration with other relevantbodies.

In addition, guidance notes are relevant to professionalcompetence in that each member should be up to dateand should have knowledge of guidance notes within areasonable time of their coming into effect.

This guidance note is believed to reflect case law andlegislation applicable at its date of publication. It is themember’s responsibility to establish if any changes in caselaw or legislation after the publication date have an impacton the guidance or information in this document.

Hong Kong Supplement to RICS UK guidance note 1

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Document status definedRICS produces a range of professional standards, guidance and information documents. These have been defined in thetable below. This document is a guidance note.

Type of document Definition StatusStandard

International standard An international high-level principle-based standarddeveloped in collaboration with other relevant bodies.

Mandatory. RICS has adoptedthese and they apply to theprofession.

Professional statement

Professional statement A document that provides the profession withmandatory requirements in the form of technicalrequirements or conduct rules that members and firmsare expected to adhere to. An RICS professionalstatement sets out the expectations of the profession.RICS-qualified professionals must comply with theprofessional statement applicable to their area ofpractice or be able to explain any departure from it. Therelevant professional statement will be used by RICS andother legal and regulatory authorities in judgingcomplaints and claims against RICS-qualifiedprofessionals.This category may include documents approved by RICSbut created by another professional body/stakeholder,such as industry codes of practice.

Mandatory on the basis of‘comply or explain’.Professional statements setout how the profession isexpected to meet therequirements of theinternational standards.

Guidance and information

RICS guidance note (GN) Document that provides users with recommendations orapproaches for accepted good practice as followed bycompetent and conscientious practitioners.

Recommended best practicebut not deemed by RICS to bein category of ‘mandatory’ forall practitioners.

RICS information paper (IP) Practice-based information that provides users with thelatest technical information, knowledge or commonfindings from regulatory reviews.

Information only.

RICS insights Issues-based input that provides users with the latestinformation. This term encompasses ThoughtLeadership papers, market updates, topical items ofinterest, reports and news alerts.

Information only.

RICS economic/marketreports

A document usually based on a survey of members, or adocument highlighting economic trends.

Information only.

RICS consumer guides A document designed solely for use by consumers,providing some limited technical advice.

Information only.

Research An independent peer-reviewed arm’s-length researchdocument designed to inform members, marketprofessionals, end users and other stakeholders.

Information only.

2 Hong Kong Supplement to RICS UK guidance note


1 Introduction

1.1 Hong Kong supplement overviewThis document has been prepared as a supplement to theDevelopment management guidance note, 1st edition(2009), published by RICS UK. It is not intended as areplacement to the UK guidance note but should be readin conjunction with it; it highlights the areas of practice thatdiffer from the UK, for which the original document wasproduced.

1.2 Purpose of this supplementto the guidance noteThis supplement is designed to provide additional guidanceand is intended primarily for Hong Kong-based projectmanagement surveyors, although, like the UK guidancenote, it also contains general information that may be ofinterest to other parties.


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2 Phases of the developmentmanagement process from a Hong Kongperspective

2.1 IntroductionThe development management process in Hong Kong isbroadly similar to that in the UK, or indeed elsewhere.

However, there are certain features that differentiate HongKong. Probably the most notable is the role that thegovernment plays in the property market in a number ofareas, in particular as a result of all land being held byleasehold tenure on government leases (with the exceptionof St John’s Cathedral in Central, which is held on afreehold title). The government is therefore a landlord aswell as the authority of statutory controls, fulfilling a dualfunction.

The UK guidance note sets out five key phases of thedevelopment management process; any furtherconsiderations to be taken into account in Hong Kong areexplained below.

2.2 Developer’s initial concept,site acquisition strategy andoutline appraisal (phases 1, 2 &3)In terms of the developer’s initial concept (phase 1), noadditional activities are needed in Hong Kong; likewise forthe outline appraisal (phase 3). However, regarding siteacquisition strategy (phase 2), further considerations andactivities may be required.

One potential source of suitable sites, particularlyundeveloped land, is the government. It has a policy ofreleasing land for sale by auction or tender, with no needto obtain planning permission (except for sites zoned‘Comprehensive Development Area’), nor to pay a landpremium or stamp duty. This effectively makes the siteready for building as the developer just has to follow theterms of the lease, and can therefore be a significantsource of development land supply. Private treaty grantsare also available on concessionary terms to special userssuch as schools, charities and churches.

An existing leasehold interest can also be purchased, butas well as negotiating with the existing government lease-owner, the prospective buyer must also consider the terms

in the lease and whether negotiation will be required withthe government if any changes are to be sought.

A further feature of site acquisition in Hong Kong is theprevalence of older buildings on sites with redevelopmentpotential that are in multiple ownership, over a single orcombined land lot. This necessitates negotiations with thedifferent owners, meaning site acquisition can take manyyears. Consideration also needs to be given as to whetheran application under the Land (Compulsory Sale forRedevelopment) Ordinance needs to be made.

2.3 The planning and landadministration process (phases 4& 5)A number of additional activities may need to be carriedout at this stage of the development management processin Hong Kong, depending on the situation and complexityof the site in question.

At the feasibility stage, a typical project team would includea town planner (to advise on planning permission), asurveyor (to deal with lease/land matters) and an‘authorised person’ or AP (to advise on building control).

The statutory plan – usually the outline zoning plan (OZP) –needs to be consulted to see which type(s) of developmentwill be permitted. If potential for development exists butplanning permission is required, then advice from aspecialist planning consultant may be necessary.

The government lease needs to be considered in detail.The terms and conditions in these can vary considerably.Some leases, particularly older leases, have long,unexpired terms and few restrictions, whereas others canhave shorter unexpired terms and many more restrictions.

If a particular use is permitted by the statutory plan but isrestricted by the government lease, it is possible tonegotiate a lease modification with the government –specifically the Lands Department – and in somecircumstances a land exchange, in which government landis incorporated into a new lease. This will usually requirethe payment of a premium to the government for anyenhanced value obtained. This process can be both time-consuming and costly, with no guarantee that a



modification or exchange will be agreed satisfactorily. Aspecialist consultant will usually be required in suchcircumstances.

The other notable constraint on the development of anysite is the Building (Planning) Regulations, which specifyfurther controls mainly relating to the plot ratio, sitecoverage and the height of any new buildings.

Government Practice Notes covering various aspects ofthe development management process in Hong Kong areavailable on the Lands Department website atwww.landsd.gov.hk.


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3 Development appraisal

3.1 IntroductionThe development appraisal process in Hong Kong sharesmany similarities with the UK and other countries; however,like any market, it does have some unique characteristicsand considerations. A guidance note was published in2014, written specifically with regard to development sitesin Hong Kong.

3.2 Valuation of developmentland, Hong Kong (HKGN 1)The RICS guidance note Valuation of development land,Hong Kong (HKGN 1) aims to help valuation surveyors indevelopment land valuations that are site-specific andunique.

HKGN 1 covers the following areas:

• establishing the facts in relation to inspection, site-specific information, legal entitlement and planningmatters

• assessing the development potential, includingdrawing up a development programme and analysingthe market

• valuation by the comparison method

• valuation by the residual method, including a detailedexplanation of development costs and assessing landvalue

• reporting the valuation.

HKGN 1 does not apply to refurbishment of existingbuildings involving limited demolition.

3.3 Development agreementDevelopers not wishing to incur the substantial costs ofacquiring a site for development may instead enter anagreement with the landowner to develop the site. In HongKong, some developers buy sites through a consortium toshare costs, spread risk, obtain funding and pool expertise.



4 Planning, land administration andbuilding control

4.1 IntroductionBefore proceeding with development in Hong Kong, anumber of considerations must be made. There isessentially a three-step process involving planning, lease/land administration and building control.

4.2 Permitted development/planning applicationsHong Kong has a system of statutory planning controls, asset out in the Town Planning Ordinance. The TownPlanning Board is a statutory body responsible under theOrdinance for preparing plans at the direction of the ChiefExecutive through its executive arm the PlanningDepartment, which is run by the Director of Planning.

Hong Kong operates a zoning-based planning system,predominantly comprising OZPs; although developmentpermission plans, which set out permitted uses in thevarious parts of a development permission area andprovide further control in terms of defining maximumdensities, height restrictions etc., are also used, albeitinfrequently.

There are usually two columns of uses: the first containsthose always permitted, and the second contains thosethat may be permitted on application to the Town PlanningBoard. The first consideration will therefore be whether theproposed development is a use that is always permittedand if not, whether it would be permitted subject to asuccessful planning application.

Further information can be obtained by referring to theTown Planning Ordinance [Cap. 131 of the laws of HongKong].

4.3 Land administration processin Hong KongAs virtually all land in Hong Kong is held on governmentleases, understanding the terms of the lease and themeans by which any changes can be made to it, ifpossible or necessary, is crucial to the developmentprocess.

Where a site has permitted development rights under theOZP/Town Planning Ordinance, government policy broadly

supports modifications to the lease to enable suchpermitted development. In some circumstances,government land can be incorporated into a developmentsite and this is known as a land exchange.

This process can be time-consuming and expensive. Notonly will the terms of the modified or new lease have to benegotiated with Lands Department, which will in turnconsult with other government departments such as theHighways Department, but once this has been done it willalso be necessary to negotiate the premium to be paid forany enhanced value.

The level of premium will depend on market conditions atthe time it is assessed, and the value of the property on abefore and after basis. It is possible to appeal against apremium as assessed by the government.

In October 2014, the Pilot Scheme for Arbitration on LandPremium was introduced by the Lands Department for atwo-year period, as an alternative way to settle the amountin cases where agreement cannot otherwise be reached.Its popularity to date appears somewhat limited, as it is abinding process whereby the premium must be paid andthere is no further right of appeal.

4.4 Buildings Ordinance andBuilding (Planning) RegulationsThese provide various regulations and restrictions, themost significant of which from a development point of vieware the plot ratio, site coverage and height, which alldepend on the class of site. This effectively imposes furtherrestrictions in addition to those of an OZP or governmentlease, particularly for smaller sites with limited streetfrontage.

Furthermore, since 2011 the Building Authority has put inplace a package of measures covering the following majorelements:

(a) sustainable building design (SBD) guidelines onbuilding separation, building setback and sitecoverage by greenery

(b) gross floor area (GFA) concessions

(c) energy efficiency of buildings.

The Practice Note for Authorised Persons, RegisteredStructural Engineers and Registered GeotechnicalEngineers (PNAP) APP-151 stipulates the prerequisites and


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conditions for granting GFA concessions (e.g. obtainingBEAM Plus Certification), while PNAP APP-152promulgates SBD guidelines.

Compliance with the SBD guidelines will be required by thegovernment lease conditions in new land grants and leasemodifications, or will be imposed as a condition in planningapprovals.

Further information on building control can be obtained byreferring to the Buildings Ordinance [Cap. 123 of the lawsof Hong Kong] and the Building (Planning) Regulations[Cap. 123F of the laws of Hong Kong].

4.5 Exempted houses in the NewTerritoriesIn the New Territories area of Hong Kong, the governmentsmall house policy entitles an ‘indigenous (male) villager’ aonce-in-a-lifetime concessionary grant to build one smallhouse in a designated village area. Such developments aresubject to unique criteria and specialist advice should besought in these cases.

Further information can be obtained by referring to theBuildings Ordinance (Application to the New Territories)Ordinance [Cap. 121 of the laws of Hong Kong].

The Lands Department also provide further information onsmall house matters that can be found atwww.landsd.gov.hk/en/smallhouse/smallhse.htm.



5 Development finance

5.1 IntroductionDevelopment finance in Hong Kong essentially entails thesame considerations as in the UK or anywhere else. It willtypically comprise equity, debt or both.

5.2 Development finance inHong KongThe most common form of development finance in HongKong is a developer’s own funds or equity. There are anumber of developers in Hong Kong listed on the stockexchange, and some (generally smaller) developers that arenot listed but possess sufficient funds to carry outdevelopment projects.

However, due to the relatively high land values and largecapital requirements needed to fund many developments inHong Kong, many smaller developers – and in some caseseven the largest ones – tend to establish and participate injoint ventures. These usually involve setting up a corporatevehicle to carry out the project, with the participantsproviding varied levels of funding and/or expertise.

In terms of debt finance, building mortgages are availableto developers to fund construction in Hong Kong; however,the land cost must be paid before a mortgage can beobtained, for which the developer’s own funds or equity willbe required, and contractors must also be paid in stages.

Debt funding is relatively difficult to obtain; however, listeddevelopers have borrowed and continue to borrow by wayof issuing corporate bonds.


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6 Procurement

6.1 IntroductionThe UK guidance note provides knowledge that is genericto the construction procurement strategy in Hong Kong.Therefore, the note’s provisions also apply there, except forcertain circumstances set out in the following sections.There are also some variations in practice, and again thesewill be highlighted.

6.2 Procurement strategy from aHong Kong perspectiveThe section on European public procurement rules set outin the UK guidance note is inapplicable to Hong Kong forobvious reasons. In Hong Kong, specific requirementsinclude the need for a main contractor to be a registeredbuilding contractor before it can carry out constructionwork, while some development organisations in theterritory adopt the procurement rules set out in the WTOGovernment Procurement Agreement.

The leasehold system in Hong Kong can also have a directimpact on procurement. For example, where a new grantor lease modification/land exchange has taken place,conditions such as a requirement for landscaping are oftenimposed, and further restrictions may be put in placerequiring consent before pre-selling units in a development.

6.3 Composition of thedeveloper’s professional teamPractice in Hong Kong is broadly similar to that set out inthe UK guidance note, the most notable difference beingthe regulatory requirement for the appointment of an APrecognised by the Buildings Department to ensurecompliance with the Hong Kong Buildings Ordinance.

6.4 Tendering and selectionprocessThe UK guidance note refers to the Construction IndustryCouncil (CIC) and CABE, which provide frameworks forprocurement of projects that again do not apply in HongKong. Major developments in the territory adopt a two-stage assessment regime – 60% based on price and 40%on technical scores. The Hong Kong government alsoprovides a guide to procurement that can be found atwww.fstb.gov.hk/tb/en/guide-to-procurement.htm.

6.5 Forms of appointmentavailableThe UK guidance note refers to various ‘standard forms ofappointment’. In Hong Kong, various ‘standard forms ofcontract’ are also used. Typically, they include the StandardForm of Building Contract (private, with or withoutquantities, 1999, 2nd amendment), the Standard Form ofBuilding Contract (private, with or without quantities, 2005edition) and RICS 1st edition (private, with or withoutquantities, 1986). Other major developers such as theMass Transit Railway, Hong Kong International Airport,West Kowloon Cultural District Authority etc. maintain theirown standard forms of contract.

However, the New Engineering Contract (NEC), whichpromotes partnering in the construction industry, has beengaining popularity in Hong Kong in recent years, afterhaving been adopted widely in the UK around twodecades ago. As of 1 January 2015, most Hong Konggovernment contracts have adopted the NEC form. Ittherefore seems likely that this trend will spread to theprivate sector – it is just a matter of time.



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