Information Paper for Legislative Council Panel on Housing
Funding Allocation for Demolition of Cottage Areas


PURPOSE

We intend to seek the approval of the Finance Committee to allocate a sum of $44.5 million to the Lands Department for the demolition of four Cottage Areas. When Members were briefed on our proposal at the Panel meeting held on 7 December 1998, they raised concern about the issue of "compensation" for Cottage Areas residents affected by the clearance programme. The purpose of this paper is to respond to Members' concern and to provide details about our proposal.

PROPOSAL

2. The Director of Lands (D of Lands), with the support of the Secretary for Housing, will propose to create a new commitment of $ 44.5 million under Subhead 600 Works of Head 91 - Lands Department for demolishing structures in the four Cottage Areas at Fo Tan, Mt. Davis, So Kon Po and Lai Chi Kok.

BACKGROUND

3. The Government has pledged in the 1997 Policy Address to clear the remaining Cottage Areas by 2001 to provide a more satisfactory living environment to resettled households. At present there are five Cottage Areas managed by the Housing Authority (HA). As the manager of Government land, D of Lands is responsible for taking forward the demolition of the four concerned Cottage Areas situated on Government land(1) . He will act as the controlling officer for the funds to be expended on the demolition work. Being the rehousing agent, the Housing Department will act for D of Lands in commissioning the demolition work.

4. To take forward the scheduled clearance programme, the Housing Department is now required to start the tendering of contractors, making financial and staffing arrangements and the other necessary administrative procedures. The Housing Department would need to give sufficient time (18 months notice in advance) for the affected households to move out. Members may refer to the clearance programme at Annex A for further details. The financial implication of the clearance programme is set out at Annex B.

THE QUESTION OF "COMPENSATION"

5. Upon request by some Members, we have solicited the detailed advice from the Secretary for Justice on the issue of "compensation" to the Cottage Area residents. Legal advice has now confirmed that neither the Government nor the HA is legally liable to pay any "compensation" to Cottage Area residents by demolishing their structures, for the following reasons:

  1. the HA is empowered by the Housing Ordinance (Cap 283) to manage the Cottage Areas. According to the Housing Ordinance, the residents are required to vacate their structures upon receipt of the 3-month advance Notice-To-Quit issued by the HA;

  2. as indicated in the previous and existing Ordinances, the Cottage Area residents have no legal title to the land. By paying the permit fees, these Cottage Area residents are only given the right to occupy Government land for erection of structures at their own cost. The Government has never assigned the legal land title to the occupants. Apart from the Cottage Areas, in the past the Government has also designated land to the resettled households for erecting structures in the then Temporary Housing Areas (THAs) and Resettlement Areas, and demolish the structures during clearances;

  3. although the residents erected or purchased the structures, there is no express provision in any legislation whatsoever that they will be compensated by the Government for the loss of the structures upon clearance; and

  4. the Tiu Keng Leng Cottage Area had a unique historical background and this was recognized by the then Legislative Council in March 1995 when it approved the payment of a special ex-gratia allowance to the clearees of the Tiu Keng Leng Cottage Area. Thus it cannot be taken as a precedent for other Cottage Areas.

For the above reasons, we believe it is inappropriate for the Government to use public funds to "compensate" Cottage Area residents given the conclusion that they have no legal entitlement to any such "compensation" and the fact that adequate rehousing arrangements will be provided for the affected residents.

REHOUSING ARRANGEMENTS

6. Nevertheless, the Government and the HA recognize the distinct historical background of the Cottage Areas. We therefore have offered relaxed treatment to Cottage Area residents in comparison with THA residents and squatters in respect of rehousing arrangements. The genuine Cottage Area residents registered by the Housing Department before 10 September 1998 will be offered public rental housing flats by waiving the income-cum-asset test and property ownership restriction. If they wish to buy Home Ownership Scheme (HOS) / Private Sector Participation Scheme (PSPS) flats, they will be given first priority green form status with exemption from domestic property ownership restriction and a monthly mortgage subsidy for six years.

7. The Government will make sure that no residents involved would be rendered homeless as a result of the clearance operation. Cottage Area residents ineligible for public rental housing would be offered interim housing if they meet the eligibility criteria then in force. For details, Members may refer to Annex C. Eligible clearees will also receive ex-gratia allowances in accordance with the prevailing criteria and allowance rates.

CONCLUSION

8. We are very concerned about the deteriorating living conditions of the Cottage Areas. Over the years the Government has been making efforts to improve the living environment of the residents. Since 1971 we have cleared 10 Cottage Areas and rehoused 70,600 persons (excluding Tiu Keng Leng Cottage Area). We hope the clearance programme can proceed as scheduled to provide a more satisfactory living environment to the resettled households.


Housing Bureau
February 1999


Annex A

Clearance Programme of Cottage Areas


Estimated
no. of
units		Estimated
no. of
households 		Estimated
no. of
persons		Date of
completion
(tentative)
Name
Fo Tan189135513 July 2000
So Kon Po179161612 August 2001
Mount Davis221184699 August 2001
Lai Chi Kok177202768 October 2001
Total7666822592


Annex B

Clearance of Cottage Areas
Financial implications

At an unit rate of $45,600 per cottage (at November 1998 prices), the total demolition cost of 766 units (each of approximately 30 m2) at the four Cottage Areas is estimated to be $44.5 million, with the following breakdown-

Unit
(Nos.)		Sub-total
($ million)		Total
($ million)
(a)Demolition cost34.93
  • Fo Tan
  • Lai Chi Kok
  • Mt. Davis
  • So Kon Po

189
177
221
179 		8.62
8.07
10.08
8.16
(b)Contingencies
(8 % on (a))		2.77
Sub-total37.7
(at November
98 price
level)
(c)Inflation
allowance		6.78
Total44.48
say44.5

2. The above costs include the expenses of hiring contractors for the demolition work and 20% on-costs charged by the HA to cover site management, site security, tendering, contract documentation, project management and supervision services provided by the HA. The demolition work comprises the following items -

  1. demolition of superstructures such as vacated Cottage Area units which contain asbestos, public latrines, pump houses, meter rooms, transformer rooms and refuse collection points;

  2. making good the ground level such as grubbing up of footings, surface channels, drainage and foundations;

  3. disconnection of public utilities such as fresh water and flush supply, fire services and electricity supply;

  4. removal of resulting debris; and

  5. fencing up of the cleared site.

3. Subject to Finance Committee's approval, we will phase the expenditure as follows-

Year$ million
(November 1998)		Price
Adjustment
Factor		$ million
(MOD)
2000-20019.31.12890
10.50
2001-200228.40 1.1966333.98
Total:37.744.48


Annex C

Clearance of Cottage Areas
eligibility criteria for rehousing


(A) Eligibility for Public Rental Housing

In order to be eligible for public rental housing, Cottage Area clearees:

  1. must be authorized occupants registered with the Housing Department; and

  2. must be genuine residents of the affected cottages at the time of announcement of clearance; and

  3. residents who moved into Cottage Areas after 10 September 1998 have to pass the prevailing income-cum-asset test before they are allocated public rental housing units.

2. Cottage Area residents who are eligible for public rental housing may opt to buy Home Ownership Scheme (HOS) / Private Sector Participation Scheme (PSPS) flats with first priority green form status. They will be exempted from domestic property ownership restriction and will receive a monthly mortgage subsidy for six years in purchasing HOS/PSPS flats. They may also apply for Home Purchase Loan Scheme (HPLS) loan with green form status.

(B) Eligibility for Interim Housing

3. Other genuine residents of the affected Cottage Areas who cannot meet the requirements above for permanent public housing are considered for interim housing in accordance with eligibility criteria then in force. They would be allowed to stay for a maximum of 1 year and will be required to pay licence fee equivalent to market rent of the premises. During this period they will be given priority for the purchase of HOS/PSPS flats or the grant of HPLS loans, if they meet the normal eligibility criteria as if they were White Form (WF) applicants.

(1) The demolition of the other Cottage Area at Tung Tau will be funded by the Housing Authority to facilitate clearance since the site has been designated for public housing development by the Housing Authority.