the hong kong institute of surveyors · (a) you are the manager of the agency department of hong...

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THE HONG KONG INSTITUTE OF SURVEYORS

GENERAL PRACTICE DIVISION

ASSESSMENT OF PROFESSIONAL COMPETENCE

FINAL ASSESSMENT 2011

WRITTEN ASSESSMENT ON 6 OCTOBER 2011

QUESTION 1 – Valuation, a compulsory question

Your firm has been requested to provide a service proposal for the sale and marketing of 8

uppermost office floors from 22/F to 29/F (“the subject property”) of a 30-storey commercial

building (“the subject building) located in Wanchai, Hong Kong.

The subject building, completed 15 years ago, has ground floor shops and car parking facilities.

The upper floors are for office use with similar layout and each floor of 700 sq.m. gross. The

other office floors within the subject building, apart from the subject property are held by

various individual owners.

The subject property has been fully let to various tenants. The terms of tenancies are of three

years with the passing rentals at about HK$400 per sq. m. exclusive (on gross area) which are

close to the market rental.

The client now wants to sell the whole of the subject property and to receive the sales proceeds

within the next 12 months.

You have been asked by the Head of the Investment Sales Department to prepare valuation

advice for the subject property to facilitate the preparation of the marketing and sale proposal

to the client.

Your valuation advice shall cover the following:

(1) An analysis of the comparable sales and lettings.

(2) Set out the workings for the indicative pricing of the 22/F and the rationale behind

including adjustments made for time, floor level, etc.

(3) Set out the indicative pricing for the various floors within the subject property including

the rationale behind

(4) Discuss the impact onto pricing if the subject property is to be sold as a whole instead of

selling the individual floors to various purchasers.

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The following table shows (a) recent sale transactions within the subject building including a

sub-sale and (b) sales transactions in a nearby building which is similar to the subject building

but is inferior to the subject building in terms of view.

For the purpose of this exercise, you shall assume that the market condition has remained

unchanged from August 2011 up to today’s date.

Subject Building Gross Floor Area (sqm)

Transaction Date

Transaction Price (HK$)

Remarks

15/F 700 June 11 91M Tenanted. 6 months completion period of the sale. Partial Harbour View

15/F 700 July 11 98M Sub-sale

Nearby Building

13/F 600 March 11 60M City view; similar age of subject building

25/F 600 Aug 11 78M City view

* * * End of Question 1 * * *

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QUESTION 2 - Land Resumption and Compensation

Your client, who is running a restaurant by the roadside in the New Territories on his own old

schedule lots, advises you that the forecourt of his restaurant (i.e. the non-building portion) is

going to be resumed by the Government for road widening under the Roads (Works, Use and

Compensation) Ordinance, Cap. 370. Because of the limited size of the building portion of his

land, your client used to place tables, chairs and other cutlery in the forecourt to run his

business but with this prospective resumption, he considers that most of his business will be

adversely affected. Please advise:

(a) What heads of claim (giving at least 5 examples) would your client be entitled to under the

Roads (Works, Use and Compensation) Ordinance especially when your client can find no

suitable premises in the vicinity to continue his business? What are the 3 conditions that

these heads of claim must satisfy?

(b) Would the amount of compensation be reduced if a small portion of the restaurant premises

which encroaches onto Government land is going to be taken back by Government for the

road widening project (i.e. not being resumed)?

(c) Would your answer for (a) above be different if no part of your client land is going to be

resumed but only the encroachment to the Government land will be taken back by

Government, rendering the access to his restaurant being adversely affected?

Please give your answers with justifications/reasons but citing of the name of a particular court

case is not mandatory.


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QUESTION 3 – Rating

A month ago, your client purchased and took possession of a 9-storey industrial building in

Wong Chuk Hang. The building had been left vacant for many years and was in a state of

disrepairs. Leakages were found in the roof, some windows were broken and there were

damp patches on the walls in various locations. Your client intends to redevelop the building

into a three to four-star hotel of about 150 rooms, and has submitted a planning application for

the proposed change of use. Your client intends to demolish the building within next year after

approval of the planning application and completion of the lease modification.

Your client recently received the rates demands from Rating and Valuation Department

(“RVD”) for the units in the building, and was aggrieved at RVD assessments. Your client

thinks that rates ought to be substantially reduced because the building is in a state of disrepairs,

and it is intended to be redeveloped shortly.

a) Please advise your client the basis of assessment of the rateable value and whether the

current physical state of the building and the redevelopment plan warrant a reduction in

rateable values.

b) Please advise the action(s) your client may pursue to object to RVD’s rating assessments of

the building and address the relevant considerations for your proposed action(s).

c) Your client is venturing into the hotel business with no formal hotelier experience and is

considering the future rates payable of the proposed new hotel for budgeting purposes.

Your client hears that the rating assessments of hotels are arrived at by the Receipts and

Expenditure method, but he is unfamiliar with the approach. As your client’s rating

consultant, please advise him the methodology of this valuation approach, outlining the

valuation (format only) and briefly discuss the various components used in the different

stages of the valuation.


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QUESTION 4 – Property Management

You just become the Manager of commercial building (“the Building”).

The Building is immediately adjacent to a lane by the side of the Building (whereby the

Building and the lane cover the whole of the building site). There are erected some

wooden-huts and a stall (“the illegal structures”) at the entrance to the lane. This part of the

lane is shut off to strangers and all owner(s) and occupiers of the Building by a gate installed

by the occupier of the huts and stall.

You are advised by the owner(s) of the Building that an attempt to get the relevant government

departments to remove the illegal structures was of no avail. Further, in an effort to resolve the

matter, a property agent was instructed to negotiate a settlement with the occupier of the illegal

structures by offering a financial incentive of $9 million in exchange for their

removal. Nothing came of this. On the other hand, the occupier advised you that they had

been there for over 12 years, and had obtained a business certificate and paid rates from time to

time.

Please advise the following:

(a) whether you, acting on behalf of the owner(s) of the Building, should apply to court for

an order for removing the huts and the stall, canvassing your view particularly on the

following respectively:

(i) the occupier had been there over 12 years;

(ii) the owner(s) of the Building had made an offer of settlement to the occupier;

(iii) the occupier had been paying rates from time to time.

(b) would your answer in (a) above be different if the Building is multi-owned and subject to

a Deed of Mutual Covenant and no other legal document whatsoever specifies the

ownership of the lane concerned.

(c) would your answer in (b) above be different if the occupier of the lane is also one of the

owners of the shop on ground floor.

(Note: in answering the question, you may make reference to any relevant court decisions but

you need not quote the name of the case so long as you can give an idea of what the case was

about)


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QUESTION 5 – Agency Practice

(a) You are the manager of the agency department of Hong Kong Property Consultants Ltd

(“HKPC”). Pacific Property Fund (“PPF”), a property fund from overseas, has just

acquired a commercial development (a 4-level shopping arcade podium with twin office

towers) to be completed in 9 months' time. PPF now invites HKPC to submit a

consultancy/sole agency marketing proposal (“Marketing Proposal”) in respect of this

development. Your task is to prepare a fee proposal (only) for leasing of the offices and

shops of this development.

(b) Upon the confirmation of the agency appointment, you have drafted a standard form of

agreement for tenancy for perusal by PPF. The director of PPF who is not familiar with

the practice of pre-lease exercise now asks you to explain the main features of the

agreement for tenancy in respect of the following:

(i) whether there is confirmation as to the physical features of the premises;

(ii) whether the proposed tenant is bound to follow the leasing process and to sign the

formal lease document;

(iii) whether it is likely that the proposed tenant can be compelled to take up the lease.


QUESTION 6 – Landlord and Tenant – Government Lease (Government as head lessor)

Your client has acquired a development property comprising six contiguous lots within an

established commercial cum residential area in Hong Kong with a “Residential (Group A)”

zoning designation. Each of the government leases of these six lots contains a covenant

restricting development to a form of ‘not more than one house’. This client seeks your advice

as to the interpretation of a covenant of this kind.

(a) Advise your client your as to how this covenant is interpreted by the courts of Hong

Kong.

(b) Comment whether the Practice Note issued by the Lands Department is relevant to the

interpretation of the covenant.

(c) On the basis that a court case is under appeal, you are required to analyze the situation

your client is facing and suggest various options your client may take.


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QUESTION 7 – Development

A) Particulars of the Lot

a. Lot Number & Address

: Kowloon Inland Lot No. 99999 (the “Lot”), No.9999 Austin Road, Kowloon

b. Site Area

: 990 sm (See Site Plan at Appendix I)

c. Statutory Zoning

: “Commercial” on Tsim Sha Tsui Outline Zoning Plan (See

Extract of Plan at Appendix I and Notes at Appendix II)

d. Key Terms of Government Lease

: - Non-industrial purposes - CPS : minimum of 1 space per every 4 flats if used for

residential purposes

B) Other Information

e. Location of the Lot : The Lot is located in a mixed commercial and residential

district and is within 10 minutes walking distance from the Jordon MTR Station. There are shops, office and residential buildings in its vicinity.

f. The Existing Building : A 12-storey commercial building completed in 1960. The building is currently vacant and its physical condition is poor.

g. Section 16 Approval : A Section 16 Planning Application for a residential/ commercial development with carpark provision was previously approved and will expire on 8 April 2013. The approved scheme includes, amongst others, a domestic plot ratio of 7.5.

h. Schedule 1of Building (Planning) Regulations

: See the Schedule at Appendix III.

i. Buildings Department’s Practice Note No. APP-2

See the Practice Note at Appendix IV.

j. Others : Geotechnical and relevant assessments illustrate that construction of underground carpark is technically feasible.

C) The Question Your Client, the owner of the Lot, sought your advice on (i) the redevelopment value of the Lot as at today based upon the Section 16 approved scheme;

and (ii) your Client is considering whether they should commence development after 8 April 2013.

In order to protect the interest of your Client, what can be done pursuant to the Buildings Ordinance and/ or the Town Planning Ordinance?

Prepare a report outlining your analyses and advice to your Client. Support your advice with ONE assessment only. In your assessment, green features stipulated in the Joint Practice Note No. 1 and 2 could be disregarded.

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APPENDIX I

Site Plan

Subject Site

Road

Extract from Outline Zoning Plan

80

C G/IC R(A)

Road

Ro

ad

Subject Site

Ro

ad

90

C

Road

N

Not to Scale For Identification Purposes Only

Not to Scale For Identification Purposes Only

N

33 m

30 m

3 m

10.5 mPD

15 m

3 m

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APPENDIX II

Notes to Outline Zoning Plan

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APPENDIX II


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APPENDIX II


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APPENDIX III

First Schedule of Building (Planning) Regulations

Domestic Buildings Non-domestic Buildings

% Site Coverage Plot Ratio % Site Coverage Plot Ratio Building Height Class

A Class

B Class

C Class

A Class

B Class

C Class

A Class

B Class

C Class

A Class

B Class

C

< 15 m 66.6 75 80 3.3 3.75 4 100 100 100 5 5 5

15 m - 18 m 60 67 72 3.6 4 4.3 97.5 97.5 97.5 5.8 5.8 5.8

18 m - 21 m 56 62 67 3.9 4.3 4.7 95 95 95 6.7 6.7 6.7

21 m - 24 m 52 58 63 4.2 4.6 5 92 92 92 7.4 7.4 7.4

24 m - 27 m 49 55 59 4.4 4.9 5.3 89 90 90 8 8.1 8.1

27 m - 30 m 46 52 55 4.6 5.2 5.5 85 87 88 8.5 8.7 8.8

30 m - 36 m 42 47.5 50 5 5.7 6 80 82.5 85 9.5 9.9 10.2

36 m - 43 m 39 44 47 5.4 6.1 6.5 75 77.5 80 10.5 10.8 11.2

43 m - 49 m 37 41 44 5.9 6.5 7 69 72.5 75 11 11.6 12

49 m - 55 m 35 39 42 6.3 7 7.5 64 67.5 70 11.5 12.1 12.6

55 m - 61 m 34 38 41 6.8 7.6 8 60 62.5 65 12.2 12.5 13

> 61 m 33.33 37.5 40 8 9 10 60 62.5 65 15 15 15

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APPENDIX IV

Extract from Buildings Department Practice Note No. APP-2 on Calculation of

Gross Floor Area and Non-accountable Gross Floor Area issued in Jan 2011

15. Carparking spaces

(a) When a lot is subject to lease/grant conditions requiring the provision of incorporation of a

public carpark within a building or buildings, all the required facilities and associated works, including service core areas of such public carpark should be accountable for GFA calculation.

(b) For private carparking spaces which are intended for the use of the occupants and their bona fide visitors of the parent building, the BA may disregard them from GFA calculation under Regulation 23(3)(b) of the B(P)R subject to the following criteria:-

i) In deciding on the number of car-parking spaces that could be disregarded, the BA will

make reference to the standards set out in the Hong Kong Planning Standards and Guidelines (HKPSG) and the advice of the Commissioner for Transport (C for T).

ii) All car-parking spaces to be disregarded from GFA are electric vehicle 9EV) charging enabling, by putting in place the infrastructure, including electrical wiring, meter rooms and provision of sufficient power supply, for future installation of EV standard charging facilities, in accordance with the requirements stipulated under the Technical Guidelines on Charging Facilities for Electric Vehicles (EV) issued by the electrical and Mechanical Services Department (which can be downloaded int eh EMSD website: http://www.emsd.gov.hk/emsd/e_download/pps/pub/EV_guidelines.pdf)

iii) In order to help reduce building bulk, 100% GFA concession may be granted for

underground car parks while only 50% GFA concession may be granted for aboveground car parks.

iv) 100% GFA concession may be granted for aboveground car parks if it is proven with

sufficient evidence that it is technically infeasible to construct an underground car park due to site constraints in a specific site or that the above-ground car parks will not pose adverse environmental or visual impact to its surrounding areas.

v) Examples of site constraints making underground car parks technically infeasible

include:-

� sites located within Scheduled Area No. 1 (Mid-levels) where the amount of bulk excavation is restricted to minimize adverse effects on the stability of the hillside;

� sites located within Scheduled Area No. 2 (North-western NT) & 4 (Ma On Shan) where there may be large cavities within the mable bedrock and extensive underground construction works may encounter significant difficulties as a result of these ground conditions.

� sites located within Scheduled Area No. 3 (railway protection areas) where underground construction works are restricted by the presence of railway structures and stations; or

� sites located above major underground utilities or with other complex geotechnical constraint.

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vi) Examples for accepting above-ground car parks as not posing adverse environmental or

visual impact to its surrounding areas include ancillary car parks in low-rise low-density sites such as a development with plot ratio not exceeding 1 and not more than 6 storeys in height with maximum 5 storeys on top of one storey carpark.

vii) A carpark may be accepted as an underground carpark in the following circumstances:

� If the site abuts on only one street, a carpark may be accepted as an underground carpark if the structural ceiling soffit of the carpark is at or below the mean level of that portion of the street on which the site abuts and subject to such mean level to be not more than 5m above the lowest level of such portion of the street;

� If the site abuts more than one street, a carpark may be accepted as an underground carpark if the structural ceiling soffit of the carpark is at or below the level obtained by dividing the sum of the mean levels of the respective portion of the streets on which the site abuts by the number of such streets on which the site abuts and subject to the level so obtained is not more than 5m above the mean level of that portion of the lowest street on which the site abuts;

� For the purpose of allowing the provision of natural lighting and ventilation to the topmost carpark floor, a carpark may be accepted as an underground capark if not more than half of the height measured from the structural floor to the structural ceiling soffit of the topmost carpark floor and subject to a maximum height of 2.5m protrudes above the level as determined in (1) or (2) above for a site abutting on only one street or more than one street respectively.

� When there are site constraints that affect the design and location of the carparking floors e.g. there is significant difference in the levels of the street(s) on which the sit abuts; there is an existing large platform that governs that carparking design; the carpark is semi-sunken and follows the slope profile of the site and adjoining land, etc., the BA may consider the special circumstances of the case in accepting a carpark as an underground carpark.

viii) For underground carpark to be granted with 100% GFA concesion as stated in (iii) above, any entrance lift lobby, lift shaft or ramp for vehicles which is above-ground, solely serving the underground carpark, may be allowed to be granted with 100% concession if the area involved is of a reasonable size. However, any entrance lift lobby/ lift shafts which serve the development as well as the underground carpark(s) should be fully accountable for GFA.

ix) For the avoidance of doubt, associated ramps and facilities passing through floors accountable for GFA may be excluded from GFA calculation if they are physically separated from and do not provide access to the accommodation on the floors they pass through, the extent of GFA concession of which will follow that of the carpark served by the associated ramps and facilities.


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QUESTION 8 – Business Valuation

(a) What is 'Market Value' in the context of business valuation and please name four

examples of non-Market Value basis?

(b) Please suggest and elaborate the procedures to complete a business enterprise valuation

assignment in accordance with the HKIS Valuation Standards on Trade-related Business

Assets and Business Enterprises, First Edition 2004.

(c) Please list out and elaborate the minimum contents of a business enterprise valuation

report as required under the HKIS Valuation Standards on Trade-related Business Assets

and Business Enterprises, First Edition 2004.


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