A study on the feasibility and effectiveness of land readjustment practices in new development areas (NDA) : a case study of "enhanced conventional new town approach (ECNTA)" in northern metropolis

Abstract

Land Readjustment is the process of converting low value agricultural land into more marketable and planned developments through Public-Private Partnership (PPP) arrangements. This dissertation evaluates the effectiveness of introducing land readjustment practices into the Conventional approach of implementing NDAs by investigating the case studies of the “Enhanced Conventional New Town Approach (ECNTA)” in Kwu Tung North (KTN) and Fanling North (FLN) NDAs. The Conventional approach adapted by the government is to resume all the private land with payment of ex-gratia compensation to landowners. The development sites will then be sold after site formation and infrastructural works are completed. While under the ECNTA, the lot owners can opt for applying in-situ land exchange, subject to payment of land premium, within designated sites if they meet prescribed criteria. With reference to actual projects in the Northern Metropolis, Part 1 of this dissertation computes the Total Net Present Value (NPV) of the NDA to compare the returns of the Conventional approach and ECNTA from the government’s perspective. The total NPV was assessed by taking into account the expenditure and revenue of the NDA projects within the relevant time period. A positive NPV of $3,445/sqm was achieved if land exchange can be completed for all sites designated under ECNTA whereas a positive NPV of $2,172/sqm (i.e. 37% lower) was achieved under Conventional approach. Part 2 and 3 of this dissertation analyses the reasons why the existing ECNTA policy is faced with problems including having low participation rate (i.e., only a small number of land exchange applications were being processed under ECNTA) and low success rate (i.e., only one applicant accepted the premium offers for land exchange under ECNTA) after rolling out the ECNTA policy in a rush are analysed in detail. Based on the results of Part 1 to 3, the factors which exert the most significant influence on the success of ECNTA are analysed in Part 4 using sensitivity analysis, in hopes of evaluating the extent of influence resulting from variations in these factors. Four factors have been chosen for the sensitivity analysis, namely, i) before-value of agricultural land for premium assessment adopting standard rates; ii) discount rates; iii) development periods, and iv) provisions of government accommodation. Among all four factors under investigation, the length of development period was found to have the greatest significance on the financial returns of land exchange, hence greatly affecting the validity of ECNTA. There is a notable increase in the average annual Internal Rate of Return (IRR) from 4.48% to 14.07% when the length of the development period is reduced by up to 3 years compared to the original development period. The outcomes of the sensitivity analysis served as valuable inputs for policy decisions and the formulation of policy modifications aimed at enhancing the existing ECNTA scheme.