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HK Home Compulsory Purchase - Any Knowledge?

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  1. #1

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    HK Home Compulsory Purchase - Any Knowledge?

    I posted about this as an aside to another topic (landlord breaking lease) but feel it deserves it's own thread.

    I've been in HK for over 20 years and yet don't remember meeting anyone else who has (admitted to) having the experience of having their home compulsory purchased by the URA. (either as a tennant or an owner)

    So I'm wondering if anyone else here knows anything about the process.....and the potential opportunities it represents for investment?

    It seems there is an understanding amongst HK locals that purchasing properties with a high likelihood that they will later be scheduled for redevelopment is a strategy to open up potentially very good profits - if you're lucky.....

    In my friends case, owner occupiers living in their flat in the building were offered $24,000 /sqft to sell and I estimated that to be around 50% above market value for a high floor walk-up last year.

    Anyone else have similar/differing experiences?

    Joining that gravy train seems like a very real possibility for those with some spare liquidity who are prepared to buy in a crappy building.

    ------------------------------------------------------------
    My friend's experience for the record:

    The building they lived in was compulsory purchased by the urban renewal authority last year.
    It was an old walkup building, a very nice (by rental standards -but mostly it was her good furnishing taste that made it) flat on the top floor in SYP.

    At 24k/sqft you can imagine the potential for profit even without all the capital appreciation of the last 15 years, 50% (ish) on top is a very attractive bonus (though the offer from the URA would be less than 50% if you were buy to let)

    My friend was renting, her contract had expired, she'd been there over 3 years and the contract was just rolling over month to month, so in purchasing, the URA could have given her 1 months notice.

    Instead, they paid her 35 months rent compensation to move out.

    Naturally the URA are developing the building (and a couple of others next door) they'll be knocking them down and building something much taller and thus creating far more flats for the same footprint, which involves vast sums of new money for those plots....


  2. #2

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    The URA (Government Body and private firms regularly target areas and buildings over 50 years old with redevelopment potential eg The Richfield Group:- Overview | 田生地產有限公司

    Hong Kong District | project_categories | 田生地產有限公司

    Kowloon District | project_categories | 田生地產有限公司

    Even Mainland companies do this

    https://www.scmp.com/property/hong-k...dings-older-50

    Many HK’ers typically buy verld old property, in the hope that the Government or a private company will compensate them for redevelopment. The only thing is, these are normally in run-down buildings and you could be holding on to these properties for a long time before there is a potential redevelopment buyer. It's only really worthwhile if you get in early eg if you bought 20-30 years ago. If you were to buy now, the owners would want a premium, as they are punting on a compulsory purchase order somewhere in the future....this could be 10, 20, 30, 40, 50 years time.


    Also mainland backed companies also do this.

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  3. #3

    I have a unit in a building that developers have twice tried to get enough units to do a compulsory purchase - and they failed both times because there were a few owners holding out for more than the developer was prepared to pay.

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  4. #4

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    Yes, they need 80% before it's compulsory


  5. #5

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    Quote Originally Posted by traineeinvestor:
    I have a unit in a building that developers have twice tried to get enough units to do a compulsory purchase - and they failed both times because there were a few owners holding out for more than the developer was prepared to pay.
    This is very interesting, thanks

    Can I ask a few questions about your situation?

    1) When you bought the unit in question did you do it partly/wholly with the thought that it might be a target for redevelopment in future?
    2) How long have you held it and when did the redevelopment enquiries occur relative to the amount of time you've owned it?
    3) What were the offer prices like compared to the market at the time?
    4) Would you have accepted their offer if the 80% was achieved?

    Many thanks

  6. #6

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    Quote Originally Posted by ArrynField:
    The URA (Government Body and private firms regularly target areas and buildings over 50 years old with redevelopment potential, even Mainland companies do this.

    Many HK’ers typically buy very old property, in the hope that the Government or a private company will compensate them for redevelopment. The only thing is, these are normally in run-down buildings and you could be holding on to these properties for a long time before there is a potential redevelopment buyer. It's only really worthwhile if you get in early eg if you bought 20-30 years ago. If you were to buy now, the owners would want a premium, as they are punting on a compulsory purchase order somewhere in the future....this could be 10, 20, 30, 40, 50 years time.


    Also mainland backed companies also do this.
    Helpful, thanks

    And yes, the length of time to hold is key (as well as the payout at the end).

    But purchasing one with redevelopment potential (over 50 yrs, subdivided flats, illegal structures etc) would not quite be the same as waiting to be bought. I wouldn't be knocking on doors of crappy buildings, I'd look for ones on the market in the current economic down-turn - kinda like distressed assets. If the market becomes illiquid enough, people will eventually sell as they tire of waiting out for that golden handshake.

    Naturally the potential for redevelopment in future would likely be priced in, however with no time frame for that, a bird in the palm can be worth two in the bush in many people's eyes, particularly if they're sick of living in a hovel or their relatives die and they want to leave HK.

    The fact that may people do it, suggests it's a viable strategy. In my case I wouldn't have to live in it, I'd rent it to some young person who can handle the stairs and appreciate the lower rent....

  7. #7

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    You'll find that most people have been holding onto these for a number of years, probably in excess of 30+ years. In Chinese, it’s known as 落訂, putting down a deposit on something which has a potential for redevelopment. There’s no guarantee that it will be developed, but it’s a punt that it could be.

    Once 80% have decided to sell, the remaining 20% have to sell....

    https://www.familyclic.hk/en/topics/...mpulsory-sale/

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  8. #8

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    Another thing to note is that a lot of older buildings, especially ones with subdivided apartments, have quite complicated ownership structures and it's sometimes very hard to contact all of the owners in the first place.

    I am in one such building and the incorporated owners have been spending the last few years trying to work out exactly who/what entity owns each unit.

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  9. #9

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    Quote Originally Posted by ArrynField:
    You'll find that most people have been holding onto these for a number of years, probably in excess of 30+ years....
    Many thanks, any idea how one might be able to get data on what that average number of years is?

    The frequency of approaches by parties interested in redevelopment (on average) is key.

    Naturally in my friends case she waited (unknowingly) for 3-4 years.

  10. #10

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    My experience from a slightly different perspective.

    I own and live in an apartment which is around 30-40 years old now.
    People who live in the building have lived in it a long time - only two flats per floor.
    3-4 years ago, apparently a developer was making enquiries. I was open to selling, but it never got to the stage of them actually making me an offer. Other owners told me that while the price was slightly above the going rate for the building, the price offered would not have been enough to buy a comparable apartment in the same area, let alone compensate for the the hassle of having to move house.

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