Think Beyond Private Commercial Interests to Advance Urban Renewal
The Urban Renewal Authority (URA) has opted not to award the tender for the Kai Tak Road/Sa Po Road Development Scheme (Sa Po Road Project) and is now exploring a self-initiated approach to achieve the project’s planning benefits. This decision has attracted considerable attention, with media reports reflecting a variety of opinions from developers and academics. However, many of these perspectives focus predominantly on the commercial aspects of redevelopment projects, indicating a limited understanding of the URA's objectives and functions as defined by the Urban Renewal Authority Ordinance (URAO), as well as the project implementation considerations, corporate governance and operations involved in URA projects. In the following paragraphs, I would like to clarify and address some of the biased opinions, helping both the industry and the public better understand the rationale behind not awarding the Sa Po Road Project tender and the exploration of the self-initiated approach as an alternative.
Market Considerations Were Thoroughly Reviewed Before the Tender
The Sa Po Road Project was the first tender to close following the recent interest rate cuts. At that time, interest rates remained high, and the inventory of new residential units was also substantial, impacting developers' willingness to submit tenders. Prior to the tender, the URA team conducted research on these market conditions and amended certain tender terms that would not affect the project’s planning, such as introducing staged payments for tender amounts and removing inapplicable sales restrictions. These changes aimed to enhance the project’s attractiveness.
Not Awarding the Tender Ensures Procedural Justice
As a statutory body, the URA adheres to the principle of fairness and established protocol when considering bids and awarding tenders. During the tender process, the sole tenderer proposed additional terms that significantly deviated from the URA's tender terms, the intention of which was likely to be reflected in their fee proposal. Had the URA opened the fee proposal and considered awarding the tender without due consideration, it would have been profoundly unfair to other potential tenderers who had opted not to submit tenders. As such, the URA followed the established protocol by not reviewing the fee proposal and not disclosing the tender price. This approach is consistent with effective practices for public bodies and counters the criticism that not awarding the contract without reviewing the fee proposal was a "cocooned decision made behind closed doors."
Not Revealing the Fee Proposal Contains Further Negative Impact on a Weak Market
Since only one tender proposal was submitted, and the additional terms proposed by the tenderer did not align with expectations—particularly in light of the weak property market and future first-hand property supply-demand conditions in Kowloon City—it was not difficult to anticipate that the proposed fee would be significantly lower than market expectations. The tenderer’s assertion that they "hoped the URA’s financial returns would not be negatively impacted" is arguable. If the URA had proceeded to award the tender under these circumstances, it would have contravened the principle of prudent financial management, and disclosing the fee proposal might bring further negative impact on the already struggling property market.
Considering all these factors, the URA’s decision of not awarding the tender and not reviewing the fee proposal was the most reasonable, fair, and responsible act at that time.
Opening the Fee Proposal for Internal Analysis and Future Planning
The URA will not consider or open the fee proposals for tenders that do not meet the tender terms during the review process. However, once the tender review procedure is completed, the URA will open all the fee proposals for internal analysis to assess the market's response to the project which serves as valuable references for future tenders.
In the case of the Sa Po Road Project, the URA opened the fee proposal after the completion of the tender review process, which confirmed that the decision of not awarding the tender was justified, as the proposed fee was significantly below the lower limit of market valuation. Had the proposed fee been disclosed at that time, it could have triggered a ripple effect that negatively impacted the property market.
With the recent Policy Address relaxing the maximum loan-to-value ratios for residential property mortgage loans and improved market conditions, there are indications of a recovery in Hong Kong’s residential market. These provide the URA with a timely opportunity to communicate its considerations to the public. Nevertheless, due to the deviation from the tender terms of the submitted tender, the proposed fee will not be disclosed, in accordance with the existing protocol.
Promoting Urban Renewal in Line with the URA’s Objectives
One of the URA’s core objectives, as outlined in the URAO, is to enhance the built environment and housing quality in older districts through redevelopment and replanning, while also addressing various social needs. In the renewal of old districts, the URA adopts a "planning-led, district-based" approach. This approach includes not only the redevelopment of ageing buildings but also a thorough consideration of community needs, incorporating additional community facilities to maximise the benefits of urban renewal. If the URA’s redevelopment project focused solely on commercial interests—allowing financial considerations to overshadow the improvement of the built environment and facilities in older neighbourhoods—urban renewal would devolve into mere large-scale commercial development projects, failing to meet the community's needs or long-term development goals. Such an approach would contradict both the objectives of the URAO and the Urban Renewal Strategy (URS).
The URA is Not a Commercial Developer
The URA has a clear division of roles in joint venture redevelopment projects. The URA formulates planning proposals for the projects, acquires necessary property rights and prepares the site, after which it awards the project to the successful developer for construction. While the commercial market's acceptance of certain ancillary facilities in the proposed plan may fluctuate with market conditions, the URA must consider the overall impact of a project, rather than focusing solely on its commercial viability. Given the URA’s mission and objectives, we cannot make project decisions like a private developer by focusing solely on commercial factors or the financial performance of individual projects. Instead, the URA prioritises the effectiveness of urban renewal, community benefits, housing supply, and the broader societal impact. As such, the URA takes on the social responsibility by self-initiating the redevelopment projects that may be less commercially attractive.
Considering Development Costs in Self-initiated Projects
While the decision of not awarding the Sa Po Road Project tender may place short-term pressure on the URA’s cash flow, urban renewal is a long-term endeavor that can be effectively managed through careful planning and by adjusting the pace of other redevelopment projects.
The URA team has begun exploring a self-initiated approach for the project, including an assessment of the associated development costs and risks. The construction costs represent less than 40% of the total expenses, and since these costs will be incurred progressively over time, the cash flow pressure is manageable. Furthermore, the self-initiated approach will enable the URA to generate revenue from the sale of residential units and the operation of commercial spaces in the future, thereby improving cash flow to support other urban renewal initiatives.
Given the circumstances, the URA believes that the self-initiated approach is more cost-effective than retendering in the short term, in particular if substantial revisions to the project plan are required. The URA also retains the option to retender after completing portions of the project, providing flexibility in implementation. This approach is preferable to hastily awarding a contract based on a single tender with a low fee.
Taking a Macro Approach to Urban Renewal for the Benefit of All Stakeholders
Hong Kong is facing a severe urban decay problem that can only be resolved with collaboration among all stakeholders. In this period of economic transition, the work of urban renewal has become increasingly complex. All stakeholders must adopt a macro perspective, adapt to evolving circumstances and seek optimal solutions that yield maximum benefits for everyone involved.
