Hong Kong’s Urban Renewal Authority has defended its compensation offer to property owners affected by the redevelopment of housing blocks once allocated for civil servants, after complaints the amount was smaller than expected because of land premium payments.

The Kowloon City project, located at two sites on Shing Tak Street and Ma Tau Chung Road, as well as Kau Pui Lung Road and Chi Kiang Street, is expected to create more than 3,000 flats, about five times the number of existing homes.

The authority last week announced that under its compensation policy, affected owner-occupiers would be offered HK$19,848 (US$2,544) per square foot of saleable area.

Under the policy, compensation, which is assessed by independent authority-appointed surveyors, is equivalent to the price of a comparable seven-year-old flat in the same district.

Some residents complained the amount offered did not meet their expectations as they were required to pay the land premium – defined as the difference in the value of the property before and after redevelopment – which would in effect lessen their compensation.

“The acquisition offer is similar to the offer of other projects in neighbouring districts, and other measures to assist owners have also taken care of the special circumstances of the civil servants’ home ownership,” authority managing director Wai Chi-sing wrote on his blog on Sunday.

URA managing director Wai Chi-sing.

Wai said the property evaluation had taken into account various factors, including the market’s upward trend, as well as the opening of the Tuen Ma MTR line, which would push up home prices in the district.

He added the authority had also streamlined the land premium process by standardising payments at HK$2,661 per square foot for all owners. Payments could have varied from HK$2,661 to HK$3,400 per square foot, he said.

As a result, the URA would have to pay an additional HK$63 million land premium to the government. It also meant about 90 per cent of landlords who had yet to pay the premium would receive an additional subsidy ranging from HK$200 to HK$700 per square foot.

“Owners will save up to about HK$1 million compared with paying the government’s land premium on their own,” he said.

The existing flats, ranging in area from around 800 sq ft to 1,600 sq ft, were built under the Civil Servants’ Cooperative Building Society Scheme, which was in operation between 1952 and the mid-1980s. The government granted land to those who formed cooperatives – usually at a third of market value – to build their homes.

The owners, however, cannot sell their properties unless at least 75 per cent of members agree to dissolve the society. An owner wishing to sell also needs to pay the government a land premium.

The URA said it picked the sites last year because of the age of the housing blocks as well as their low density, which did not fully maximise the available space.

Other advantages included the buildings’ location near existing public housing estates, lack of competing acquisition actions by private developers and relatively large size.