The following is a speech by Dr. Lau Wah-sum, Chairman of Urban Renewal Authority, delivered at Y' s Men' s Club luncheon

President Ng, ladies and gentlemen,

I am very pleased and feel honoured to have this opportunity to share with you my thoughts on the subject of urban renewal in which I have been involved closely for the past 13 years.

Urban decay is an acute problem in Hong Kong and is worsening with time. There are at present over 9,300 buildings of 30 years old or above in the urban areas. In ten years' time, this will go up by 50 per cent. Among them, there is an estimated 2,000 dilapidated buildings that are problematic. These buildings have become dilapidated for two main reasons. One, there is a widespread attitude of neglect among the owners towards proper maintenance and repair. Two, most of these buildings were completed in the 60's when the building standard was quite below what we have today, and when there were periods of severe water shortage which resulted in a lower quality of the concrete used.

The Government has long been aware of the serious situation. This was why the Land Development Corporation was set up as a statutory body in 1988. However, the LDC received no capital contribution from Government and its funding was sought entirely from joint venture partners in the private sector. The LDC was, in effect, a real estate developer. Even so, we see the achievements of the LDC standing today proudly in Central and Sheung Wan, such as The Centre, Grand Millennium Plaza and the recently completed Queen's Terrace project.

Why, then, was there a need to set up the Urban Renewal Authority to replace the LDC? The main reason is that there was a "defect" in the LDC Ordinance concerning the land assembly process. The "defect" was that the ordinance required the LDC to acquire the properties of a target site by negotiation and voluntary transactions with individual owners. However, it did not provide a specific trigger point whereby Government would invoke powers under the Land Resumption Ordinance to resume any properties that could not be acquired by negotiation. As a result, the land assembly process would drag on and on for years, sometimes as long as 12 years, through the bureaucratic and legal process. This, in turn, imposed an unexpectedly heavy interest cost on a project, in addition to the risk of land price fluctuations through the property market cycle. By 1998 when the property market began its decline from the peak, no joint venture partners were willing to start a new project with the LDC, without assurance of a specific date for handing-over of the project site.

Thus, we have learned it the hard way. In May 2001, the Urban Renewal Authority was set up to replace the LDC. And Government was determined to ensure that the new URA is better equipped for the tough job ahead. First, Government undertook to inject a capital of $10 billion into the URA over five years. Second, Government would only charge the URA a nominal land premium on all redevelopment projects. These two measures have enabled the URA to start on a relatively healthy financial footing. Third, the new URA Ordinance and administrative process have enabled the land resumption action to begin much earlier so that URA can now target realistically to complete the land assembly process in no more than 24 months. Fourth, the Housing Authority and the Housing Society together have agreed to provide 2,000 flats for re-housing the affected tenants each year.

This new formula has worked well for the URA so far. Over the past 12 months, the URA has commenced a succession of six projects. Thanks also to the hard work and dedicated of our staff, we are well on our way to achieving the 24-month target for land assembly. On average, we have managed to acquire over 80 per cent of the property interests. By the end of this financial year, the URA would have commenced a total of eight projects, with land resumption applications for five of them already submitted to Government.

So, the new legal and administrative framework has enabled us to solve the land assembly problem. But that is only the first half of the task. The second half is for the URA to come up with a new concept of urban renewal instead of using the old method of demolish-and-build in the LDC days.

The URA has adopted a new approach of urban renewal known as Area-based Development, which means that we shall always plan for the revitalisation of a whole neighbourhood rather than just the redevelopment of a single project site. With this approach, we aim not only to modernise and improve the living condition for the residents at a cluster of project sites but also to upgrade the environment and preserve the local characteristics and community network in the area. To this aim, we have organised local residents, district leaders, professionals and academics into District Advisory Committees to advise us on the best way to revitalise the areas concerned.

This area-based approach has been made possible by the URA's adoption of a holistic strategy known as the 4Rs, namely redevelopment, rehabilitation, preservation and revitalisation. This is perhaps the most advanced urban regeneration strategy that has been tried and proven in other large cities in the world. On the one hand, it enables the URA to treat each component part of a local area flexibly. This may include redevelopment of a cluster of run-down residential blocks; rehabilitation of old but serviceable buildings; conservation of historic architecture and local features; and revitalisation of leisure, cultural and economic facilities, including pedestrian precincts, in the neighbourhood. On the other hand, the revitalised area would generate a ripple effect of business opportunities outwards to the surrounding areas and bring up the economic value of the land and property in the vicinity. To illustrate the point, allow me to use the Times Square, Causeway Bay, as a handy example. [Slides illustration.]

Obviously, large redevelopment projects such as the Times Square will inherently generate a multiplying effect on economy and investment in the surrounding areas. This effect has taken place through organic growth, slowly but steadily, in the years after the completion of the projects. On reflection, this effect would have occurred in a quicker pace and on a larger scale if it had been planned for well in advance. And this is where the URA's 4Rs strategy comes in.

The area-based approach and the 4Rs strategy are therefore the key to unlock the immense business investment opportunities arising from urban renewal. It is therefore up to the URA, with a number of anchor projects currently underway in Wan Chai, Mong Kok and Yau Ma Tei, to plan ahead and maximise the potential in accordance with its 4Rs strategy to help rehabilitate and revitalise the surrounding areas. And if we do it wisely, we shall be able to create a profitable incentive for the private sector to invest in the property and various other businesses in the districts. The net result would be a mutually beneficial impact between the URA's revitalisation effort and private sector investment that combine to bring life and wealth into the target areas.

Over the next five years, our urban renewal work will gain a greater momentum with dozens of new projects being commenced to cover the whole spectrum of redevelopment, rehabilitation, preservation and revitalisation. In addition, the Hong Kong Housing Society, which has become our strategic partner, will also be investing billions of dollars in URA's projects and working with us hand in hand through the 4Rs strategy. We are confident that with the participation of the private sector we shall succeed not only in preventing the crisis of urban decay but also turning it into an abundant and powerful source of opportunities for strategic and sustainable development of Hong Kong's economy.

In conclusion, I hope I have impressed upon you that there is a silver lining around the dark clouds of urban decay. Given the right strategy, planning and public participation, there is hope for us to turn this potential crisis into a rewarding opportunity for everyone. For residents in the run-down districts, the opportunity is to enjoy a modern and better living environment. For entrepreneurs, the opportunity is to invest in an growing consumer market, thereby creating more jobs for our work force. For the local community, the opportunity is to prosper within a preserved social network and improved infrastructure, with a strong local identity and sense of belonging. For Hong Kong as a whole, the opportunity is to enhance the urban living quality for tens of thousands of people, create a snowball of local community economy and ultimately help to make Hong Kong a truly world class city. This is the vision and mission of the URA. I hope that you, too, will join us in this rewarding mission. Thank you very much.