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U R V E Y I N G A N D B U I L T E N V I R O N M E N ISSN 1816-9554

Volume 19 Issue 1 December 2008 ISSN 1816-9554 CONTENTS

Journal Objectives 4

Editorial 6

Call for Papers 8

Articles T

A Marking Scheme as a Means of Controlling Anti-Social Behaviour: a Hong Kong Case 9

The Reality Versus the Legality of the Demarcation District Sheets 26

Vol. 19 Issue 1 December 2008 Transfer of Development Rights Approach: Striking the 38 Balance between Economic Development and Historic Preservation in Hong Kong

An Alternative Approach to the Short Term Prediction of 54 Residential Property Prices in Hong Kong

Risk Sharing Mechanism for PPP Projects – 67 V ol. 19 Issue 1 December 2008 the Case Study of the Sydney Cross City Tunnel

Development of a Conceptual Framework for the Study of 81 Building Maintenance Operation Processes in the Context of Facility Management

Submission Guidelines 102

w w w . h k i s . o r g . h k THE HONG KONG INSTITUTE OF SURVEYORS Information

All rights reserved. No part of this Journal may be reproduced or transmitted in any form or by any means without the permission of the Hong Kong Institute of Surveyors. Contents of the Journal do not necessarily reflect the views or opinion of the Institute and no liability is accepted in relation thereto.

Copyright © 2008 The Hong Kong Institute of Surveyors ISSN 1816-9554 Editorial Board

Honorary Editor Dr King-fai Man Lesly Lam Department of Building and Real Estate Honorary Secretary The Hong Kong Polytechnic University The Hong Kong Institute of Surveyors Hong Kong SAR, People’s Republic of China Hong Kong SAR, People’s Republic of China Professor Esmond Mok Chairman and Editor-in-Chief Department of Land Surveying and Geo-Informatics Professor Kwong-wing Chau The Hong Kong Polytechnic University Department of Real Estate and Construction Hong Kong SAR, People’s Republic of China The University of Hong Kong Hong Kong SAR, People’s Republic of China Professor Li-yin Shen Department of Building and Real Estate Editor Vol 19 Issue 1 The Hong Kong Polytechnic University Professor Lawrence Lai Hong Kong SAR, People’s Republic of China Department of Real Estate and Construction The University of Hong Kong Dr Conrad Tang Hong Kong SAR, People’s Republic of China Department of Land Surveying and Geo-Informatics The Hong Kong Polytechnic University Members Hong Kong SAR, People’s Republic of China Dr Man-wai Chan Hong Kong Science and Technology Parks Corporation Dr Kenneth Yiu Hong Kong SAR, People’s Republic of China Department of Building and Construction City University of Hong Kong Dr Sai-on Cheung Hong Kong SAR, People’s Republic of China Department of Building and Construction City University of Hong Kong Hong Kong SAR, People’s Republic of China

Dr Daniel Ho Department of Real Estate and Construction The University of Hong Kong Hong Kong SAR, People’s Republic of China

Professor Andrew Leung Department of Building and Construction City University of Hong Kong Hong Kong SAR, People’s Republic of China

Dr K K Lo Department of Building and Real Estate The Hong Kong Polytechnic University Hong Kong SAR, People’s Republic of China Journal Objectives

Surveying and Built Environment is an international peer reviewed journal that aims to develop, elucidate, and explore the knowledge of surveying and the built environment; to keep practitioners and researchers informed on current issues and best practices, as well as serving as a platform for the exchange of ideas, knowledge, and opinions among surveyors and related disciplines.

Surveying and Built Environment publishes original contributions in English on all aspects of surveying and surveying related disciplines. Original articles are considered for publication on the condition that they have not been published, accepted or submitted for publication elsewhere. The Editor reserves the right to edit manuscripts to fit articles within the space available and to ensure conciseness, clarity, and stylistic consistency. All articles submitted for publication are subject to a double-blind review procedure.

Topics

All branches of surveying, built environment, and commercial management including, but not limited to, the following areas:

• Agency and brokerage; • Asset valuation; • Bidding and forecasting; • Building control; • Building economics; • Building performance; • Building renovation and maintenance; • Business valuation; • Cadastral survey; • Commercial management; • Concurrent engineering; • Construction law: claims and dispute resolution; • Construction management and economics; • Construction technology; • Corporate real estate; • Education and training; • Engineering and hydrographic survey; • Facilities management and intelligent building; • Geodetic Survey; • Geographical Information System (GIS); • Health and safety; • Heritage conservation; • Housing markets and policy; • Information technology; • International construction; • Land law; • Lean construction; • Mortgage; • Organization, scheduling and planning; • Photogrammetry and remote sensing; • Portfolio management; • Procurement and contracting; • Professional ethics; • Project financing; • Project management; • Property development; • Property finance; • Property investment; • Property management; • Property market dynamics; • Property valuation; • Space planning; • Sustainability; • Securitized real estate; • Town planning and land use; • Urban economics; • Value engineering.

For Submission Guidelines or enquiries, please contact the Editor of the Surveying and Built Environment Editorial Board at Suite 801, 8/F Jardine House, One Connaught Place, Central, Hong Kong; e-mail: [email protected], telephone (852) 2526 3679 or fax (852) 2868 4612. For information on the Hong Kong Institute of Surveyors, please visit: www.hkis.org.hk. Editorial

PROFESSIONAL ETHICS AND THE UNIVERSITY

‘The true and adequate end of intellectual training and of a university is not learning or acquirement, but rather, is thought or reason exercised upon knowledge, or what may be called philosophy’. (Newman)

A global financial tsunami triggered the bankruptcy of the investment bank Lehman Brothers in September 2008. This event, which has hit Hong Kong investors hard, reminds us of the value of prudence and the significance of professional ethics. The danger for professional people occurs when the demand of an employer or client, rightly or wrongly, is considered a sufficient moral ground for being reckless about the public interest. That is one of the key reasons why bank employees actively solicited walk-in depositors to purchase high-risk financial products for which the bank itself was merely an agent. Such employees nowadays are likely to be university graduates.

The message is about much more than professional negligence and the solution is not subject to government regulation alone. The collapse of world-class banks and accounting firms, or rather their failure, may also be considered a weakness in standards that go into creating syllabuses and curricula of some world-class universities. This raises an important question as to the nature of modern education itself.

Closer to home more than one university is craving the acquirement of ‘world-class status’, thus becoming highly sensitive to outside comment and the findings of university ranking exercises. Its staff have become hyperactive in turning out papers, capturing government research grants, and hiring those capable of so doing. Sadly, what it means to attain ‘world-class’ status has never been discussed. Local research relevance, sorry to say, counts little in recruitment or promotion as few academics are experienced professionals. ‘Local’ has become bad, ‘international’ (meaning foreign rather than comparative) is now good, an erroneous epistemological distinction suggesting a sub-conscious rejection of universal knowledge or values.

What is certain however is that the notion of a university here in Hong Kong is far from inhering a breadth of outlook, turn of mind, habit of thought, and capacity for social and civic interaction, in other words truly sapientia et virtus, the motto of the University of Hong Kong. Virtues? A world-class economist states in his work, ‘Do not say that because you are a person of principle, you will never concede on certain principles. Every person has a price, and my soul is saleable. Its price is high. But if you give me huge “benefits” and I only have to concede on some minor principle, then I will make a deal with you. And this is what we call “substitution”.’ Indeed, much ‘substitution’ has been occurring according to prices. Absolute values and principles have few adherents.

Victims of this state of affairs are not only students and the general public but also university teachers, whose real job should be intellectual and educational, and not largely self-focused paper writing and grant hunting for promotion, larger departmental budgets, departmental fissiparousness, personal reputation, higher salary, more travel to international conferences, etc.. There must be a loftier objective beyond being graded and praised by others as ‘world-class’, a description often in reality associated with man- made disasters.

Employment demands made on the average Hong Kong academic detract from, indeed militate against being valued for ideas and reduce her/him to the condition of begging for favours from school administrators and grantors. The national history of the Manchu Dynasty in suffocating ideas for fear of the influence of intellectuals, by keeping scholars busy with documentary research which had little social or political relevance, provides an apt parallel from the past. There is a need for academics to self-examine seriously their role in the world of learning and in society. Once they start this process, the door for a better future will open.

Professor Lawrence Lai Editor Vol 19 Issue 1

SBE 7 Surveying and Built Environment Vol 19(1), 9-25 December 2008 ISSN 1816-9554

Call for Papers

PROPERTY RIGHTS, REGULATIONS AND SUSTAINABLE DEVELOPMENT

Contributions are welcome for the next issue of Surveying and Built Environment in 2009 in the fields of surveying and development, with a focus on property rights, regulations and sustainable development. Both theoretical and practical contributions are welcome.

Submissions must not have been published previously and should be in Word format. Submission Guidelines are given at the end of each issue.

Only articles that demonstrate novelty and a theoretical or practical contribution (in the form of propositions and/or verifiable hypotheses) in the context of a rigorous literature review can be considered. Evidence of ethics clearance by relevant institutions must be provided for papers involving human data collected by social surveys.

All submissions will be screened first by the Chief Editor before they are blind refereed. A definite decision by the Editorial Board will be made within 60 days of submission. Comments of referees and editors will be disclosed to authors if their works are refereed.

Please send contributions by email in the first instance to Professor Lawrence Lai (email address: [email protected]) or any of the editorial members.

Deadline for submission: 31 May 2009

SBE 8 The Reality Versus the Legality of the Demarcation District Sheets Surveying and Built Environment Vol 19(1), 26-37 December 2008 ISSN 1816-9554

The Reality Versus the Legality of the Demarcation District Sheets

SC Leung*, TPF Sham* and CHW Tang**

ABSTRACT

By references to the Hong Kong government records in the period of the Demarcation District Survey (1898 – 1905), this article summarizes the background of the creation of the Old Schedule Lots from both the views of the law professionals, the Land Court, and the survey professionals, the Survey Department. Illumination of the nature and accuracy of the DD Sheets leads to discussion on the current uses of the legal land grant plan of the Old Schedule Lots.

KEYWORDS

Demarcation District Sheets Cadastral Survey Land Court Contractual spirit

*Leung Shou Chun Land Surveying Consultants Ltd Email: [email protected]

**Department of Land Surveying and Geo-Informatics, The Hong Kong Polytechnic University Email: [email protected]

SBE 26 Surveying and Built Environment Vol 19(1), 26-37 December 2008 ISSN 1816-9554

INTRODUCTION here, and there will be much left to consider after the preliminary survey Much has been published on the is complete’. (Colonial Office, 1900, p. Demarcation District (DD) Sheets, but 115) The Hong Kong Government later this paper attempts further discussion by performed a successful land reform referring to more historical documents in the New Territories where the land so as to confirm their nature as the tenure problem was duly tackled by the product of an occupation survey. Their Land Court with the information from reliability is analysed and then followed the Cadastral Survey. Chamberlain’s by a review of the wisdom of treating statement unfortunately foreshadowed them as an exact boundary record. The that there was no follow-up on the legality of the DD Sheets is viewed in initial land grant survey. Problems the light of their real nature. surfaced when the grant plans, i.e. the DD Sheets, were used beyond the built- in accuracy to determine boundaries, THE BACKGROUND not to mention meeting present-day development standards. Soon after the British assumed complete control of the New Territories in 1898, Several ordinances were enacted the Hong Kong colonial government between 1900 and 1904 to deal with found that the tenure used under the land matters in the New Territories Ching Dynasty was inadequate and that by the formation of the Land Court. this newly acquired territory was in Land claims were made to the Land danger of becoming a white elephant for Court which had set up procedures the administration. There was an urgent for demarcation. The procedures were need to establish a sustainable land tax reported by the Hon. H.H.J. Gompertz, system. The Secretary of State for the Member of the Land Court (1900-1902), Colonies, Sir Joseph Chamberlain, in and later the Chairman of Land Court his confidential communication with (1902-1904) in the Government Gazette Sir Arthur Henry Blake, Governor of of 1901 and listed as follows: Hong Kong, dated 6 January 1899, agreed with Sir J.H. Stewart Lockhart, The initial step is to select and the Colonial Secretary of Hong Kong, mark out the boundaries of a that the questions of titles to land in District and a notification from the New Territories should be settled His Excellency in the Gazette then as early as possible. Chamberlain fixes a date after which the Court opined that ‘Security for all reasonable will receive no claims in respect rights in regard to land will be a great of that District. Notices are inducement to content and loyalty, and published directing claimants to to the popularising of British rule’. attend the Court where the proper (Colonial Office, 1900, p.115) forms are filled in for them by the clerical staffs. A demarcation party Chamberlain also stated that ‘the Land is sent out and persons are invited question, however, by no means ends SBE to attend and give particulars of 27 The Reality Versus the Legality of the Demarcation District Sheets Surveying and Built Environment Vol 19(1), 26-37 December 2008 ISSN 1816-9554

ownership pointing out their land, The Survey Department used the the outlines of which are then put plane tabling method and provided the in on the Cadastral Map with an Cadastral Maps (DD Survey Sheets at appropriate lot number. (Hong 1:1980 scale and 1:3960 scale). The Kong Government, 1901, p.916) cadastral survey covered the whole of the New Territories and, as reported in The Land Court processed the claims the famous Newland report, 328,639 with the DD Sheets outlined with lot lots in 477 Demarcation Districts were boundaries from the claimants, the surveyed (Newland, 1904), plus the area calculated in acres to two decimal 20,000 house lots not shown in the points, the forms signed by claimants 1:3960 scale Demarcation District and the Demarcation Books prepared Sheets also demarcated by the Land by the Land Court staff. The Land Court (Hong Kong Government, 1905b, Court treated the DD Sheets as showing p.407), with a total number of lots the ‘exact position’ of the lots, the around 350,000 lots. demarcation procedure being laid down as follows. The DD Sheet was registered under the Block Crown Lease1 as a grant Finally if we suppose that the plan where the boundary clause in last day of receiving claims in each Block Government Lease states ‘X District’ is the 31st July, on that “which said piece or parcel of the 1st August the Court will be ground is more particularly delineated in possession of the following and described on the plan or plans of documents:- Survey District No…”. DD Sheets (a) Cadastral Maps showing the showed the relative positions of padi- exact position of every claim. fields using field-bunds as boundaries. (b) A statement prepared by the Limited by scale, the 1:3960 DD Survey Department giving the showed consecutive houses as shaded areas of every claim in acres to blocks, which were individually shown two decimal points. on 1:1980 DD (see extracts in Figures 1 (c) The claim forms signed by the and 2 below). No coordinate framework claimants themselves. was recorded on DD Sheets. The Lot (d) The Demarcation books giving Index Plan, as a work of correlation of particulars as to ownership, current features with coordinates onto nature of cultivation, &c., the DD Sheets, which is obviously collected on the ground. not direct legal evidence of boundary (Hong Kong Government, 1905a, delineation on the ground, is of popular p.40) use today.

SBE 28 1 Block Crown Lease has been renamed as Block Government Lease after 1997. Surveying and Built Environment Vol 19(1), 26-37 December 2008 ISSN 1816-9554

Figure 1: A 1:3960 DD Sheet

Figure 2: A 1:1980 DD Sheet

SBE 29 The Reality Versus the Legality of the Demarcation District Sheets Surveying and Built Environment Vol 19(1), 26-37 December 2008 ISSN 1816-9554

T H E N AT U R E O F T H E Should it be found at any time DEMARCATION DISTRICT that land owned by any person SHEETS had not been reported, it will be treated as Government land. A There appears to be a popular survey will shortly be made of the misunderstanding by legal practitioners whole of the Leased Territory, so that as a matter of law the Block that the boundaries of the various Crown Lease was granted as set out holdings may be clearly known. in the DD Sheets and not based on (Hong Kong Government, 1900, the actual occupation of the lot. This p.383) misunderstanding is most unfortunate, destructive and must be fully addressed. The proclamation indicated that the The facts are actually that while the DD survey objects were the physical former part of this belief is true the features representing the then existing latter part is not. The DD Sheets were land holdings in possession of the indeed used as the grant plans in Block owners. Government Leases, yet the delineation and description in the DD Sheets was (b) Land Court Report, 1901. based on actual occupation. Hon. H.H.J. Gompertz as a member of the Land Court signed the report To discuss the subject of the DD survey of the Land Court on 4 March 1901. fully, the starting point should be the This report contained the relevant nature of the DD Sheet content. What survey information: ‘A demarcation are the lines therein representing? party is sent out and persons are According to the history of the DD invited to attend and give particulars survey, the lines were intended to of ownership pointing out their land, represent physical features actually the outlines of which are then put in on existing on the ground at the time. the Cadastral Map with an appropriate Documentary evidence includes: lot number’ (Hong Kong Government, 1901. p.916). This document revealed (a) Proclamation to NT Villagers, 1899. the same message that the lot The Chinese proclamation, issued by boundaries were recorded according to His Excellency Sir Henry Arthur Blake occupation features as pointed out on on 12 July 1899 to the NT villagers, the land. declared the intention of the DD survey. This proclamation was contained in (c) Land Court Report, 1902. the Supplement to the Hong Kong The report on the New Territory, for Government Gazette No. 26 of 28 April the year 1901 published on 1 May 1900. The English version of this is as 1902 in The Hong Kong Government follows: Gazette also by Hon. H.H.J. Gompertz but this time as President of the Land All you owners of land must report Court. As part of this report, Hon. SBE all the land in your possession. H.H.J. Gompertz mentioned about his 30 instruction to the Demarcators that, in Surveying and Built Environment Vol 19(1), 26-37 December 2008 ISSN 1816-9554 order to save time of revisiting a site, etc’. These textual descriptions of ‘all ground under actual or recent physical features corresponded with cultivation is to be mapped and given the DD Sheets descriptions which a lot number, whether an owner is represented the physical features, not immediately forthcoming or not’ (Hong just lines created out of any design or Kong Government, 1902a, pp. 700-701). authoritative rulings. The message to note is that the mapped features must be in actual cultivation. (g) The Symbols in the DD Sheet, 1905. (d) The Demarcation Rules, Land On the DD Sheet, there are various Court, 1902. symbols which can be proved to In the opening paragraph of appendix represent embankments, building lines A to the report (c) above, it is stated and field bunds. This form of depiction that ‘The objective of Demarcation in the sheet must indicate that the is to ascertain on the spot the exact sheet contents were reflecting what the position and area of each individual surveyors actually saw otherwise just holding’ (Hong Kong Government, single lines would have represented 1902b, p.704). Its rule number 4 reads all boundaries. Furthermore, the lot that, ‘…mark out the limit of the lot boundary lines on DD Sheets were later carefully with bamboos, one at every compared with the old aerial photo angle and give it a lot number’ (Hong details. They tallied and thus indicated Kong Government, 1902c, p.705). This the occupational nature of the lines on document may further strengthen the DD Sheets. understanding that lines on the DD Sheet must be the physical limits of With the above evidence, the fact that land holdings. the DD Sheets contents did represent ground features at the time of the (e) Newland’s Survey Report, 1904. survey period (circa 1899 – 1904) This was the general report on the should be well established. survey of the New Territory from November 1899 to April 1904, written What needs to be discussed next by Mr W. J. Newland, the surveyor is whether the DD Sheets are good in-charge, on 11 May 1904. In this representatives of the ground features report, it is mentioned that: -‘they or not and, if not, should a blind faith (the surveyors) marked the various be attached to their face value as the holdings as pointed out by the tenant boundary record? ..’.(Newland, 1904). This report confirmed all that had been quoted above. THE QUALITY OF THE DD SHEETS (f) The Schedule of the Block Government Lease, 1905. The second point for discussion is The Schedule recorded in its remark therefore the quality of the DD Sheets – whether or not it is really poor. SBE column ‘padi fields, house, latrine, 31 The Reality Versus the Legality of the Demarcation District Sheets Surveying and Built Environment Vol 19(1), 26-37 December 2008 ISSN 1816-9554

Given the situation and the assigned in the preparation of the Rent purpose, the DD Sheets were not too Roll, with the map of individual bad for achieving their function one holdings at hand for purposes of hundred years ago. However, in fact, reference (ibid, p.708). some DD Sheets did contain large errors. Definitely, the DD Sheets can (b) Report on the New Territory, 1901. no longer serve the need of present day The Colonial Secretary, Sir J.H. developments. Evidence of their poor Stewart Lockhart, made the report on quality includes the following. the New Territory, for the year 1901, on 22 March 1902. The survey part of (a) Survey Report of Mr Geo. P. Tate, this report mentioned the reason for 1901. changing the survey scale from 16- Mr Geo. P. Tate, surveyor in charge of inch to the mile to 32-inch to the mile the Kowloon Survey Department, made by saying that: ‘it was impossible to the survey report of the New Territory, represent the small terraced fields or at the close of the field season of 1900- the survey in detail of the villages on 1901, on 15 July 1901 (Hong Kong the scale of 16-inch to the mile’ (Hong Government, 1902d, p.708). The report Kong Government, 1902e, p.696). This stated that ‘the nature of the country was in support of the above showing is broken and mountainous, and the that the difficulty of the survey was greater part is some of the most difficult real. country that I have ever seen’ (ibid) . (c) Survey Errors discovered in 1901. In view of the difficult surveying In changing the survey scale from environment, coupled with the 16-inch to the mile to 32-inch to the smallness of the mapping scale, mile, some areas were resurveyed. the poor hygienic situation and the Even after a lapse of just a few years, inadequate supply of trained staff, the resurveyed boundaries were often this primitive plane-table survey had found not to agree with those in the already produced location and area earlier survey. This is evidenced from reference for the Land Court in the the said Newland’s report. The relevant preparation of the Rent Roll. The contents are now quoted as follows: following historical description by Mr Tate may be of interest: - ‘No. 4 District was originally surveyed on the 16-inch scale 4. …Indian experience does in January, 1900, and, after an not help one very much, as the interval of nearly 3.5 years, a conditions are so very different resurvey was made on the 32- in the New Territory, and it is inch scale. In this interval a great better and safer, in the absence many changes had taken place. … of all previous information Consequently the areas of claims such as a summary settlement as derived from the two surveys SBE would provide, to work slowly, will not in all cases agree’. 32 establishing every step taken ‘... The boundaries of these claims Surveying and Built Environment Vol 19(1), 26-37 December 2008 ISSN 1816-9554

in the original survey were so what Sir J. H. Stewart Lockhart vaguely given, that they could had said, that ‘As the cultivation in not be pointed out again exactly, the hilly Districts remaining to be for the resurvey, even by the surveyed, consisted of small terraced claimants themselves. Hence a fields running up hillsides and narrow margin of difference must always valleys, the average size of the field was be allowed, even where the face so small that it was found impossible to of the ground has not undergone represent such minute detail on the 16- alteration. ...’ inch scale with any degree of utility.....’. ‘The larger scale of the second The impact of the survey difficulty on survey allows more detail to the quality of the DD Sheets can be be shown; hence a margin of imagined. difference must be allowed in the smaller cultivated lots even where (e) The advice on the updating of the boundaries are unchanged’. the DD Sheets by invited eminent ‘I might add that in all big surveyors. Cadastral Surveys, it is found This advice included that made by impossible to make a resurvey the British Surveyor General, Mr tally exactly with the original, ... Winterbothem in 1929 and Brigadier the difference between two surveys Eartine Hotime in 1959 who both when put in figure form in the expressed the same view that the DD area column, lot for lot, though Sheets needed revision and up-dating they seem alarming to the non- before they might serve as the proper professional eye, have regularly boundary record. (Leung, 1986) to be discounted as absolutely unavoidable.’ (f) Examples of some poor DD Sheet content. W. J. Newland said it all, and There is no lack of examples that the convincingly, that a boundary survey DD Sheets contained blunders, such as could never be exact particularly when that a row of village houses in Tap Mun mapped in a small scale. Yet, he was is found to fall partly in the sea area resurveying only at double the scale whereas the authentic village houses are and an interval of 3.5 years. What can lying parallel to the shoreline at about we expect nowadays when we are to 70 degrees difference in orientation. resurvey one hundred years later and at Somewhere near Sha Tau Kok, a village a true scale, i.e. in coordinates of mm of 10 houses in a row is shown in precision, being 2000 or 4000 times the the DD Sheet as only 5 in number. A scale of the DD Sheets. W. J. Newland portion of a DD Sheet at Ma On Kong must be respected as the author of the is found to be noticeably different from DD Sheets and his remarks on the the Double Lot Sheet which should achievable reliability cannot be ignored. be more original than the DD Sheet. Many lots along the edge of a DD (d) Newland’s Survey Report, 1904. Sheet conflicted with the lots along the SBE Newland, 1904 basically repeated matching edge of the adjoining DD 33 The Reality Versus the Legality of the Demarcation District Sheets Surveying and Built Environment Vol 19(1), 26-37 December 2008 ISSN 1816-9554

Sheet whereas these two groups of THE USE OF DD SHEETS lots should share common boundaries. AS A LEGAL BOUNDARY Some buildings in Cheung Chau RECORD contain lines joining the diagonally opposite wall corners as the lot Unfortunately, the DD Sheets were boundaries. It is common knowledge to regarded as gospel by many people. surveyors that a DD Sheet can be full Administrators referred to them for of survey, plotting, and tracing errors. land grants and various boundary enforcement, landowners referred to (g) The Sampling Survey of the Area them for transactions and boundary Discrepancy. disputes, judges referred to them for Land surveyors have a good court rulings and surveyors might understanding of the quality of the also refer to them for boundary re- DD Sheets as the boundary record. If establishment. Even when the DD Sheets are used at their face value, inadequacy of the DD Sheets is i.e. accurate to the registered units of established, people still dare not 0.01 acre, Tang, Lam & Cheng,(2003) challenge their legal status for fear of pointed out that 35% of the lots exposing more problems. (sampling size - 15 DD Sheets) in 1: 1980 scale, the DD Sheets mismatched Regarding the DD Sheets as the only with the graphic area on the DD and legal document for re-establishing 62% of the lots (sampling size - 6 DD the boundaries appeared to be based Sheets) in 1:3960 scale mismatched on the spirit of contract and the with the graphic area. The research declaration in Indenture of the Block result indicated that one-third and Government Lease that the boundaries two-thirds of the 1:1980 scale DD are ‘as particularly and described in Sheets and 1:3960 scale DD Sheets the plan’. Are these two aspects really respectively have area discrepancies. indisputable? We take them as our third In area discrepancies, 10% of them point for discussion. exceeded one-third of the registered area. (a) The Contractual Spirit. According to the history as revealed According to the above, the DD above, the DD Sheets were only an surveyors as the authors of the DD ad hoc product not submitted to any Sheets, the Survey General/Brigadier stringent quality control. If a sheet was as the advisors and the contemporary foreseen as the perpetual boundary land surveyors as the expert users all record, a better checking mechanism pointed out the unsatisfactory quality should have been devised to scrutinise of the DD Sheets. The inadequacy must the accuracy of its content. Although be established beyond the least possible this one-sided contract has been doubt. continuously used by people for nearly a century, the Block Government SBE Lease still lacked the signatures of 34 Surveying and Built Environment Vol 19(1), 26-37 December 2008 ISSN 1816-9554 the grantees. Needless to say, the what is the feature it represented. In grantees had never been represented case a physical feature is discovered by any surveying experts at the time in close proximity to a line on the DD of registration. For a responsible Sheet and proved to be the authentic Government as the initiating party, such boundary, this feature must be accepted an ill prepared contract must be treated as overriding the plan position. If the with care. If not, the Government may representative nature of the DD content in fact be facing a possible risk of is ignored, only half of the value of the misrepresentation. contract document is considered and should not be the correct approach. (b) The Boundary Clause in the Indenture. (d) Critical Wordings in the Original The phrase ‘particularly delineated Land Grant Exercise. and described’ should indicate the To complete this part of discussion, two relative hierarchy of the lease content more points must be addressed. Firstly, and the DD Sheet. Naturally, the plan the use of the term ‘exact position’ in as the better medium to describe the the Land Court Report on work from boundary must dominate. However, 1900 to 1905 and secondly, the adoption it should not preclude the referral to of acre (expressed to the hundredth of the ground monument which is the it) as the area unit in the Schedule. subject of description by means of DD Sheets, Schedule as well as the The statement ‘Cadastral Maps showing derived registered area, as the superior the exact position of every claim’ boundary evidence. Taking the identity appeared in the Land Court Report of card as an analogy, the lease content 1902 as has already been quoted in the corresponds to the printed name on the Background section above. Apparently, identity card and the DD Sheet to the this document seems to be the very photo. While the photo must be more source of misunderstanding prompting representative than the printed name legal practitioners to treat the grant in identifying a person, none of these plan as ‘exact’ from the outset. If the two should prevail over the person word ‘exact’ is interpreted in its correct himself as the best identity. This way of context and against the historical identifying the boundary should have background, it must refer to the true no violation of the spirit of contract. possession of individual claims of land such that an owner must not over claim (c) The Need for Plan Interpretation. or dishonestly claim. The term could Every line in the DD Sheets can only be taken in a literal sense but never therefore be regarded as conveying two to connote any scientific significance. messages, viz. the graphical position In no way should this term be dictating of a boundary and the representative our interpretation of the DD Sheets nature of a physical feature. The line content as above discussed. position should not be accepted on its face value but must be subject to a Regarding the area measurement unit of SBE professional interpretation to identify one hundredth of an acre, the crudeness 35 The Reality Versus the Legality of the Demarcation District Sheets Surveying and Built Environment Vol 19(1), 26-37 December 2008 ISSN 1816-9554

of the survey is clear. The subsequent evidenced. Hence, the DD Sheets must conversion of areas to square feet (then be subject to interpretation particularly further to the tenth of a square metre) by referring to ground monuments if was only a paper exercise which was available. indeed illogical. It may be noted that in 1966 when the area conversion exercise Thirdly, even if the contractual spirit was underway, a land surveyor, Roy is considered, the DD Sheets should Davey, in his report [paragraph 7 of not be accepted solely on face value. folio 1 of Government file no. NT Their legal status must be viewed in the 5/196/66] specifically warned of correct perspective of how they were the inadvisability of the conversion produced and what they had attained. concept. Their role can be likened to the sketch of an artist who never claimed it as If the Government is to consider the final, but the sketch was snatched off registered area as a committed grant the drawing board and used for actual condition, the converted figure in construction. The role of the sketch footage should be discounted. Only the must not be confused with the final area in acreage should constitute the drawing yet to be produced. committed item. To interpret the DD Sheets intelligently and the registered We must recognize the historical truth area as the content of a contract should and treat the DD sheets according to be conducive with the spirit of contract. their real value. This interpretation exercise is distinct from ‘changing’ the boundary or the area and no alarm should be caused. ACKNOWLEDGMENT This paper was partially supported by CONCLUSION PolyU G-U131 funding.

To recapitulate the foregoing, we have established the few points that: REFERENCES Colonial Office (1900), Correspondence Firstly, the DD Sheets were to depict (June 20, 1898, To August 20, 1900) actual occupation features for owners respecting the Extension of the to claim their land holdings. All past Boundaries of the Colony, Eastern survey and administration documents No.66, Colonial Office, Hong Kong, may serve as the strong evidence to November 1900, 466 pages. support this assertion. Hong Kong Government (1900), Secondly, the DD Sheets though Government Notification No.201, not too bad for their original fiscal Appendix IV, “English version of purpose, were inadequate to serve as Chinese Proclamation” by Sir Henry a conclusive boundary record. The Arthur Blake GCMG, Governor, & c., SBE crudeness of the DD Sheets is readily 36 Page xx, Supplement to Government Surveying and Built Environment Vol 19(1), 26-37 December 2008 ISSN 1816-9554

Gazette No.26, The Hong Kong Government Gazette,1900. Hong Kong Government, (1905b), Government Notification No.200, New Hong Kong Government (1901), Territories: Land Court, Report on Government Notification No.274, Work from 1900 to 1905, Land Court, Report on the Land Court, for the year 7th March, 1905, The Hong Kong 1900, The Hong Kong Government Government Gazette, 7th April, 1905. Gazette, 11th May, 1901. Leung SC (1986), The ABC of Hong Kong Government (1902a), Land Parcels, The Hong Kong Land Appendix No.1, Land Court Report Surveyor, Hong Kong Institute of by H.H.J. Gompertz, The Hong Kong Surveyors, 2:3, Serial 11, 23 – 28, Government Gazette, 2nd May, 1902. August 1986.

Hong Kong Government (1902b), Newland WJ (1904), A General Report Appendix No.1, Land Court Report of the Survey of the New Territories by H.H.J. Gompertz, The Hong Kong from November 1899 to April 1904, Government Gazette, 2nd May, 1902. Hong Kong Government Gazette, 1904.

Hong Kong Government, (1902c), Tang C, Lam S and Cheng A (2003), Appendix A, Demarcation Rules, The Interim Results for Registered Area Hong Kong Government Gazette, 2nd Defects in the New Territories, May, 1902. Surveyors Times, Hong Kong Institute of Surveyors, October 2003, Volume 12 Hong Kong Government, (1902d), Issue 10, p.9. Appendix No.2, Report on the Survey of the New Territory, At the close of the Field Season of 1900-01-15th July, 1901 by Geo. P. Tate, The Hong Kong Government Gazette, 2nd May, 1902.

Hong Kong Government, (1902e), Government Notification No.264, Report on the New Territory, Survey Report by Mr Tate, For the Year 1901, The Hong Kong Government Gazette, 2nd May, 1902.

Hong Kong Government, (1905a), Government Notification No.200, New Territories: Land Court, Report on work from 1900 to 1905, Land Court, 7th March, 1905, The Hong Kong SBE Government Gazette, 7th April, 1905. 37 Transfer of Development Rights Approach: Striking the Balance between Economic Development and Historic Preservation in Hong Kong Surveying and Built Environment Vol 19(1), 38-53 December 2008 ISSN 1816-9554

Transfer of Development Rights Approach: Striking the Balance between Economic Development and Historic Preservation in Hong Kong

P Li*

ABSTRACT

Can the Transfer of Development Rights work in Hong Kong? This paper looks at the fundamentals of the TDR; the current control on property development and its effect on heritage buildings; the conditions for applying the TDR in Hong Kong; and examples of completed TDR cases, before concluding that the future looks promising for TDR applications here. It examines certain TDR cases like the early Letter B land redemption certificates; the redevelopment of the Hoover Theatre into the Paliburg Plaza and Regal Hotel in Causeway Bay; the HSBC Tower at 1 Queen’s Road Central; Tai Fu Tai at San Tin, Yuen Long; the Morrison Hall in Tuen Mun; the well-known case of the Ohel Leah Synagogue on Robinson Road, Mid-Levels; and the recent case of King Yin Lane at 45 Stubbs Road. With the establishment of the Development Bureau in July 2007 overseeing planning, land, buildings, works and heritage, it is possible to find the fulcrum between economic development and historical preservation.

KEYWORDS

Transfer of Development Rights Balance Economic development Historic preservation Hong Kong

SBE *Faculty of Architecture, University of Sydney, NSW 2006, Australia 38 Email: [email protected] Surveying and Built Environment Vol 19(1), 38-53 December 2008 ISSN 1816-9554

INTRODUCTION Hong Kong has pioneered and practiced a form of the TDR since the 1960s. Based on a UNESCO-sponsored The government implemented a land conference paper in 1999, Cody (2002) redemption certificate system for land wrote an interesting article on the resumed in the rural area, which was Transfer of Development Rights (TDR) commonly known as the Letters A and as an incentive for historic preservation B. Lai (2000) argued that the Letter in Hong Kong. After examining the A/B system had the beauty of settling strengths and weaknesses of five TDR- compensation for resuming rural land related cases of the ‘Letters B’ land in the New Territories for small house redemption certificate (Nissim, 1999); development with minimal government the Lee Theatre; Pun Uk in Yuen Long; spending. the London Mission Building; and Cheung Kong Centre, he was cautious This worked so efficiently in the about the viability of this incentive transfer of development rights that scheme in Hong Kong. Cody (2002) suggested resurrecting the Letter B system. He also lamented the After a brief introduction, this paper unfortunate case of the Lee Theatre1 will consider the fundamentals of in Causeway Bay where no transfer TDR; the current control on property of plot ratio was permitted under the development and its effect on heritage rigid planning and density control buildings; the conditions for applying mechanism for ‘non in-situ sites’. TDR in Hong Kong; and examples of completed TDR cases, before coming Rationale behind the TDR to the conclusion that the future looks In essence, the TDR is the transfer bright and sunny for TDR applications of surplus development rights from here. a sending site to a receiving site. Commercially, the transfer of surplus The establishment of the Development development rights from one lot to Bureau in July 2007 - which puts another enables a developer to increase planning, land, buildings, works and density at the receiving site in a popular heritage under one roof - makes it district so that he can reap higher profit. possible to find the fulcrum between In the United States, developers benefit development and preservation. from the clarity and consistency that the TDR programmes offer (Pruetz, 1997), and they make development more FUNDAMENTALS OF TDR predictable. The sending lot owner can realize his unused development rights Early Practice of the Transfer of and recoup a lump sum from the sale. Development Rights The TDR can be applied in Hong Kong It can be argued that the difference as an effective tool in preserving many between the existing and permissible of the heritage buildings under threat plot ratio can be transferred and and at minimal public cost. Interestingly, SBE traded openly in the market place. 39 Transfer of Development Rights Approach: Striking the Balance between Economic Development and Historic Preservation in Hong Kong Surveying and Built Environment Vol 19(1), 38-53 December 2008 ISSN 1816-9554

Proceeds from these sales could be a series of paper in December 1998.2 used for preservation, maintenance or improvement of the historic heritage Government intervention can be in the buildings. This would perhaps help to form of issuing administrative orders ease the burden on public spending and against demolition; incentives measures provide an incentive for private owners like permission for transferring to maintain their private lot. development rights, and direct funding in repairing heritage sites. King Yin Need for Sustainable Development Lane was saved this way when the In his Policy Address the Chief owner and the Government reached an Executive spelt out a policy statement understanding on 25 January 2008. The on heritage conservation which was owner will surrender the whole site to endorsed by the Executive Council Government after restoration and an in 2007. Increasingly, the public adjacent slope site of similar size will is concerned about the hidden be granted to the owner for the same environmental and social cost of development parameter of 0.5 plot ratio development. This is expressed in and maximum three storeys, see http:// outcries and sometimes by radical www.amo.gov.hk/en/news_20080711. actions taken by green groups, php. consumer advocates and political parties. Conservation and economic CURRENT CONTROL growth are not mutually exclusive and are in fact compatible with each ON PROPERTY other. The need is to strike the balance DEVELOPMENT AND ITS between preservation and development. EFFECT ON HERITAGE BUILDINGS Theoretical Basis Increasingly economic considerations The Harsh Reality Facing Owners are taking precedence over cultural, The harsh reality for cultural political, social and aesthetic values conservation is that the market demand when it comes to making decisions and for properties has been so intense that in allocating resources for conserving prime sites with development potential cultural heritage. This trend is occurring are very much sought after. As evident in many countries and often decisions in older areas like Sheung Wan or about what and how to conserve are Wanchai, many pre-war buildings could strongly influenced by economic only provide low return for their owners considerations. The Getty Conservation because of their old age, functional Institute (GCI) of the United States obsolescence and rent control measures. has conducted in depth studies and In the meantime commercial retail attempted to bridge the gap between activities and large-space users had economic expansion and cultural expanded and moved to other popular conservation. The GCI invited various commercial areas. While government SBE prominent scholars to participate in their subsidies on repair and maintenance 40 research and published their findings in for private heritage buildings were Surveying and Built Environment Vol 19(1), 38-53 December 2008 ISSN 1816-9554 virtually unheard of until lately, there conditions form a solid base for land was little incentive for owners to hold related income to government. on to dilapidated or under-developed structures, which offered low income. Compensation to Owners of Declared Monument Buildings Existing Control Over Building The relevant Ordinance governing Development compensation for land resumption for The Planning Department, Lands conservation purposes is the Antiquities Department, and Building Department and Monuments Ordinance (Cap 53) are the key bodies that look after and enacted in 1976.3 Its main purpose maintain control on the real estate is to protect historic buildings and and building development relying, antiquities in Hong Kong. The spirit of respectively, on the Town Planning the Ordinance allows the authorities to Ordinance, the Government leases preserve significant historic structures and the Buildings Ordinance and for the public’s benefit and for the administrative Practice Notes (Lai, Ho enjoyment by future generations. and Leung 2004) . Frequently, when a site of historic It is worth mentioning that the interest is under threat or is about to be government has taken the view that demolished, the government announces terms of the Government leases can be in a Gazette n o t i c e a p r o p o s e d varied to allow changes in the use of monument status for the site. There land. This can be for a longer term in were two occasions when the proposed the form of lease modification or land monument status was used, firstly in exchange, or for a temporary basis the case of the Ohel Leah Synagogue in such as short-term waivers for minor 1986, and in the case of the Morrison changes of uses. These changes of lease Hall at Tuen Mun.4

Ohel Leah Synagogue Morrison Hall

Figure 1: Government declared a proposed monument status for both the Ohel Leah Synagogue and Morrison Hall in order to preserve the buildings. SBE Source: photo by Raymond Chan 41 Transfer of Development Rights Approach: Striking the Balance between Economic Development and Historic Preservation in Hong Kong Surveying and Built Environment Vol 19(1), 38-53 December 2008 ISSN 1816-9554

A Declaration of ‘proposed status’ is Hong Kong practiced some kind of valid for twelve months and may be transfer of development rights in the extended. However the affected owner form of land redemption certificates may object to the ‘proposed’ status. commonly known as Letters A and B If an objection fails, he can make an during the 1960s to 1980s. According appeal to the Chief Executive (CE). to the former Director of Lands, Bob The CE may direct the declaration to Pope,5 these redemption certificates stand, vary the declaration or withdraw were issued to fulfill the desire of the declaration altogether. The CE’s indigenous New Territories landowners decision is final and is not subject to for owning land. Pope argued that an review by the Court. attachment to the land was established long ago as the rural community had Currently there are over 80 declared by tradition made a living through monuments in Hong Kong http:// farming and were dependent on land to www.amo.gov.hk/en/monuments. survive. Major clans had owned land php, but because of the discretionary for generations and were influential compensation system, the Authority has in local politics, as such their co- issued declarations sparingly. However, operation was beneficial in new town extensive surveys for heritage buildings development and the government was have been conducted and a record of keen to appease them by offering two the locations of important heritage square feet of building land in exchange buildings is kept by the Authority. In for five square feet of agricultural land 2007 the Government listed nearly 500 resumed. Building land surrendered buildings in Hong Kong as historical was exchanged on a foot for foot basis. buildings, but King Yin Lane was not on the list. In the final phase of operating Letters A and B, the government was concerned that there was insufficient land for CONDITIONS FOR redemption by certificate holders. APPLYING THE TRANSFER The issuance of Letters A and B OF DEVELOPMENT came to a halt in the early 1980s. A RIGHTS IN HONG KONG flexible approach was made and the government allowed Letters A and B In order to make the TDR a success in to be used as cash in land premium Hong Kong, it is necessary to establish payment, rates and government rent. In an efficient, open, fair and transparent the mid- to late-1980s, most remaining system so that there is clarity and a Letters A and B ended up in the hands reasonable procedure for the public of major developers like Henderson to follow. The Hong Kong experience and Chinachem. They were allowed and additional control mechanisms to bid for prime sites in the new town required for implementing the TDR are areas such as sites near the Shatin considered here. Race Course. Huge profits were made SBE following the soaring property prices, 42 Lessons from Letters A and B and developers were able to move Surveying and Built Environment Vol 19(1), 38-53 December 2008 ISSN 1816-9554

Figure 2: Large amounts of rural lands were resumed using Letters A and B. These agricultural lands were turned into developable land thus making room for massive housing projects and the construction of railway lines. The above shows a traditional Chinese pagoda at Ping Shan in the foreground and public housing estates in Tin Shui Wai. Source: Photo by Raymond Chan these remote rural development rights thus transferring development rights around without much restriction. Lai across districts. Because of this measure (2002) believed that as well as opening the government was able to assemble up new development areas in the land and to complete important New Territories without offending the infrastructure projects with minimal indigenous villages, the certificates of administrative cost or use of public land entitlements method also promoted funds. urban renewal in the old urban areas, and hence more balanced development Additional Requirements for in the core and peripheral areas. Implementing the TDR Costonis (1974) mentioned a number One could argue that the Letters A and of requirements in order to facilitate B system had taken a different role from implementing the TDR, and in the its original purpose and became a form context of Hong Kong the following are of TDR. In most cases the original rural suggested: sites being compulsorily acquired were in places like Yuen Long, Tuen Mun and Designation of TDR Transfer Districts Taipo. Through trading, the passage of A TDR Transfer District is an area or time and eventual redemption, building boundary within which development land lots were granted to developers in rights can be transferred. In order to SBE places such as Tsuen Wan and Shatin allow easy TDR trading and treating 43 Transfer of Development Rights Approach: Striking the Balance between Economic Development and Historic Preservation in Hong Kong Surveying and Built Environment Vol 19(1), 38-53 December 2008 ISSN 1816-9554

them like ordinary daily sale of reporting for heritage assessment and properties, it is suggested that TDR TDR purposes. sales could commence from trading of rights between similar land lots within Valuation for Transfer of Development the same district. For instance, property Rights rights of commercial/residential zoned It is suggested that the valuation of sites in an area like Wanchai can be Development Rights should be made traded within Wanchai. on a basis similar to resumption of land by the government. This should A TDR transfer district boundary for an enable easy administration and urban area of Hong Kong should adopt allow officials to follow precedents and follow existing Outline Zoning established in similar situations. In Plan boundaries. The advantage in fact, the Lands Tribunal has been using OZP Plans is that most land use operating successfully for many years, zoning restrictions are well defined and and over the years, a large number of their density control specified. With precedent cases have been built up these Transfer District Boundaries in for assessing compensation for land place, further analysis can be made development rights. Such experience is to ensure that the first transfers could crucial in formulating a solid base for take place between sites of similar quantifying and assessing the transfer zoning restrictions, characteristics and of development rights in Hong Kong. land value in order to smooth the way forward. As in most land resumption cases, the main principle for assessing Heritage Assessment Certification land compensation is based on A comprehensive survey check list the differences in the open market for heritage properties including value before and after a declaration confirmation of title ownership, of resumption. This involves the formulation of statements of assessment of existing land-use value significance, existing use value, against possible value after lease potential development value, layout modification or change in permissible plans, structural defects, unique repair density and uses. problems and remedies required can be prepared prior to conferring the Accepted Lands Tribunal valuation TDR status. Such a comprehensive methods include a ‘comparative survey certification process is needed method’, ‘residual valuation’, to establish a base line for quantifying ‘investment method’, ‘contractor’s the TDR values for heritage structures method’ and ‘profits method’. Of and for determining possible remaining these, the ‘comparative method’ is surplus development right values widely used and preferred by the Lands available for a property. Hong Kong has Tribunal. a sizable pool of building professionals SBE and consultants, and their talents can be Possible Legal Instrument for the TDR 44 used in formulating a high standard of There are cases where a successful Surveying and Built Environment Vol 19(1), 38-53 December 2008 ISSN 1816-9554 application of the TDR principle has The surplus development rights were been achieved, for example, in the case put to proper uses. If the office lot of the redevelopment of the Hoover (Paliburg Plaza) were to be redeveloped, Theatre into the Paliburg Plaza and its maximum plot ratio permitted would Regal Hotel at the junction of Yee Woo be equivalent to its existing bulk. Street and Pennington Street, Causeway Bay. As regards enforcement of the TDR in Hong Kong, instruments such as These adjoining sites comprise two restrictive covenants can be used. As plots of land, and the developer has in the case of the Paliburg Plaza and transferred surplus plot ratio from the the Regal Hotel, a restrictive covenant office tower portion onto the hotel site. was executed between the parties and This arrangement proved beneficial as registered at the Land Registry. The the hotel portion is extremely profitable. document stated clearly the transfer

Paliburg Plaza – sending site

Regal Hotel – receiving site

Figure 3: Paliburg Plaza as shown colored red has transferred its surplus plot ratio to adjoining Regal Hotel shown colored blue. This has resulted in increased floor area at the hotel than what would have been permitted under SBE existing Building (Planning) Regulations. 45 Transfer of Development Rights Approach: Striking the Balance between Economic Development and Historic Preservation in Hong Kong Surveying and Built Environment Vol 19(1), 38-53 December 2008 ISSN 1816-9554

Ground Floor,

1 Queen’s Rd C

Figure 4: Ground level of the HSCB Bank Main Building at 1 Queen’s Road C. The creation of the plaza at ground level has resulted in an increased plot ratio for the building by 20 % (Lambot & Chamber, 1986).

of rights between the lots and the compensated in having a higher density permanent diminution of development than would normally be permitted. rights on the sending lot. For example, in the case of the HSBC Tower at 1 Queen’s Road Central, Incentive Zoning and Bonus Plot Ratio where the ground level is used for One important building planning public passage, in exchange the Bank control concept is incentive zoning, was allowed additional floor spaces in better known in Hong Kong as bonus the upper floor office portion. plot ratio, which is related to the TDR. New developments bring about higher There is a limit to the extent of the density, increased traffic flow and permissible bonus. By a rule of thumb, generally impose additional burdens the dedication of one square foot of on existing infrastructure. In order to ground floor space will gain five square ease congestion, additional open spaces feet at the upper floor level in Hong or public amenity areas are needed. Kong.6 The intention is to compensate The authorities have been encouraging owners with an equivalent amount developers to provide these amenities of space for his effort, so that he is by granting them bonus plot ratio. The not better or worse off than before. intention is to encourage the developer Granting of a bonus plot ratio is the to dedicate part of his site for public prerogative of the government and it is SBE 7 46 amenity purposes. In return he is not a compulsory act. Surveying and Built Environment Vol 19(1), 38-53 December 2008 ISSN 1816-9554

Summary not all heritage sites have the benefit Hong Kong has a well-defined of being next to another lot ready for Buildings Ordinance; an established development. Many of the heritage outline zoning plan system under the sites are surrounded by buildings of Town Planning Ordinance stating the different ages or held under fragmented specific density permissible in most ownership. As developers have no urban areas or districts; an efficient obligation to consider preservation bureaucratic framework for land as a compulsory step in building plan administration and registration, and a submission, they forego conservation well-established legal and court system opportunities when it seems convenient. for land compensation cases. Therefore Therefore matching suitable transfer it is well equipped to launch the TDR. sites can be difficult. For this reason a limited number of contiguous site The real estate industry is accustomed transfers have taken place. to the planning regime and regulatory controls. With the help of the anti- Completed TDR for Adjoining Sites corruption agency there are limited The case of Tai Fu Tai8 is one example cases of official impropriety. This has of the TDR of contiguous sites. Tai Fu helped to lay the ground for launching Tai is a grand, official mansion built the TDR. by Man Chung-luen in 1865 at San Tin, Yuen Long. Lengthy negotiations Hong Kong’s law courts are well between the owners and the government experienced in dealing with claims took place and in exchange for or counter claims in land-related preserving the site, the government court cases, and precedents for land agreed to exchange land at an adjoining resumption, compensation valuation lot, allowing it to be developed for and related decisions are plentiful. We residential use. Tai Fu Tai was restored have a solid judicial system that is well in 1986 and was hailed as a major accustomed to offer fair compensation success for heritage conservation at the for cases involving land interest time. The adjoining site is now used as disputes. The TDR can be easily a low-rise residential housing project. accommodated in the Lands Tribunal, District Court or Court of Appeal The other well-known case is the situations. Ohel Leah Synagogue9 in Robinson Road, Mid-Levels. In the case of the EXAMPLES OF Synagogue conservation, transfer of development rights for adjoining sites COMPLETED TDR CASES took place. In this case the developer, IN HONG KONG Swire, joined with the Synagogue and used its surplus plot ratio to develop Transfer of Development Rights for a twin residential tower block on an Adjoining Sites adjoining site. The development is a This type of TDR sites must be commercial success as it has achieved SBE contiguous or next to each other. But a successful transfer of development 47 Transfer of Development Rights Approach: Striking the Balance between Economic Development and Historic Preservation in Hong Kong Surveying and Built Environment Vol 19(1), 38-53 December 2008 ISSN 1816-9554

Figure 5: Tai Fu Tai is an example of adjoining site TDR, the dotted line area behind Tai Fu Tai mansion is developed into a residential complex using government land in exchange for conservation of the grand mansion. Source: map from www.centanet.com and photo by Raymond Chan

rights between sites and the developer practice outside Hong Kong. In the was rewarded with a handsome profit. United States, the technique has been in use since the 1970s and improved Transfer of Development Rights for versions are now used in preserving Non-Contiguous Sites important heritage buildings and land Like the TDR at adjoining sites, TDR resources such as farmland, rain forest, for non-contiguous sites is a common dessert, swamp, and areas of special

The towering block that overshadows the synagogue has created a Grand Canyon effect on the surrounding area

Before and after

development

Figure 6: Plan of the Synagogue and Robinson Place (McDougall & Pettman, SBE 2000) 48 Source: photo from Swire Group Annual Report Surveying and Built Environment Vol 19(1), 38-53 December 2008 ISSN 1816-9554 scientific interest (Pruetz, 2003). In they are needed. In the case of Hong Canada and Australia, owners of non- Kong we propose that the surplus contiguous sites can sell their unused development rights could go to other development rights in return for cash to sites within the same Transfer District. refurbish or preserve heritage buildings. Surplus development rights could be traded and travel to other sites Similarly, non-contiguous site transfer elsewhere, and not be restricted to an allows development rights to move adjoining plot. from a sending lot and go where

The landmark building (A) utilizes only a fraction of the development rights of the site, the remainder of which (B) are transferred to various other sites within a transfer district and appears as additional bulk (C) on neighboring buildings

Figure 7: TDR for non-contiguous sites

Another possibility in Hong Kong create new ones. When additional is to allow redistribution of surplus bonus development rights are awarded development rights to different parts to owners, it is in essence creating of a TDR Transfer District in contrast additional spaces above what was to confining all transfer on to a single originally planned within an area. receiving site. The difference between But the non-contiguous TDR simply non-contiguous transfers against bonus redistributes and does not disturb plot ratio is that it aims to redistribute existing density or upset infrastructure permissible development rights limits. SBE designed within a district and not to 49 Transfer of Development Rights Approach: Striking the Balance between Economic Development and Historic Preservation in Hong Kong Surveying and Built Environment Vol 19(1), 38-53 December 2008 ISSN 1816-9554

CONCLUSION redevelopment potential from heritage sites can be turned into a useful asset for Heritage buildings can be considered both the property owner and a benefit as a form of public goods in that no for the public. Bold steps put forward one can be excluded from enjoying by the then Secretary for Planning and them. Government intervention in these Lands, Mr John Tsang, back in 2001 areas could be in the form of funding, should be in place so that the TDR in regulating and administration of could work, namely: these services. While competition for To designate heritage areas instead of public resources by different interest just individual historical buildings; groups, lobbies and different agencies To transfer GFA credits from a is relentless, the TDR permits the sending site to a receiving site that are tapping of an important resource within not contiguous; and the heritage building stocks. Generating To relax the maximum plot ratios funds from heritage buildings through and site coverage permissible under the the application of the TDR can Building (Planning) Regulations and allow money to be expended for on- the statutory town plans.10 going maintenance and repair. The involvement of private property owners With the proactive steps taken by the is essential, as they also hold the key Development Bureau in trying hard to to the success of the TDR. However, preserve such historic buildings as King the government should take the lead Yin Lane and the Jessville on Pokfulam in conservation and implementation of Road, there is some light at the end of the TDR in forming bodies like a Land the tunnel. As the Chief Executive put it Development Rights Bank. in his Policy Address 2007: ‘I can assure you that we are adopting a very positive If the TDR is in place, heritage-building attitude towards heritage conservation. restoration could be self-financed and We feel that the time really has come these restored buildings could continue for us to treasure the sense of place, the to generate a reasonable economic sense of identity that this generation has return. Thus the TDR could help to shift developed and attached to Hong Kong’s the attitude of favoring redevelopment cultural history and the past so that and allow owners of old buildings to we have a story to tell for our future have an option in restoration. These generations’.11 incentives could change the public perception of heritage conservation. ACKNOWLEDGEMENT Developers would think more carefully whether there can be profit from The contributions by Mr Raymond restoration. Redevelopment need not be Chan to this paper are gratefully the only profitable option. acknowledged here, and so are the comments by the anonymous referees Local heritage conservation will gain of the Surveying and Built Environment more if consideration can be given SBE Journal. 50 to including the TDR, so that the Surveying and Built Environment Vol 19(1), 38-53 December 2008 ISSN 1816-9554

NOTES the Antiquities and Monuments Ordinance, Cap 53, decided to declare the Morrison Building in Hoh Fuk Tong Centre, Tuen 1. According to the booklet on relics and Mun, a Proposed Monument with effect historic buildings published by the Wanchai from 11 April 2003. The declaration, which District Council in 1992, the Lee Theatre on was published in the Gazette on 11 April Leighton Road was built by the Lee Hysan 2003, would have effect for twelve months. Family in 1925. The theatre was famous for This gave the historical building temporary its revolving stage where both traditional statutory protection from demolition to enable Chinese and Western opera and dance were the Government to negotiate with the owner performed. Most of the time movies were to reach a consensus on its preservation. shown here. It has been redeveloped into a 22 storey shopping arcade with a total of 5. Bob Pope, former Lands Department 313,770 sq ft gross floor area. The podium Director, wrote an article for the Hong and its basement have been used as a gym Kong Institute of Surveyors Journal in 1984 and department store, and its upper floor explaining the origin and structure of Letters comprises a cinema, furniture showroom, A and B. health club, shopping spaces and restaurants. 6. The current Building Ordinance permits 2. In late 1997, the Getty Conservation Institute additional plot ratio and site coverage where (GCI) began development of a multi-year part of a site has to be surrendered, or is inquiry to explore the values and benefits of resumed, for street widening purposes, or cultural heritage conservation. The findings where land at ground-floor level is retained of their meeting in California were published by the owner but dedicated to the public use. in a series of papers and publications by the Where land is surrendered, the plot may be GCI in 1998. increased by a. 20 % or, 3. Under the Antiquities and Monuments b. 5 x area of land acquired / area of site Ordinance (Cap 53), ‘Antiquities’ means – left which ever is less. (a) a relic and (b) a place, building, site or structure 7. Gordon Cruden was the President of the erected, formed or built by human Lands Tribunal, Hong Kong and wrote agency before the year 1800 and the extensively on the subject of land law. He ruins or remains of any such place, mentioned that the granting of an additional building site or structure, whether or not plot ratio to a developer is not compulsory the same has been modified, added to or and the authority may decide against the restored after the year 1799; granting of an additional plot ratio if it ‘Monument’ means a place, building considers such a decision is in public’s site or structure, which is declared to interest (Cruden, 1999). be a monument, historical building or archaeological or palaeontological site or 8. Tai Fu Tai was an elegant mansion built structure under Section 3. as a residence in the 4th year of Tongzhi The Ordinance extends to antiquities and (1865) of the Qing dynasty by Man Chung- monuments on ‘private land’ which includes luen whose ancestors settled in San Tin in land held under a lease, agreement for lease, the 15th century. The building is considered tenancy, licence permit, deed or other valid one of the most beautifully embellished title from government. The Ordinance is traditional Chinese buildings in Hong Kong administered by the Secretary of Home and is renowned for its fine architectural Affairs and for the purpose of the Ordinance decorations. ‘The Governor in Council is referred to as the ‘Authority’. approved the declaration of Tai Fu Tai on 28 January 1986 and it was formally 4. The Secretary for Home Affairs, in his gazetted as a historic building on 10 July SBE capacity as the Antiquities Authority under 51 Transfer of Development Rights Approach: Striking the Balance between Economic Development and Historic Preservation in Hong Kong Surveying and Built Environment Vol 19(1), 38-53 December 2008 ISSN 1816-9554

1987 upon the conclusion of negotiations to Hong Kong Government (1986/87), transfer development rights of the plot to an Report of the Antiquities Advisory alternative site’. Antiquities Advisory Board Report (1986 & 1987, p.10) Board, Hong Kong Government, Hong Kong. 9. The Ohel Leah Synagogue was built in 1902 by a banker, Sir Jacob E. Sassoon, Hong Kong Government (1992), in memory of his mother, Mrs Leah E. Wanchai District Its Relics and Sassoon. It is a two storeyed Eastern Jewish- styled building. It was restored in 1998. The Legends. Wanchai District Board: Hong restoration project obtained the Outstanding Kong. Project Award of UNESCO Asia-Pacific Heritage 2000 Awards for Cultural Heritage Lai, WCL (2000), ‘Housing indigenous Conservation. villagers in a modern society: an 10. A speech on the transfer of development examination of the Hong Kong small rights delivered by the Secretary for house policy’, Third World Planning Planning and Lands, Mr John C Tsang, at Review, 22(2), 207-230. the annual general meeting of the Hong Kong Institute of Architects on December Lai WCL (2002), ‘Planning and 18, 2001. http://www.info.gov.hk/gia/ general/200112/18/1218098.htm Property Rights in Hong Kong under Constitutional Capitalism’, 11. ‘Conserving Hong Kong’s Heritage’, a speech International Planning Studies, 7(3), delivered by Mrs Carrie Lam, Secretary for 213-225. Development, to the Hong Kong Democratic Foundation on 10 December 2007. http:// www.hkdf.org/newsarticles.asp?show=newsa Lai WCL, Ho CWD and Leung HF rticles&newsarticle=208 (2004), Change in Use of Land: a Practical Guide to Development in Hong Kong. Hong Kong University REFERENCES Press, Hong Kong.

Cody JW (2002), ‘Transfer of Lam C (2007), ‘Conserving Hong Development Rights as an Incentive for Kong’s Heritage’, speech delivered Historic Preservation: the Hong Kong by Mrs Carrie Lam, Secretary for Case’, The Hong Kong Surveyor, 13:1, Development, to the Hong Kong 4-11. Democratic Foundation, 10 December. http://www.hkdf.org/newsarticles.asp?s Costonis JJ (1974), Space Adrift: how=newsarticles&newsarticle=208 landmark preservation and the market place, Urbana, Chicago and London: Lambot I and Chamber G (1986), University of Illinois Press. One Queen’s Road Central, the Headquarters of Hongkong Bank Cruden G (1999), Land Compensation since 1864, Hong Kong and Shanghai and Valuation Law in Hong Kong, Banking Corporation Limited. Second Edition, Butterworth Asia, London. SBE McDougall K and Pettman B (2000), 52 The Ohel Leah Synagogue Hong Kong, Surveying and Built Environment Vol 19(1), 38-53 December 2008 ISSN 1816-9554

Its History and Conservation, The Jewish Historical Society of Hong Kong for the Incorporated Trustee of the Ohel Leah Charity: Hong Kong.

Nissim R (1999), Land Administration and Practice in Hong Kong, Hong Kong University Press, Hong Kong.

Pruetz R (1997), S a v e d B y Development, Arje Press: Burbank, CA.

Pruetz R (2003), Beyond Takings and Givings: Saving Natural Areas, Farmland and Historic Landmarks with Transfer of Development Rights and Density Transfer Charges, Arje Press: Burbank, CA.

Tsang JC (2001), A speech on the transfer of development rights delivered by the Secretary for Planning and Lands, Mr John C Tsang, at the annual general meeting of the Hong Kong Institute of Architects, December 18. http://www.info.gov.hk/gia/ general/200112/18/1218098.htm

SBE 53 An Alternative Approach to the Short Term Prediction of Residential Property Prices in Hong Kong Surveying and Built Environment Vol 19(1), 54-66 December 2008 ISSN 1816-9554

An Alternative Approach to the Short Term Prediction of Residential Property Prices in Hong Kong

HL Yip and EWM Lee*

ABSTRACT

The behaviour of residential property prices in Hong Kong is so complex that the prediction of this strongly nonlinear time-series remains a difficult task for researchers. Traditional econometric models have been used frequently in modelling the time-series but the results obtained still leave room for improvement. In this study, moving away from traditional prediction methods, we use Radial Basis Function (RBF) to model and forecast short-term residential property price behaviour in Hong Kong. The performance of the RBF model was evaluated by a statistical approach. The result shows that the RBF is able to capture the nonlinearity embedded inside time-series. It successfully modelled the short-term price movement.

KEYWORDS

Artificial neural network Radial basis function Property price

*Department of Building and Construction, City University of Hong Kong. Email: [email protected] SBE 54 Surveying and Built Environment Vol 19(1), 54-66 December 2008 ISSN 1816-9554

INTRODUCTION market has long been one of the most vital markets in Hong Kong. Reliable Residential property prices in Hong modelling will be able to reduce the Kong have exhibited strongly uncertainty borne by market participants nonlinear behaviour in recent decades. so that the number of informed agents The volatile and nonlinear price increases. Thus, a practical and reliable fluctuation in the market means that methodology for modelling the input- all participants in it struggle to predict output mapping of property price time- future price movements accurately, series is necessary. with the difficulty increasing because the underlying functional relationship In recent years, apart from traditional between input and output is unknown. models, many researchers have made Furthermore, the actual input variables use of artificial neural networks (ANNs) are hardly detectable. Hence, it is as an alternative in modelling the input- an inherently complicated task to output mapping of time series. ANNs determine the underlying nonlinear have the well-known ability to model structure of the property price time the nonlinear behaviour of time series series. better than traditional econometric models. (Hill et al. 1996, Aminian et al. Although it is a difficult job to 2006, Moshiri et al. 2006) In this paper, model property price time-series, an we make use of ANNs to forecast appreciable number of attempts have the short term residential property been made to model the input-output price movement in Hong Kong. By mapping of the property price series using macroeconomic and other and to analyze the market. (Hendry related variables as input, we extract 1984, Drake 1993, Richard et al. 1996, the underlying nonlinear functional Wilson et al. 2002, Edelstein et al. relationship between inputs and output 2007, Garcia et al. 2008, Miles 2008) for the price series. These studies have not only provided a methodology with which to forecast the The remainder of this paper is residential property market, but have organised in four sections: Data also offered policy makers essential Collection; Methodology; Results; and clues for determining appropriate Conclusions. government policy. A successful prediction of future price movement and DATA COLLECTION volatility can also provide a direction in which commercial banks can develop The index we use for capturing the better risk management for mortgages, general residential property price as volatility is a key determinant of movement in Hong Kong is from the mortgage default probability (Foster et Centa-City Index (CCI)1, provided by al. 1984). This would also be socially Centaline Property Agency Ltd. The useful because the residential property CCI is a property value index based on SBE 1 Data was obtained from http://www.centadata.com/cci/notes_c.htm 55 An Alternative Approach to the Short Term Prediction of Residential Property Prices in Hong Kong Surveying and Built Environment Vol 19(1), 54-66 December 2008 ISSN 1816-9554

all the transaction records of the Land METHODOLOGY Registry. The estates included in the index are those with high transaction Hence, the CCI measures the change values and volumes that have been in aggregate value of real estate in occupied for at least 12 months. The Hong Kong compared to that at the CCI is formulated as follows: base period, which is similar to how the Hang Seng Index works in the Hong MVm Kong stock market. The data we use CCIm CCIm 1 (1) MVm-1 for training the model is taken from January 1998 to June 2008. During this where MVm represents the total market value of the constituent estates for the period, the CCI exhibits two distinct month m. Hence, (1) can be written as: trends. From 1998 to mid-2003, there is a clear downtrend, with an uptrend MV MV running from mid-2003 to early 2008. CCI m m-1 CCI m MV MV m 2 (2) The trends and price movements of the m-1 m-2 CCI vary over the period in a highly We finally obtain equation (3) by nonlinear manner, which is why we use repeating the above process where b a nonlinear forecasting method in this is the base month (i.e. July 1997). The study. The monthly movement of the value of CCI at the base period is 100. CCI is shown on Figure 1.

MVm CCImCCIb MVb (3)

SBE Figure 1 Time series of the CCI from January 1998 to June 1998 (adopted 56 from http://www.centadata.com/cci/notes_c.htm)

Surveying and Built Environment Vol 19(1), 54-66 December 2008 ISSN 1816-9554

In analysing the dynamics of modelling the input-output mapping property prices, econometric models of time series. With the presence of are typically used. Hendry (1984) input and output data, ANNs are able introduced an econometric model to model the underlying function for existing UK residential property and structure from input to output by prices that used excess demand as changing the weight between each a function of a range of parameters neuron to minimise the error that such as real income and lending rate arises. Another benefit of using ANNs in modelling the changes in house is that they do not have to make any prices. Richard et al. (1996) extended assumptions to form the model, which Hendry’s excess demand function is not true of conventional econometric by giving it stochastic and dynamic models. In this study, we adopt properties. Drake (1993) employed ANNs in forecasting the short-term the Johansen cointegration technique residential property price. To model a to derive a long-term equilibrium of property price time-series, time-lagged UK house prices. Miles (2008) found observations are usually used as inputs that in forecasting housing prices, a to ascertain the underlying function or generalized autoregressive model is structure of the input-output mapping. superior to autoregressive moving Wilson et al. (2002) proposed the use average and generalized autoregressive of a time-lagged property price as conditional heteroscedastic models. a single input to forecast the future Furthermore, Edelstein et al. (2007) residential property price. In our model introduced a two-equation system to we add other time-lagged observations model the residential property price as inputs to obtain a better result. cycle. The two equations are developed econometrically to set up the demand Development of network architecture and supply sides of the residential The network form we use here is the property market. radial-basis function (RBF) model. Park et al. (1993) provided evidence Although most residential property that RBF is a universal function price modelling has used econometric approximator. Hornik (1991) also found models, Hill et al. (1996) found that that feed-forward neural networks with ANNs are superior to traditional time activation functions that are arbitrarily series forecasting methods. Artificial bounded and non-constant are universal neural networks have been successfully function approximators. The activation used in various areas, such as economic function we adopted in the hidden data (Aminian et al. 2006), financial neurons is a Gaussian function as price series (Moshiri et al. 2006, shown in equation (4) where x is the Pai et al. 2006, Blynski 2006), earth input vector, i and i are centre and th science and astronomy (Valdes, 2006), spread of the i hidden neuron of the residential sub-markets (Garcia et RBF. Linear functions as shown in al. 2008) and fire dynamical system equation (5) is adopted in the output (Lee et al. 2004). Hence, they can be layer of the RBF where w is the set SBE viewed as powerful tools for use in of weights of the links connecting the 57 An Alternative Approach to the Short Term Prediction of Residential Property Prices in Hong Kong Surveying and Built Environment Vol 19(1), 54-66 December 2008 ISSN 1816-9554

outputs of the hidden neurons to the Output parameters output neuron. The horizon we forecast is one month ahead of the present month. Moshiri (4) i x x i i x i (2000) suggested that artificial neural networks are superior to other f x w x (5) econometric models because they can forecast an inflation time series over These satisfy the condition proposed a one-month horizon. Hence, we also by Hornik (1991) to ensure that our try to forecast the residential property RBF model can be further verified as a price one-month ahead. As a result, the universal function approximator. output we use for our network is the CCI in the month m. Selection of parameters The number of nodes in different Input parameters layers One of the criteria for selecting suitable In the input layer, we employ four input parameters is their potential nodes. Each node represents each input relationship to output. As stated above, variable mentioned above at a period of the use of lagged prices in modelling m-1. For the hidden layer, the amount residential property prices has been of hidden neurons required is suggested proven successful (Wilson et al. 2002). by the following formula (Ward In addition, Hort (1998) found evidence Systems, 1996) where N represents the

that movement in income has a vital number of hidden neurons, Nin and Nout effect on the movement of real house are, respectively, the numbers of inputs

prices in Sweden. This provides our and outputs of the problem and Nsample is rationale for using lagged nominal the total number of training samples. GDP as one of our input parameters. Edelstein et al. (2007) stated that Nin Nout macroeconomic variables, including N Nsample (6) the interest rate, crucially affect 2 the residential property price cycle. In line with equation (6), we recruit Furthermore, at the sub-market level, 10 hidden neurons into our network Case et al. (1997) suggested that an as an initial trial. We then examine increase in transaction volume tends to the effect of varying the number of be tied to increases in property prices. hidden neurons by ±5: that is, from 5 With reference to the above pioneer to 15. The results of this variation are works, we adopt four inputs to forecast presented in Section 4. Finally, we have the CCI: time-lagged CCI, nominal only one single desired output which is GDP, best lending rate2 and transaction the CCI in month m. The architecture of

volume, expressed as CCIm-1, GDPm-1, the fully interconnected RBF network

BLRm-1 and Volumem-1, respectively. is shown in Figure 2.

SBE 2 The best lending rate is the rate quoted and updated by the Hongkong and Shanghai Banking 58 Corporation Limited Surveying and Built Environment Vol 19(1), 54-66 December 2008 ISSN 1816-9554

Radial Basis

Linear Neuron

CCIm-1

GDPm-1

CCIm

BLRm-1

Volumem-1

INPUT LAYER HIDDEN LAYER OUTPUT LAYER

Figure 2 Architecture of the Radial Basis Function adopted in this study

Network training and performance maintain the generality of the model evaluation to avoid over-fitting. For every epoch Throughout our data, from January of network training, the intermediate 1998 to June 2008, we have 125 network trained by the training samples. These samples are divided samples is applied to the validation into 3 groups of samples namely samples to evaluate the prediction training samples, validation samples error (i.e. validation error). For early- and test samples. The training errors, stop validation approach, the network which are obtained from applying the training is stopped when the validation RBF model to the training samples, are error reaches its minimum and starts used to adjust the weights of the RBF to increase. The typical progresses of models by Turboprop algorithm (Ward, training and validation errors during 1996). It utilizes an independent weight the network training are illustrated update size for each different weight, in Figure 3. The test samples do not rather than the usual method of having involve in network training. Upon the a single learning rate and momentum completion of network training, the that apply to all weights. Furthermore, trained network is applied to the test the step sizes are adaptively adjusted samples. The prediction errors reveal as learning progresses. Turboprop is the performance of the trained RBF simpler to use than the other methods model. because it does not require setting of the learning rate and momentum. The For these collected total 125 samples, validation error which is obtained the ratio of the number of training by applying the adjusted model to samples, validation samples and SBE the validation samples is used to test samples is chosen to be 2:1:1. 59 An Alternative Approach to the Short Term Prediction of Residential Property Prices in Hong Kong Surveying and Built Environment Vol 19(1), 54-66 December 2008 ISSN 1816-9554

Pre-determined no. Training of epochs with no error further improvement on validation error

Validation error

Minimum validation error Epoch for Iteration Epoch early-stop

Figure 3 Early-stop validation for network training

Therefore, we randomly extract 62 approach changes the size of weight as training samples, 32 as validation updates independently towards different samples and 31 as test samples. Of links between neurons, instead of using these three kinds of patterns, the a uniform learning rate for the entire set training patterns are used to train the of weights. Hence, a training process networks, and the validation patterns that is faster than traditional approaches are employed as a stop-training medium can be achieved. if their average error does not decrease for 20,000 consecutive epochs. This As the time series involves a random procedure ensures that there is no over- process, random extraction is carried fitting of the problem because when out 30 times to ensure all patterns have training is stopped with reference to equal probability of being selected as errors of a suitably smaller set it tends test patterns so that a more objective to reduce the possibility of over-fitting picture of the model’s performance can when compared to a large set. Finally, be obtained. (Lee et al. 2004a, 2004b, the test patterns are used for measuring Aminian et al. 2006) After the randomly the accuracy of the model. We use the extracted data points are trained once correlation coefficient (r²) to evaluate according to our rule and the results the relationship between desired outputs are recorded, we start another random and the actual outputs of the test set. extraction process, and continue in this manner until all 30 extractions have The approach to model learning, based been completed. Figure 4 is a flow chart SBE on back-propagation learning, is called of the neural network training. 60 Turboprop. (Ward Systems, 1996) This Surveying and Built Environment Vol 19(1), 54-66 December 2008 ISSN 1816-9554

Network design

N Y Random data Random process > extraction 30 times?

Network training by Turboprop

Apply trained Evaluate the model to the test mean and Save trained samples to standard network evaluate the deviation from value of r2 the 30 numbers of r2

N Validation error does Y not reduce over 20,000 epochs?

Figure 4 Methodology in network training and performance evaluation

70

60

50 m

40

30

20

10

0 0 10 20 30 40 50 60 70

ACTUAL CCIm

Figure 5 Typical results of the predicted CCI by RBF and the CCI of the m m SBE actual data. The predicted results reasonably agree with the actual data. 61 An Alternative Approach to the Short Term Prediction of Residential Property Prices in Hong Kong Surveying and Built Environment Vol 19(1), 54-66 December 2008 ISSN 1816-9554

RESULTS with the actual results with value of r2 = 0.957. The model’s performance is measured by the correlation coefficient (r2) Table 1 summarises the results of the between the prediction and the data of model with 30 runs with randomly the test set. It is defined in equation (5). extractions of data for training, validation and test samples. The 2 standard deviation of these 30 results x x y y 2 is only 0.016, which reveals that the r 2 2 (5) x x y y model is able to extract the underlying nonlinear functional relationship Figure 5 shows the typical simulation between input and output parameters to result of the total 30 runs. It shows that a very high extent. the predicted results reasonably agree

Table 1 Descriptive statistics of Correlation Coefficient (r2) on the results of 30 runs Statistical results Values Mean of r2 0.959 Standard deviation of r2 0.016 Minimum value of r2 0.932 Maximum value of r2 0.986

Figure 6 illustrates the probability Apart from measuring and evaluating distribution of the r2 value from the the capacity ANNs to predict price 30 simulations. It is presented by series, we have also investigated the beta distribution since the r2 value effect of the number of hidden neurons is bounded within the domain of on ANN performance. The results of [0, 1]. The figure indicates that the employing ANN structures with 5 to probability of r2 value being less than 15 hidden neurons in our 30 randomly 0.9 is practically zero. The distribution timed extractions are given in Figure 7. exhibits a vigorously upward sloping As variation in the number of hidden curve when r2 > 0.93, which indicates neurons has an insignificant effect on that the probability density of r2 is the model’s performance, we finally clustering for r2 > 0.93. This result adopt 10 hidden neurons as a rule of confirms that the RBF provides a well- thumb and with reference to equation performed and reliable modelling (6). A possible explanation for this method in the prediction of residential minute difference is that the capacity to property prices over a one-month approximate a functional relationship SBE horizon. may start in a particular dimensionality 62 of hidden space. Surveying and Built Environment Vol 19(1), 54-66 December 2008 ISSN 1816-9554

30

25

20

15

10

5

0 0 0.2 0.4 0.6 0.8 1 CORRELATION COEFFICIENT

Figure 6 Probability distribution of the Correlation Coefficient. Beta distribution was adopted since the value of Correlation Coefficient is bounded between 0 and 1.

CONCLUSIONS term price behaviour of residential property from January 1998 to June The modelling and forecasting of 2008. For the model, we recruited residential property prices has long been radial-basis function networks as our a complicated process for researchers. network architecture and used time- Most previous studies used econometric lagged observations as input to forecast models that attempted to generate the short-term price movement. Moreover, underlying function of the time series. to obtain an objective picture of the However, few of those models can be model’s performance, we randomly used extensively and successfully. extracted data points for training and testing 30 times so that each data point In this study we used ANN, which had an equal probability of being put are well known for their capacity to into a test set. model nonlinear time-series but rarely used in modelling and forecasting Our results reveal that the performance residential property price time-series. of the model, measured by the SBE By using ANN, we modelled the short- correlation coefficient, is so promising 63 An Alternative Approach to the Short Term Prediction of Residential Property Prices in Hong Kong Surveying and Built Environment Vol 19(1), 54-66 December 2008 ISSN 1816-9554

1

0.98

0.96

0.94

0.92

0.9 56789 10 11 12 13 14 15 NUMBER OF HIDDEN NEURONS

Figure 7 Correlation Coefficient under different amounts of hidden neurons. The error bars states the 95% confidence intervals

that short-term residential property ACKNOWLEDGEMENT price behaviour in Hong Kong can be modelled very successfully. The The work described in this paper was standard deviation of the 30 values of fully supported by a grant from the the correlation coefficient is so minute Research Grants Council of the Hong that the reliability of the model is Kong Special Administrative Region, guaranteed. Furthermore, even if we China [Project No. CityU 115506]. vary the number of hidden neurons in the network architecture, there is no significant change in the model’s REFERENCES performance. Aminian F, Suarez ED, Aminian M Our study provides an effective and Walz DT (2006), ‘Forecasting methodology for modelling residential Economic Data with Neural Networks’, property price movement. Due to Computational Economics, 28:1, Aug. their very promising accuracy, ANNs 2006, 71-88. could be used to model the underlying nonlinear function of property price Blynski L and Faseruk A, (2006), behaviour in any region. ‘Comparison of the Effectiveness SBE of Option Price forecasting: Black- 64 Surveying and Built Environment Vol 19(1), 54-66 December 2008 ISSN 1816-9554

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SBE 66 Surveying and Built Environment Vol 19(1), 67-80 December 2008 ISSN 1816-9554

Risk-Sharing Mechanism for PPP Projects – the Case Study of the Sydney Cross City Tunnel

APC Chan, PTI Lam, DWM Chan and E Cheung*

ABSTRACT

The Cross City Tunnel in Sydney, Australia is a good example of how the improper allocation of risks could affect the success of a Public Private Partnership (PPP) project. It is not incorrect for risks to be passed on to the private sector, especially when they are able to manage them. But maybe there should be a ‘partnership’ in place when the private sector is unable to manage all the risks themselves. Some critiques considered this project as an unsuccessful PPP as the Government has had to cope with handling much public opinions dissatisfaction and criticisms for their inaccurate traffic forecasts, leading to the investor making a financial loss. This paper aims to derive a risk-sharing mechanism for projects similar to the Cross City Tunnel, by reviewing the underlying causes leading to the ‘failure’ of this project. In addition, the objectives are to ensure that appropriate risk allocation is achieved in the best interests of all parties so as to make the project successful. Unpredictable circumstances and inaccurate predictions of the Government could make it difficult if not impossible for the private sector to handle the project. In these situations the Government should step in, share the responsibilities and overcome the problems encountered with the consortium. The Government should be able to offer assistance in these circumstances in the form of finance, manpower, governmental procedures, etc. depending on the need. In addition, this paper advocates that such mechanism should be in place for similar projects in the future. Benefits for both sector parties are anticipated when this mechanism is included in the project contract. After all, a PPP is a ‘partnership’ and the parties should work together to overcome obstacles for mutual benefit.

KEYWORDS

Public private partnership Sydney Cross City Tunnel Risk sharing mechanism

*Department of Building and Real Estate, The Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong SBE E-mail : [email protected] 67 Risk-Sharing Mechanism for PPP Projects – the Case Study of the Sydney Cross City Tunnel Surveying and Built Environment Vol 19(1), 67-80 December 2008 ISSN 1816-9554

INTRODUCTION describes that:

The definition of a PPP has been ‘Privately financed projects involve reported by numerous researchers. Each provision by investors of equity definition varies slightly depending on capital and debt capital to fund what the author, jurisdiction and the time. might otherwise be wholly publicly As the Cross City Tunnel (CCT) in funded projects financed from NSW Sydney, Australia is a New South Wales Government borrowings and/or budget Government infrastructure project, it revenue’. is therefore logical to consider their definition of a PPP. According to the This further emphasizes the importance New South Wales Government the term of the financing of PPP projects. ‘public private partnership’ (PPP) is Passing on financial risks is appealing used to mean: to governments.

‘An arrangement for the provision of The PPP form of procurement is assets or services, often in combination recognized as an effective way of and usually for a substantial or complex delivering value-for-money public “package”, in which both private infrastructure or services. It seeks to sector supplier and public sector client combine the advantages of competitive share the significant risks in provision tendering and flexible negotiation, and/or operation’. (Infrastructure and to allocate risk on an agreed basis Implementation Group, 2005). between the public sector and the private sector (Akintoye et al. 2005). In this definition the emphasis is on It is essential for the public client and both the public and private parties the private bidders to evaluate all of the sharing a large proportion of the risks potential risks throughout the whole in a PPP project. In reality it is not life of the project. Public and private always the case that an equal split of sector bodies must pay particular risks is experienced. Often the public attention to the procurement process sector takes up minimal risk and aims while negotiating contracts for a PPP to pass on as many risks as possible to to ensure a fair risk allocation between the private sector. This occurs more them. Systematic risk management commonly in developing countries or allows early detection of risks and jurisdictions where the Government encourages the PPP stakeholders has less experience in this alternative to identify, analyze, quantify and procurement method. This paper respond to the risks, as well as take therefore aims to derive a risk-sharing measures to introduce risk mitigation mechanism for projects similar to the policies (Akbiyikli and Eaton 2004). CCT. In addition the objectives are to A fundamental principle (Grimsey and ensure that appropriate risk allocation is Lewis, 2002) is that risks associated achieved; and that the aims of all parties with the implementation and delivery of SBE are to make the project successful. The services should be allocated to the party 68 New South Wales Government further best able to manage the risk in a cost Surveying and Built Environment Vol 19(1), 67-80 December 2008 ISSN 1816-9554 effective manner. A delicate balance the project will have to be approved has to be sought amongst private via the Gateway review process and sector capacity, government regulatory to see which procurement option it function and public satisfaction. should adopt. Planning assessment via a number of different line agencies would In general, the typical processes be necessary. Finally the project will be for delivering PPP projects in New offered to the market, consortia will bid South Wales include five major steps for it and the Government will select (Figure 1): 1. project identification; the most suitable candidate after a long 2. project approval; 3. planning series of negotiations. The project will assessment; 4. project delivery; and 5. typically be designed and constructed project implementation (Infrastructure over 3 to 5 years. It will then be put into Implementation Group, 2005). Before operation and maintained for a further a project is even considered it will go 25 to 30 years as the concession period. through a series of governmental in- Thereafter, the project will normally be house procedures to decide whether returned to the Government, completely it is a public facility or service that is ending its life as a PPP project. needed. If it is decided to be necessary,

Project identification and early consideration

Project approval

Planning assessment

Project delivery

Project implementation

Figure 1 Typical processes for delivering PPP projects in New South Wales, Australia (Adapted from the Infrastructure Implementation Group, 2005) SBE 69 Risk-Sharing Mechanism for PPP Projects – the Case Study of the Sydney Cross City Tunnel Surveying and Built Environment Vol 19(1), 67-80 December 2008 ISSN 1816-9554

BACKGROUND OF THE the closing date of 24 October 2001. It SYDNEY CROSS CITY was announced on 27 February 2002 that the Cross City Motorway Pty. Ltd. TUNNEL (CCT) PROJECT was selected as the winning consortium. The primary objectives of the CCT The construction for the project project were to reduce through commenced on 28 January 2003. It was traffic in Central Sydney and as a delivered ahead of schedule and took result easing traffic congestion and only 31 months to construct (typical for improving environmental amenity in PPP projects). The tunnel was officially the central business district, and on opened for service to the public on streets approaching the central business 28 August 2005. Unsurprisingly the district, and to improve the east to west project attracted the private sector traffic flows (Roads Traffic Authority, from within Australia and abroad. The 2003). selected consortium included strong financiers, Cheung Kong Infrastructure The CCT is a 2.1 km twin two-lane of China, Bilfinger Berger of Germany motorway that runs east and west and RREEF Infrastructure of Australia. underneath the busy central business They would bring in equity and recover district of Sydney. It opted for a design- the cost of design, construction, build-operate (DBO) arrangement under operation and maintenance via the a 30-year concession agreement. The tolls collected. Therefore the project project was part of a network of a new company, Cross City Motorway Pty transportation infrastructure plan of the Ltd, was allocated all the demand Roads and Traffic Authority of the New risk for the project. Innovation was South Wales Government. Its large introduced by the contractor. The tunnel project sum of AUD680 million meant was the first motorway in Sydney that a PPP was an attractive option to to have full electronic tolling. There the New South Wales Government. were high levels of expectations by all the parties and the traffic forecast for The initial concept of the tunnel was the tunnel was predicted to be 90,000 mooted in 1998 (Cross City Tunnel Pty. vehicles per day. Ltd., 2007). After a series of complex consultations, exhibitions, modification A number of benefits were sourced and approvals the private sector was from materials published and released finally asked for an expression of from the project company Cross City interest on 15 September 2000 (Roads Motorway Pty Ltd (Cross City Tunnel, Traffic Tunnel, 2003). In response, 2007) and the government agency a total of eight consortia expressed client the Roads and Traffic Authority interest by 23 October 2000. Three of New South Wales (Government consortia were shortlisted and asked Roads Traffic Authority, 2007). These to submit detailed proposals for the parties claimed that as a result of the project on 8 June 2001. All the three Cross City Tunnel project the following SBE consortia submitted their proposals by 70 benefits would be experienced: Surveying and Built Environment Vol 19(1), 67-80 December 2008 ISSN 1816-9554

• 34 traffic signals avoided (16 sets sought and are shown in the Appendix. westbound and 18 sets eastbound); Among these seven headlines, three are • Major reduction of traffic across the related to the toll. This shows that the central business district; toll is probably one of the key factors • Improved quality of life for affecting the satisfaction level of the pedestrians and cyclists in the general public towards the CCT, and central business district; also one of the issues that is highly • Higher reliability of bus services in sensitive among them. the central business district; • Cut trips across the city to The PPP has been given a bad name and approximately 2 minutes, from up investors have been driven away from to 20 minutes by avoiding traffic New South Wales, at least temporarily lights; (AAP General News Wire 2006a). The • Improved access and movement CCT encountered severe difficulties in within the city for taxis, delivery reaching the predicted traffic volume. vehicles, cyclists and pedestrians; Motorists expressed their unhappiness • Make city streets safer and more about the high toll levels (AAP General pleasant for pedestrians, residents News Wire 2006b) and the government and business people by removing closing off the surface roads to direct intrusive through traffic and the traffic into the CCT (AAP General providing more footpath space in News Wire 2006c). These problems some streets; resulted from the inaccurate traffic • Reduced traffic noise levels; and forecast and a flawed concession • Better air quality by taking cars off agreement. Currently, the CCT has surface streets. entered into receivership and the concessionaire has written off their Despite the benefits of the PPP which equity (Project Finance, 2007). have been highly publicized, some may consider that there are also many In this project it has been unfortunate ‘failures’ in the project. The next that the public client and the private section takes a closer look into these consortium have argued openly in ‘failures’. public. Newspapers have reported them criticizing each other for their faults (Field 2006a). The Premier spoke out UNDERLYING CAUSES publicly expressing his frustration LEADING TO ‘FAILURE’ that motorists were able to use the toll road without paying. He criticized the CCT has been perceived as an operators for not enforcing the charge unsuccessful project by the general and how it was unfair for the motorists public and as a result the government’s who did pay (AAP General News Wire image has suffered (Jean 2006). 2006d; Field 2006b). On the other To illustrate some of the negative hand the consortium also criticized portrayals of the project, some the Premier for failing to demonstrate headlines related to the project were SBE leadership (AAP General News Wire 71 Risk-Sharing Mechanism for PPP Projects – the Case Study of the Sydney Cross City Tunnel Surveying and Built Environment Vol 19(1), 67-80 December 2008 ISSN 1816-9554

2006e). It can be seen how the media the Government, as a result of which has portrayed a tense battle between the further risks are passed on to the private public and private sectors. This is an sector. For example, in the document image that nobody wants to create for they expressed their preference for any project whether it is delivered by bidders with the ‘lowest’ toll. This line a PPP or not. But being a PPP project of thinking is similar to selecting the creates an even higher sensitivity, as lowest cost bidder, which should not be taxpayers will query whether they are the only way to select the consortium. actually getting value for money from Instead, value for money for the project the Government’s decision. overall should be their main concern. By focusing on the toll only, other Following the unfortunate events important features adding to value experienced, the private consortium may be neglected such as innovative requested the Government to pay them techniques and skills used in the project a toll subsidy and compensation for to make it more efficient and as a result the road changes. Unfortunately the creating value for money. The quality two parties were unable to come to a of the work may also suffer. satisfactory agreement (AAP General News Wire 2006f). But in order for In the report it was also mentioned the CCT case not to be repeated the that in Victoria all the main variables Government considered paying the which would affect the commercial consortium compensation for the Lane outcome of the project for all parties Cove Tunnel, which is also in Sydney, would be negotiated at the bidding if unfortunately traffic forecasts for stage. But in New South Wales the toll that are also predicted inaccurately level or the possibility of a Government (Cratchley and Jean 2006a; 2006b). contribution would not be open to This action from the government was negotiation. Therefore whether positive as it showed that they were value for money for the taxpayers is aware that there were problems in the achieved is questionable. The report CCT project, and that they should share has indicated that the New South Wales the responsibilities by undertaking Government is clearly aware of their more of the risks rather than passing faults, but whether they actually rectify the pressure solely to the private the situation remains to be seen. consortium. To consolidate the findings reported In 2005 the New South Wales by the press discussed previously, the Government produced a report titled underlying causes leading to the ‘failure’ ‘Review of Future Provision of of the CCT project include: Motorways in NSW’ (Infrastructure • Inaccurate traffic forecast; Implementation Group, 2005). The • High toll levels; report reviews recent road projects, • Government closing off the surface including the CCT, in order to improve roads to direct the traffic into the SBE future similar projects. It is unfortunate CCT; 72 that more barriers are set up to protect • Flawed concession agreement; Surveying and Built Environment Vol 19(1), 67-80 December 2008 ISSN 1816-9554

• The public client and the private more or less all the risks associated consortium arguing openly in with the project. The private sector is public; often willing to take up large risks to • No toll subsidy and / or gamble for their desired returns. The compensation from the government; Government is also concerned about • The toll level or the possibility of a the consortium's readiness to accept Government contribution was not risk (Ahadzi and Bowles 2004). But open to negotiation. it is a surprise that the Government was willing to allow the private sector to take up such a large proportion of APPROPRIATE RISK the risks. However in the arrangement ALLOCATION the social responsibility will always be the public sector’s. Therefore the Grimsey and Lewis (2002) identified Government should consider whether nine main risks affecting all types of the consortium is able to handle the infrastructure projects. These included risk effectively. The risks that the technical risk, construction risk, consortium agreed to take on board operating risk, revenue risk, financial in the Project Deed included (Roads risk, force majeure risk, regulatory/ Traffic Authority, 2003): political risk, environmental risk, and • All risks associated with the project default. On the other hand Lam financing, design, construction, et al. (2007) identified seven key risk operation, maintenance and repair allocation criteria: costs of the project; • Whether the party is able to foresee • The risks that traffic volumes or the risk; project revenues may be less than • Whether the party is able to assess expected; the possible magnitude of the • Income tax risks; and consequences of the risk; • The risks that their works or • Whether the party is able to control operational and maintenance the chance of the risk occurring; activities might be disrupted by the • Whether the party is able to manage lawful actions of other government the risk in case it occurs; and local government authorities or • Whether the party is able to sustain a court or tribunal. the consequences if the risk occurs; • Whether the party will benefit from Clifton and Duffield, 2006 undertook bearing the risk; and a study where they looked into the risk • Whether the premium charged by allocation structure for several recent the risk-receiving party is considered PPP projects in Australia. One of these reasonable and acceptable for the cases included the CCT (Table 2) and owner. realized that the risks for each party were quite evenly spread. But further According to the terms and conditions study showed that the intensity of the set out in the Project Deed of the risks allocated to the private sector CCT, the private consortium accepted SBE was actually much greater compared to 73 Risk-Sharing Mechanism for PPP Projects – the Case Study of the Sydney Cross City Tunnel Surveying and Built Environment Vol 19(1), 67-80 December 2008 ISSN 1816-9554

those allocated to the Government, as shown in Table 1:

Risk Allocated to Government Risk Allocated to Consortium Native title risks Design, construction and commissioning risks Force majeure Delay and completion risks Uninsurable risks Ground/geotechnical conditions risks Legislative and Government Operation and maintenance/ Policy facility management risks

Table 1 Risk allocation structure for the CCT (Clifton and Duffield, 2006)

Shen et al. (2006) studied the risk suffered immensely due to the market allocation for public sector projects in and financial risks. If these were shared Hong Kong. From the literature they risks as suggested by Shen et al. (2006), identified a number of major risks the intensity of the damage to the affecting public sector projects. In consortium could have been minimized. their analysis they selected the Hong Kong Disneyland as a case study. This Traffic revenue risk has been identified case study demonstrated which risks as one of the most critical risks would be most suitably allocated to impacting the commercial success each party. The study concluded that of road projects delivered by a PPP the public sector should be allocated (Singh and Kalidindi 2006). In order the site acquisition risks, inexperienced to overcome traffic revenue risk, the private partner risk and legal and policy annuity-based build-operate-transfer risks. On the other hand, the private (BOT) model has been presented as a party should be allocated the design good solution. Unlike the traditional and construction risks, operation risks BOT type road economic projects, and industrial action risks. Lastly, Shen the concessionaire will be paid a et al. (2006) advocated the importance fixed semi-annual annuity by the of there being some risks which both governmental client. This approach parties should share. These include is similar to that used for the social development risks, market risks, infrastructure PPP projects such as financial risks and force majeure. hospitals and schools which are paid by Although Shen et al.’s 2006 study a regular fixed payment. Similarly the was conducted for a project in another annuity-based BOT model will require country and of a different nature; it the concessionaire to achieve certain is believed that these shared risks as milestones and standards. The payment SBE mentioned could also apply to other will be used to cover the design, 74 PPP projects such as the CCT. The CCT construction, maintenance and operation Surveying and Built Environment Vol 19(1), 67-80 December 2008 ISSN 1816-9554 of the road and its facilities. As a result performance of the facility. Other the concessionaire does not undertake risks which are less predictable and any of the traffic revenue risk. This controllable are taken by governmental approach ensures that the governmental clients. By adopting this approach the client must also undertake their fair business case may not be as attractive share of risks. The risk allocation to the private sector. The private sector framework shown in Table 2 shows is often willing to take up more risks the appropriate risk allocation for each in return for the possibility of financial party under the annuity-based BOT benefits. The private sector should not model. Amongst the sixteen risks listed, be solely responsible for taking these nine are undertaken by governmental decisions. Instead the government clients. In general the concessionaire should also consider whether they is responsible for the risks related should allow the private sector to take to the construction and operational up large risk.

Risk Allocated to Government Risk Allocated to Consortium Pre-investment Delay in financial closure Resettlement and rehabilitation Time and cost overrun during construction Permit/approval Time and cost overrun during operation and maintenance Delay in land acquisition Non-political force majeure Delay in payment of annuity Performance standards Change of scope Lane availability Traffic revenue risk Interest rate risk Change in law Political risk

Table 2. Risk allocation framework for the annuity-based BOT model (Singh and Kalidindi 2006)

Another payment mechanism similar option is the performance-based DBFO to the annuity-based BOT model was system. For this payment mechanism proposed, in that the patronage risk the services and the operational stays with the government (Aziz 2007). performance of the contractor are The shadow-toll design-build-finance- emphasized rather than the usage of the operate (DBFO) system is similar facility. to the BOT system except shadow tolls are used instead of real tolls. From the experience of several road The government will pay a toll per projects including the CCT, the New vehicle per road kilometer instead of South Wales Government identified SBE the end users paying the toll. Another some lessons learnt (Infrastructure 75 Risk-Sharing Mechanism for PPP Projects – the Case Study of the Sydney Cross City Tunnel Surveying and Built Environment Vol 19(1), 67-80 December 2008 ISSN 1816-9554

Implementation Group, 2005): the project company. As a result of this • Need for consultation and fault other actions were taken by the communication over the life of concessionaire to overcome the reduced project procurement; traffic flow. These actions led to further • Need for improved community complications which in turn ruined consultations and messages; the partnership agreement between the • Responsibility of Government client public and private sectors. over procurement life of project; • Greater onus on the consortium to In the case of the CCT the inappropriate accept full responsibility over the allocation of risks was believed to whole life of the concession period. be the root cause. In some cases the Government may subsidize or The fourth lesson learnt indicates that compensate the concessionaire if the the Government feels that they have project revenue is less than expectation accepted too much of the project risks. or if the contract is terminated. But Therefore they appear to be keen to often there is much argument as to ensure that the consortium will take a the amount which this subsidy or larger responsibility for risks in future. compensation should be.

To prevent similar cases from RISK SHARING occurring, an optimal risk-sharing MECHANISM mechanism is presented. The risk- sharing mechanism can be adopted A PPP should be adopted primarily in projects of a high risk nature. The based on value for money. Obviously CCT was a project of high risk due to the package is accompanied by various its scale and significance. In this risk- other advantages which are attractive sharing mechanism, projects which are to the government such as private traditionally economic infrastructure financing and the transfer of risks. But projects such as transportation projects the decision to adopt a PPP should not can adopt a regular fee payment from be solely based on these additional the government instead of bearing the advantages. revenue risk. This approach is similar to social infrastructure projects. As As discussed previously risks should mentioned previously in this paper always be allocated to the party best other researchers have also reported able to handle them. The party allocated the possibility and feasibility of this the risk should be the one most able arrangement for economic infrastructure to prevent it from occurring. And projects. if the risk does occur the allocated party should be the one most able to Under this mechanism, the consortium minimize the consequences. of high-risk economic infrastructure projects will be paid via a regular fee The inaccurate traffic forecast was the payment. In this way the payment will SBE main reason that led to the collapse of 76 be based on project performance rather Surveying and Built Environment Vol 19(1), 67-80 December 2008 ISSN 1816-9554 than usage. As in social infrastructure public frustration. Although the local projects certain risks are still taken government could have prevented these by the concessionaire, such as those actions, they did not step in. If the associated with the design, construction, consortium had not needed to worry operation and maintenance. But the about the revenue, the public would other risks should be dealt with by the have been more satisfied. As a result Government including revenue risk. the public perception of the facility, the project company and the Government Although the economic package for would have been very different! projects paid by a regular fee may not be as attractive to the private sector, this type of mechanism for high-risk CONCLUSIONS projects can help to protect the private The CCT was designed as part of a sector. By protecting the private sector large infrastructure network plan for the government will also benefit, since New South Wales, Australia. Due to its as always the ultimate responsibility complexity and size, a PPP appeared to lies with them. The government may be an attractive delivery method. Under be able to pass on most of the financial the PPP procurement the financing risks but they cannot avoid the social would be provided by the private sector. responsibility. Hence this proposed Also expertise and innovation which mechanism is believed to benefit all would otherwise be unavailable within parties involved. the Government could be sought. As a result the Government managed to The details of the proposed risk- pass on many of the project risks to the allocation mechanism will vary private sector. Obviously for a project depending on the project itself. But of this size there would be abundant it is likely that the payment will be a financial opportunities for the private regular fee paid to the concessionaire sector, hence they were very willing based on performance and activity to take up the associated risks for the milestones. Under the agreed payment chance to be involved. The situation the concessionaire will deliver a could have been a win-win case but service to the public according to unfortunately this was not actually what standards as agreed to in the contract. happened. If the concessionaire under-performs then they will be penalized by a Media reports have reflected the CCT deduction of their fees. In this way as an unsuccessful PPP project. For the concessionaire is monitored by the consortium this may have been the the project’s performance rather than case. For the Government, although usage of the facility. In the CCT project they have received some negative the concessionaire had to bear the critiques, at the end of the day they revenue risk, hence their main priority have still constructed a world-class was to generate revenue. They used infrastructure facility. For the general toll prices and redirecting traffic to public, the scandal may have been more SBE bring in revenue which just caused 77 Risk-Sharing Mechanism for PPP Projects – the Case Study of the Sydney Cross City Tunnel Surveying and Built Environment Vol 19(1), 67-80 December 2008 ISSN 1816-9554

amusing than having a serious effect. It Wire, 21 August 2006. is not easy and probably impossible to distinguish whether any case is either AAP General News Wire (2006d), solely successful or a failure. Instead Motorists have right to be angry over it is believed that lessons can be learnt toll inequities, AAP General News Wire, from each case. 20 September 2006.

This paper has looked into a highly- AAP General News Wire (2006e), profiled case and tried to recommend Cross City Boss says Lemma Fails to solutions to overcome the potential Show Leadership, AAP General News obstacles. As a result a more suitable Wire, 4 August 2006. risk-sharing mechanism for projects similar to the CCT has been presented AAP General News Wire (2006f), to achieve win-win service outcomes. Tunnel Operators Seek Millions in Compensation for Changes, AAP General News Wire, 26 August 2006. ACKNOWLEDGEMENT Ahadzi M and Bowles G (2004), The content of this paper is based on the 'Public-Private Partnerships and initial findings of an ongoing research Contract Negotiations: An Empirical study which aims to develop a best Study', Construction Management and practice framework for implementing a Economics, 22 :9, 967-978. PPP in Hong Kong. The work described in this paper was fully supported by Akbiyikli R and Eaton D (2004), 'Risk a grant from the Research Grants Management in PFI Procurement: A Council of the Hong Kong Special holistic Approach'. Paper presented Administrative Region, China (RGC at the Proceedings of the 20th Project No. PolyU 5114/05E). Annual Association of Researchers in Construction Management (ARCOM) REFERENCES Conference, Heriot-Watt University, Edinburgh, UK. AAP General News Wire (2006a), War of Words Erupts again Between Lemma Aziz AMA (2007), 'A Survey and Tunnel Boss, AAP General News of the Payment Mechanisms for Wire, 4 August 2006. Transportation DBFO Projects in British Columbia', Construction AAP General News Wire (2006b), Management and Economics, 25:5, Cross City not viable, higher prices not 529-543. the answer, AAP General News Wire, 26 August 2006. Clifton C and Duffield CF (2006), 'Improved PFI/PPP Service Outcomes AAP General News Wire (2006c, Lane through the Integration of Alliance SBE Cove Tunnel Road Changes May Be As Principles', International Journal of 78 Bad As Cross City, AAP General News Project Management, 24:7, 573-586. Surveying and Built Environment Vol 19(1), 67-80 December 2008 ISSN 1816-9554

Cratchley D and Jean P (2006a), Govt Li B, Akintoye A, Edwards PJ and May Compensate Lane Cove Tunnel Hardcastle C (2005), 'The Allocation of Operators, AAP General News Wire, 28 Risk in PPP/PFI Construction Projects August 2006. in the UK', International Journal of Project Management, 23:1, 25-35. Cratchley D and Jean P (2006b), State Government May Compensate Lane Project Finance (2007), 'Skies not the Cove Tunnel Owners, AAP General limit', Project Finance, April 2007. News Wire, 28 August 2006. Roads Traffic Authority. Cross City Tunnel Pty. Ltd. (2007), (2007), http://www.rta.nsw.gov. http://www.crosscity.com.au, Retrieved au/constructionmaintenance/ 30 May 2007. majorconstructionprojectssydney/ crosscitytunnel/index.html, Roads Field K (2006a), Childish Act Shows Traffic Authority of New South Wales NSW Not Open For Business, AAP Government, Retrieved 30 May 2007. General News Wire, 10 October 2006. Roads Traffic Authority (2003), Cross Field K (2006b), Sydney's Cross City City Tunnel: Summary of contracts, Tunnel Operators to Pursue Toll Cheats, Roads and Traffic Authority of New AAP General News Wire, 20 September South Wales Government. 2006. Shen LY, Platten A and Deng XP (2006), Grimsey D and Lewis M (2002), 'Role of Public Private Partnerships to 'Evaluating the Risks of Public Private Manage Risks in Public Sector Projects Partnerships for Infrastructure Projects', in Hong Kong', International Journal International Journal of Project of Project Management, 24:7, 587-594. Management, 20:2, 107-118. Singh LB and Kalidindi SN (2006), Infrastructure Implementation Group 'Traffic Revenue Risk Management (2005), Review of Future Provision of Through Annuity Model of PPP Road Motorways in NSW, New South Wales Projects in India', International Journal Government. of Project Management, 24:7, 605-613.

Jean P (2006), Cronulla Riot, Tunnel Were My Toughest Days: Lemma, AAP General News Wire, 3 August 2006. APPENDIX Examples of Newspaper Headlines Lam KC, Wang D, Lee PTK and Tsang relating to the CCT when it opened YT (2007), 'Modelling Risk Allocation (Infrastructure Implementation Group, Decision in Construction Contracts', 2005) International Journal of Project Management, 25:5, 485-493. SBE 79 Development of a Conceptual Framework for the Study of Building Maintenance Operation Processes in the Context of Facility Management Surveying and Built Environment Vol 19(1), 81-101 December 2008 ISSN 1816-9554 Appendix Examples of Newspaper Headlines relating to the CCT when it opened (Infrastructure Implementation Group, 2005)

Tunnel cuts William St to one lane to trap drivers

The Daily Telegraph, 6 October 2005

‘Cheap’ tunnel buyback mooted

Australian Financial Review, 17 November 2005 $105m TOLL Motorists pay hidden charge OUTRAGE to cross city

The Daily Telegraph, 6 October 2005 CROSS CITY GROVEL Taken for Three weeks toll-free a ride but roads still colgged Tunnel at the crossroads

The Daily Telegraph, 14 October 2005-12-02 Sydney Morning Herald, 13 October 2005

Drivers Changes to to feel contract led squeeze to high tolls

SBE The Daily Telegraph, 17 November 2005 Sydney Morning Herald, 28 November 2005 80 Surveying and Built Environment Vol 19(1), 81-101 December 2008 ISSN 1816-9554 Appendix Examples of Newspaper Headlines relating to the CCT when it opened (Infrastructure Implementation Group, 2005)

Tunnel cuts William St to one lane to trap drivers Development of a Conceptual Framework for the Study of Building Maintenance Operation Processes in the Context of Facility Management

HY Lee, Hackman* and D Scott**

ABSTRACT

Building maintenance operation processes are not noticeable and not attractive. With the development of facility management, there are impacts on the building maintenance operation processes in terms of cost, quality and process. Top management at the strategic level always challenges operation process efficiency from the planning stage to implementation. On the other hand, maintenance personnel at the operational level must face the challenge of insufficient maintenance resources and lack of support from top management. These misalignments do not help the effectiveness of maintenance and operation. This paper is part of a research study focusing on the development of a conceptual framework among the main aspects in building maintenance from the strategic and operational perspectives. The discussions include arguments on the maintenance policy, challenges of strategic maintenance decisions, and impacts on the maintenance operations from the influences of facility management as well as performance management. The aim is to uncover the grounds for the development of research questions in identifying the gaps between the top management at the strategic level and maintenance personnel at the operational level for improving the efficiency of maintenance operation processes. Main research questions are developed based on established overall conceptual framework, which consists of investigation about development of building maintenance objectives, types of challenges of building maintenance strategy, impacts of building maintenance in the context of facility management and improvement of building maintenance operation processes.

KEYWORDS

Building maintenance Maintenance policy Sstrategic maintenance decision Facility management Performance management

* PhD graduate, University of South Australia. This article is part of his 200X doctoral thesis, “Building Maintenance in the Sports and Leisure Facilities, Hong Kong”, submitted to the School of Business, University of South Australia Email: [email protected] SBE ** Professor and Head, Department of Civil Engineering, Curtin University of Technology, Australia 81 Development of a Conceptual Framework for the Study of Building Maintenance Operation Processes in the Context of Facility Management Surveying and Built Environment Vol 19(1), 81-101 December 2008 ISSN 1816-9554

INTRODUCTION Facility management also has impacts on the building maintenance Traditionally, building maintenance operation processes from three is a labour intensive activity and different dimensions; organizational its operation processes are not facility management strategy, cost noticeable and not attractive (Seeley and quality aspects. These are 1976; Jones and Collis 1996; Wood considered as important information 1999). However, as times change, top for the maintenance personnel at management from the organizations’ the operational level (Amaratunga leaders as well as senior managers are et al. 2000; Pitt and Hinks 2001). now more concerned because building Furthermore, building performance maintenance is a supporting activity management is a key to managing for core business (Mak 1997; Chan building maintenance operation et al. 2001; Tranfield and Denyer processes successfully (Loosemore 2004; Osgood 2004). Furthermore, and Hsin 2001). These processes need maintenance costs are escalating. participation from all levels within One of the core competencies in an organization. However, there are facility management is building gaps between the implementation maintenance operation, which is of organizational performance regarded as an important function management strategy and maintenance (Best et al. 2003; Chotipanich 2004). personnel. There are misalignments existing between organizational main business Building maintenance operation and operational sub business. As processes require effective interactions a result there are arguments about between top management at the maintenance strategies, standards and strategic level and maintenance resources between top management personnel at the operational level at the strategic level and maintenance in order to achieve organizational personnel at the operational level, which common goals with better operational hinder organizational effectiveness. performance. Therefore, understanding These deficiencies are due to the lack of the justification of building maintenance justification of the building maintenance objectives, types of challenges of objectives. maintenance strategy, impacts on building maintenance operation Management of building maintenance processes and integration for better operation process is also changing performance management strategy is pace with the development of facility vital to both strategic and operational management, which is focusing more on levels. It also provides more insights operations related to cost, quality and for the improvement of maintenance process aspects. However, maintenance operation processes and specifically practice in Hong Kong concentrates on helps to minimize the gaps between time-based and failure-driven processes strategic and operational levels for the without a comprehensive maintenance benefits of an organization. approach (Tse 2002). Apart from the criticism of the effectiveness of planned preventive maintenance strategy (Wood 2003a; Horner et al. 1997, Spedding 1987), there may be similar challenges SBE to other types of maintenance strategy. 82 Surveying and Built Environment Vol 19(1), 81-101 December 2008 ISSN 1816-9554

FOUR MAIN ASPECTS IN essential component for successfully accomplishing organizational goals BUILDING MAINTENANCE (Transfield and Denyer 2004; Drejer 2004; Lasher 2002). Thus, this link The three components for the between strategic and operational development of maintenance policy in levels is also becoming important the context of building maintenance for better planning of maintenance management are maintenance strategy, activities and resources allocation. acceptable standards and maintenance Effective strategic management is resources. These components are essential to every business due to categorized as the main dimensions in the business fluctuation and rapid the strategic management of building changes of the external environment maintenance. Various studies (Seeley (Collins 1993; Lasher 2002; Drejer 1987; Spedding 1987; Lee 1987; Barrett 2004). According to Tranfield and 1995; Chanter and Swallow 1996; Denyer (2004) and Osgood (2004) Horner et al. 1997) define maintenance that managing infrastructural assets policy as a management framework, including real estate, building facility which incorporates employing different is becoming more important because types of maintenance strategy to it is recognized as an important ensure that the building facilities are component of organizational strategy maintained properly. Maintenance and the alignment of corporate and policy varies depending on the types infrastructure strategy is the key for of building facilities. However, it achieving organizational goals and is difficult to agree on maintenance objectives. resources. Maintenance policy cannot be implemented effectively without However, strategic management is not sufficient maintenance resources (Oberg only the concern of top management. 2002). There are trends to rely on Madu (2000) emphasizes that it has using technology but without matching to involve all staff employed in the organizational objectives (Madu 2000; development of organizational policy Tse 2002). Managerial influences because there are gaps in the objectives on the building maintenance policy between the organizational level and such as decision making on strategic its sub-business units. Such gaps create maintenance planning, formulating of obstacles to maximizing organizations’ maintenance plans and allocation of revenue. Zavadskas et al. (1998) maintenance resources, are important suggest that efficiency-building lifetime for the study of building maintenance. strategy is based on the integration of The application of maintenance policy functional considerations, financial and strategy influences the building optimization and the application maintenance operation processes. of performance. This explains the importance of strategic management Strategic management involves the in building maintenance as strategic directions from the top level of an decisions influence building organization. The senior management maintenance operation processes. usually dominates them. Building However, the simulation requires maintenance is categorized as a sub- strategic and operational analysis and business of an organization and is a decisions. supporting function. The strategic link between the strategic and operational Facility management activities levels is conceptualized as an SBE encompass most of the supporting 83 Development of a Conceptual Framework for the Study of Building Maintenance Operation Processes in the Context of Facility Management Surveying and Built Environment Vol 19(1), 81-101 December 2008 ISSN 1816-9554

activities in the building-related related to building performance are business. According to the International facility efficiency, hygiene standards, Facility Management Association indoor air quality, energy efficiency, (IFMA) and the British Institute of lighting standards, thermal comfort, Facilities Management (BIFM) facility safety and information technology. management is in general required There are challenges in the measuring to manage people, premises and methods of the performance in environmental aspects respectively. buildings. There is a direct link between The similar concept is recognized by facility management and performance some of the researchers (Chan 1997; management. Without knowing these, Chotipanich 2004). Furthermore, the performance of buildings is not facility management is the management known and improvement in building of infrastructure resources and is performance cannot be identified. In the related to the support of organizational development of facility management, goals. Because of this broad scope, performance management is essential building operation and maintenance and influences building maintenance is therefore categorized as the sub- operation. function of facility management (Nutt 2004). Amaratunga et al. (2000) argue The development of a conceptual that facility management is not only framework follows discussions to minimize the running costs and on maintenance policy, strategic maximize space, but also requires maintenance decisions, facility focusing on the building assets for management and performance people, operational processes and management. Operation and business performance. Facility maintenance of building maintenance is management influences the building becoming important to a business and, maintenance operation and is involved due to its nature, it is a broad area to with several strategic issues by cover. The maintenance activity is no incorporating a strategic approach at the longer a standalone activity but requires top management level and operational careful planning of the maintenance strategy at operational levels. processes. There are arguments about the maintenance policy and strategy, Measuring performance is becoming which are normally governed by the essential and it has been developed top management. In the field of facility for helping organizations increase management, building operation and competitiveness and profitability. It maintenance is one of the competencies is more important in identifying an and impacts directly on the building organization’s strength and weakness. users. The level of satisfaction on Arguments exit on the methodology the performance of buildings is an for performance measurement and it indication to the maintenance personnel is necessary to identify strategies to for improvement. Thus, the four aspects achieve goals and objectives (Coetzee in the context of building maintenance 1999; Tangen 2003; Amaratunga and all have direct and indirect connections Baldry, 2002). Building performance and influence the building maintenance is one of the key issues for the need operation processes. The diagrammatic for performance improvement and conceptual framework developed for must have contribution to business the study of building maintenance is (Amaratunga et al., 2000). The factors shown in Fig. 1. SBE 84 Surveying and Built Environment Vol 19(1), 81-101 December 2008 ISSN 1816-9554

Fig. 1 Conceptual framework developed for the study of the main aspects of building maintenance

Influences of Strategic Building Building

maintenance maintenance maintenance in the Performance policy and strategy decisions and their context of facility Management influences management

Building maintenance operation processes

ARGUMENTS ON Maintenance strategy depends on various factors such as standard, THE THREE MAIN resources and the objectives of the COMPONENTS OF organizations. There are arguments in MAINTENANCE POLICY adopting appropriate strategy recently, in particular preventive maintenance, The three main components of which is receiving more challenges maintenance policy are maintenance among other maintenance strategy strategy, maintenance standards (Wood, 1999, 2003a; Horner et al., and maintenance resources, which 1997; Spedding, 1987). Loosemore are developed from the principle of and Hsin (2001) argue that the understanding the length of time for understanding of the relationship of which the building requires maintaining planned preventive maintenance to for the present use, the life requirements facility and the core business objectives of the buildings and their fittings and is inadequate. On the contrary, there services, the standard to which the are some suggestions for the better use buildings and its services are to be of planned preventive maintenance maintained. The reaction time is defined (Shen and Lo, 1999; Tse, 2002; Chan as time between a defect occurring and et al. 2001). Coetzee (1999) suggests the legal and statutory requirements basing it on the detail design of the (RICS, 1990; Seeley, 1987; Lee, 1987; maintenance cycle processes for the Barrett, 1995; Chanter and Swallow, specific organization. 1996). The maintenance policy is to integrate different maintenance There are arguments about the strategies including corrective, maintenance standard (Then 1996; preventive and condition based, the Zavadskas et al. 1998; Wood 2003a), development of the recent five types of which could not be solved in a similar maintenance strategy is developed from way as the maintenance strategy. It the corrective, preventive and condition depends on the maintenance resources based (Horner et al., 1997; Chan et al., available, the degree of maintenance 2001). standard and business objectives. Then SBE (1996) argues that the maintenance 85 Development of a Conceptual Framework for the Study of Building Maintenance Operation Processes in the Context of Facility Management Surveying and Built Environment Vol 19(1), 81-101 December 2008 ISSN 1816-9554

standard is fundamental to the (technical and administration), and maintenance process, which is limited political factors. Zavadskas et al. by health, safety and use. The author (1998) suggest an effective managing focuses on the two basic components of available resources and Then (1996) that will affect the maintenance suggests that it is necessary to justify standard, users of buildings, and users’ the maintenance objectives before perception of the internal environment getting more maintenance resources. of the space occupied. Zavadskas et al. Although technology could help to (1998) suggests understanding more improve the maintenance process, it is about organization and management necessary to understand more about the may raise the maintenance standard. management and operational context A balanced approach between top and the relationship between a building management at the strategic level and its users (Wood 1999). and maintenance personnel at the operational level is required. A conceptual framework is developed from the arguments of maintenance Top management is interesting in policy. The challenges of the focusing on the maintenance resources maintenance strategy such as planned to see if there is any ways to minimize preventive maintenance, maintenance the facility maintenance cost. This standard, and maintenance resources boosts recent studies in cutting come from the inadequate information facility operation cost. Maintenance about the justification of building at the operational level argues that the maintenance objectives. It is also maintenance budget is always below necessary to justify the effectiveness the needs (Tse 2002; Lo et al. 2000; of using technology in building Lam 2000; Shen and Lo 1999, Pitt maintenance. Building maintenance 1997) while the top management at the has connections with the organizational strategic level criticizes the inefficiency objectives, thus understanding the of the maintenance, which contributes development of building maintenance to the wastage and makes it difficult objectives is important. Otherwise, the to get more resources. El-Harm and arguments and problems continue. The Horner (2002) identify a number of diagrammatic conceptual framework common factors that affect maintenance developed for the study of arguments costs such as building characteristics, about the maintenance policy is shown tenant factors, maintenance factors in Fig. 2.

Fig. 2 A conceptual framework developed for the study of arguments about the maintenance policy

Arguments and problems Maintenance are due to the lack of policy justification of building maintenance objectives

Maintenance Maintenance Maintenance SBE strategy standard resources 86

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CHALLENGES influence maintenance personnel in setting priorities for planned OF STRATEGIC maintenance including technical, MAINTENANCE DECISIONS political, financial, social, economical AND INFLUENCES and legal related (Shen1997; Shen and Lo 1999, Pitt 1997; Alani et al. There is a trend for having a common 2002). Shen (1997) identifies the organizational strategy in an priority system as including safety, organization with multiple businesses. habitable (hygiene, security), operable A strategy map is defined as a diagram and the appearance. The author also to describe how an organization creates suggests having further investigation value by connecting all strategic of managerial inputs and under what objectives among sub-businesses in circumstances that a maintenance item an organization (Tranfield and Denyer is assigned. There are lots of criticisms 2004; Drejer 2004; Lasher 2002). Each on the maintenance personnel, who individual level sub-business within an are rely too much on their technical organization will have its own strategy knowledge and experience and are not by defining the products or service concerned with the organizational goals that it will offer. However, there is and objectives (Chan et al. 2001; Alani mismatch when the links are not known et al. 2002; Amaratunga et al, 2000; Lo and not clearly defined. Thus, some et al. 2000). This has an impact on the of the studies suggest studying these performance of the buildings. Therefore links among them, which is known as Madu (2000) suggests having a better strategic alignment model (Osgood communication channel among all 2004; Madu 2000; Tangen 2003). The levels of an organization. concept of the alignment model is to identify the key strategic elements The development of a conceptual between the organization and its sub- framework follows the studies of the level business. In addition, Osgood strategic management and building (2004) agrees that it is also recognized maintenance. There is a mismatch as an effective tool for collecting, between the strategic and its sub-levels analyzing and communication businesses. Top management challenge information. Okumus (2003) suggests giving priority to maintenance that organizational strategy involves decisions. Moreover, the managerial all levels of management in an influencing at the maintenance organization. operational level is based on technical and personnel experience but without The major criteria in making decisions any links to the organizational level. on building maintenance activities are The diagrammatic representation of building status, physical condition, the conceptual framework developed importance of usage, effect on users, for the study of challenges of strategic effect on fabric, and effect on service maintenance decisions and influences is provision. The major common factors summarized in Fig. 3.

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Fig. 3 The conceptual framework for the study of challenges of strategic maintenance decisions and influences

Challenges of maintenance decisions from top management at strategic level

Priority setting Lack of and maintenance managerial decision-making influences

Factors influencing decisions

THE IMPACT OF FACILITY the studies. In principle, the facility management functions encompass all MANAGEMENT ON THE property related supporting activities. BUILDING MAINTENANCE Operation and maintenance of building is one of the facility management There are various definitions among functions. Three major aspects in studies (Thomson 1990; Avis 1995; the context of facility management Barrett 1995; Nutt 1999, 2004). The are cost, process and quality, which broad scope of facility management also have impacts on the building depends on different organizations maintenance operations. Thus, a model as they may have different facility for building maintenance in the context management strategies. Because of this, of facility management is established it does not have clear definitions among and illustrated in Fig. 4.

Fig. 4 Model for building maintenance (BM) in the context of facility management (FM)

External Business Environment

Business Organization

FM Influenced by the cost, quality BM and quality aspects developed from the facility management

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According to Chotipanich (2004) the With the development of facility two focuses in the facility management management, there are three main are strategic issues and operational impacts on the building maintenance issues. Operational level is related to or building maintenance organization. strategic management of operation and It is believed that outsourcing of maintenance of building and strategic building maintenance activities is to direction of a long-term strategy for maximize maintenance operational better relationship with the building efficiency. There are questions of users. However, there are three major whether there is a cost saving, and a aspects of facility management. Like direct connection to the improvement the maintenance policy and strategy of cost and quality. Like the building the facility management requires maintenance strategy perceived in the integrating different strategies for facility strategic level, facility strategy better facility management operation. governs the building maintenance They are concerned with facility cost, strategy, therefore it requires two operation process and the quality. different levels for management of facility management: strategic and Apart from these three major aspects, operational. There are two purposes it is necessary to understand the in quality, the first is concerned with organizational needs for facility the customers’ satisfaction and the management functions. Therefore, second is to improve the gaps in facility in the context of operational process, management services if necessary. facility objectives are also important. Due to the nature of the broad scope The development of the conceptual of the facility management function, framework follows the studies a contingency approach is required as about facility management and suggested by researchers. As facility building maintenance. The building management concerned process, the link maintenance is the sub-function of between facility management strategic facility management and influenced directions and the organizational core by facility management strategy, cost business is also essential to successful and quality aspects. Furthermore, there facility management operation are links between facility management (Alexander 1994; Krumm et al. approaches and organizational 1996, Then 1999, 2003). Customers core business. Since building play important roles in the facility maintenance is within the scope of management functions and have an facility management, thus facility impact on the strategic and operational management has an impact on the level of facility management. With building maintenance operation with the nature of the context of building respect to facility management strategy, maintenance, a lot of criteria of building cost and quality. The diagrammatic elements impact on the facility users representation of the conceptual such as environmental factors including framework developed for the study of air quality, ventilation, building defects, the impact on facility management is cleanliness of the physical environment. shown in Fig. 5. Studying the financial impact is also important in building maintenance (Pitts and Hicks 2001; Chotipanich 2004).

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Fig. 5 Conceptual framework developed for the study of the impact on building maintenance in the context of facility management

Facility management influences building maintenance focusing on

Cost such as FM strategy Quality of outsourcing, such as short maintenance facility term, long term standard, users’ maintenance issues, process satisfaction

BUILDING PERFORMANCE time changes, the studies for the key performance indicators in the context AND BUILDING of facility management are changing as MAINTENANCE well and are based on both financial and non-financial performances. There is no argument that customer satisfaction is important in the building Loosemore and Hsin (2001) use management processes. However, the approaches based on physical, concerns about care of the building functional and financial aspects in users are inadequate. It requires measuring building performance. managerial inputs including the support Shohet (2003) uses the similar of the top management as it involves framework developed from the strategic and operational processes Mcdougall and Hinks (2000) to (Tangen 2003; Coetzee 1999). establish quantitative indices for According to Wood (2003a) there is the evaluation of the efficiency of a link between a building facility and building maintenance in a building, the needs of the end users. In addition, in which the study concentrated on there is an association of maintenance three major components of building strategy with the requirements of the performance, physical - building building performance. performance, functional - functional conditions, financial - maintenance Then (1996) identifies two factors efficiency. However, the link of the influencing the maintenance standard, overall organizational effectiveness users of buildings and users’ perception to performance measurement is of the internal environment of the space outstanding. occupied. Some of the researchers (Horner et al. 1997; Wood 1999 and Cooke (1996) focuses on four Madu 2000) conceptualize the important main perspectives for performance dimensions between maintenance measurement. They are internal, approaches and the users’ satisfaction. competitive, non-competitive and best There are fewer studies investigating practice. Amaratunga et al. (2000) SBE the relationships between the quality conceptualize a similar framework 90 and the building maintenance. As based on financial, customers, internal Surveying and Built Environment Vol 19(1), 81-101 December 2008 ISSN 1816-9554 processes and innovation. They management and building maintenance. are focusing on the comprehensive Most of the studies adopt performance approaches as they use approaches of management as based on physical, innovation and best practice concerning functional and financial aspects. This the organizational and operational study focuses on the improvements of improvement. Thus, the integration the gaps between top management at of Cooke (1996) on internal and best the organizational, and maintenance practices and Amaratunga et al. (2000) personnel at the operational level. on the internal process and innovation Thus it follows the four perspectives are of a similar nature. They are developed from the previous studies categorized as essential components and in particular focusing on the for the study of improvement for the internal process improvement. The building operation processes from the diagrammatic conceptual framework building performance aspect. developed for the study of improvement of internal operational processes in The conceptual framework is developed building maintenance is shown in Fig. 6. from the studies about performance

Fig. 6 Conceptual framework developed for the study of improvement of internal operational processes in building maintenance

Building

performance based on

Physical aspect Functional Financial aspect aspect

Improvements of internal operational processes in building maintenance from innovation and best practice

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OVERALL CONCEPTUAL the top management in maintenance strategy, maintenance standard and FRAMEWORK resources indicate that there is a mismatch between them. Most of the The overview of a conceptual previous studies suggest investigating framework focuses on the integration of this connection. The development of the following:- facility management influences building • The four main aspects in building maintenance in terms of facility maintenance management strategy, cost and quality • The arguments of the three main aspects. The building maintenance components of maintenance policy operational processes are also essential • Challenges of strategic maintenance considerations in facility maintenance decisions and influences services. Furthermore, understanding building performance is important to • Impact of facility management on the facility, which has a direct impact building maintenance on the customers and directly impact • Building maintenance and building on the organization. The differences performance of performance management between It is concluded that the maintenance organizational performance strategy and objectives are important to the the improvement areas recommended maintenance organizations and the by the maintenance personnel can be maintenance management is essentially integrated for better improvement of connected with the strategic level and building performance. Thus, the overall different sub-businesses levels within conceptual framework developed from an organization. The challenges from this summary is shown in Fig. 7.

Fig. 7 Overall conceptual framework developed for the study of building maintenance operation processes

Arguments on Impacts on building

maintenance maintenance in the context of policy facility management

Impacts on the building maintenance operation processes

Challenges of Improvement of internal maintenance operational processes in decisions building maintenance SBE 92

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DISCUSSIONS of improvement of the strategic process and the operational process. There is The four main aspects; maintenance also a lack of information about the policy and strategy, strategic relationships between performance management, facility management indicators and the business objectives. and performance management in the It does not help to improve operational context of building maintenance have processes for further improvement. connections with each other. Previous studies identify that there is a gap DEVELOPMENT OF between the organizational strategy and its sub-level strategy, which is a BUILDING MAINTENANCE barrier to improvement for maximizing OBJECTIVES organizational efficiency. There are suggestions to study the maintenance The maintenance objectives should strategy and its relationship with be considered in connection with the the top management at the strategic organizational objectives. However, level. Moreover, previous studies there is a limited number of studies on summarize that there is mismatch how building maintenance objectives between the strategic and operational match with the organizational levels. Maintenance organization at the objectives in the organizational operational level is also finding ways strategic level. In addition, types and to improve it. However, maintenance characteristics of different managerial personnel are criticized as being too inputs from the operational level are reliant on their technical experience and not known. There may be difficulties in behaviour and for not connecting with agreeing on the maintenance objectives the business objectives. and this has an impact on the efficiency and effectiveness of the organization. There are different facility strategies On the financial issues, most of the adopted by different organizations in previous studies argue about the budget terms of building maintenance in the for maintenance activities, identified context of facility management. Most as always being insufficient and they of them are concerned with the cost suggest shifting the focus to the study only, but there is a lack of concern for of organizational needs (Tse 2002; Lo quality and processes. Outsourcing et al. 2000; Lam 2000; Shen and Lo activities have not been properly 1999, Pitt 1997). managed. There is a gap between the organizational and facility management Previous studies seldom investigate strategy. As building maintenance the reasons for the allocation of is the sub-function of facility maintenance resources. Maintenance management, building maintenance is management decisions depend on also concerned with cost, quality and strategic directions as well as available process. Performance management is resources. However, such information important to the building management is missing. Prior to studying the organization. However, previous studies relationship between the two levels, an summarize that there is a lack of studies investigation of how the maintenance of the building users and the care for personnel justify their maintenance human factors. The main concern of objectives is suggested. Moreover, there the building performance is to improve is lack of study about how planned the supporting services by integration preventive maintenance is connected SBE 93 Development of a Conceptual Framework for the Study of Building Maintenance Operation Processes in the Context of Facility Management Surveying and Built Environment Vol 19(1), 81-101 December 2008 ISSN 1816-9554

with organizational objectives. It is Denyer 2004; Drejer 2004; Lasher helpful to understand how maintenance 2002). They argue that the mismatch objectives are related to maintenance between the two levels is increasing strategy, which may have influences when the basis of the links and the on the facility management operation maintenance objectives are not known processes. There is a gap in the previous or not clearly defined. Most of the studies about the extent to which organizations have not clearly defined facilities support core business and the their maintenance objectives and reason why. some organizations are even without maintenance objectives. In summary, Maintenance objective is one of the arguments among maintenance strategy, organizational sub-business objectives standard and resources are due to and is governed by the organization the lack of justification of building strategy. The planning of maintenance maintenance objectives. This does objectives have an impact on the not help to minimize and improve the facility management operation in gaps between the two different levels terms of maintenance strategy, which and thus this does not help to establish influence the cost, quality and process rational maintenance standards and the directly and indirectly. On the contrary, maintenance resource allocation. there is a question of whether the top management is concerned with the maintenance strategy. Maintenance MAINTENANCE STRATEGY objectives are the fundamental element CHALLENGED BY THE TOP to explain the scope, the purposes MANAGEMENT and the aims of the maintenance activities and the relationships with the organizational objectives. However, Previous studies identify that there maintenance personnel are criticized are different approaches in adopting for narrowly focusing on the technical a maintenance strategy (Wood 1999, issues and not being concerned with 2003a; Horner et al. 1997; Spedding the organizational goals and objectives 1987; Loosemore and Hsin 2001). (Chan et al. 2001; Alani et al. 2002; Like the maintenance standard and Amaratunga et al. 2000; Lo et al. 2000). maintenance resources, maintenance The links between building maintenance strategies are different among different operation and organization are types of organizations. However, important for achieving organizational most of the previous studies have not goals effectiveness. addressed the identification of the types and the factors influencing the choice Investigations about how the of strategic maintenance decisions at maintenance objectives are established the operation level. It is particularly and the relationships between building important to understand more about the maintenance and the business objectives two levels of strategy. The investigation are limited. It is also important to know of the types of maintenance strategy how the relationships between the adopted by the maintenance personnel strategic level and the operational level at the operational level and the reasons are built up. Therefore some researchers for choosing them are not known. study the alignment map between these This would contribute in-depth two levels in order to have a better knowledge on why the maintenance planning of maintenance activities and strategy is adopted. Apart from planned SBE preventive maintenance, which types of 94 resources allocation (Tranfield and Surveying and Built Environment Vol 19(1), 81-101 December 2008 ISSN 1816-9554 maintenance strategy currently received 1987; Loosemore and Hsin 2001). more challenges on its efficiency and Some of them argue that there is no effectiveness are not known. information on how the maintenance personnel at the operational level There is no further information to make decisions on formulating tell if other maintenance strategies maintenance strategy in terms of receives similar challenges as planned planned maintenance, corrective preventive maintenance from the top maintenance and condition-based management. Are they based on cost, maintenance. In addition, there are quality and process? The investigation suggestions for studying the different provides better understanding on why approaches that affect the strategic the top management challenge on level at the top management for certain types of maintenance strategy maximizing its maintenance efficiency. and the reasons behind. It helps to The more understanding there is about identify ways to improve the gaps the challenges of the maintenance between them. In addition, there strategy, the more it helps to minimize is no further investigation of how the gaps between top management and maintenance objectives are related to maintenance personnel. maintenance strategy. It is considered necessary to show how important the maintenance strategy is related to IMPACTS ON THE the maintenance objectives. It helps BUILDING MAINTENANCE to improve the effectiveness of the OPERATION PROCESSES organizational business. It would also reduce the gaps between them. The IN THE CONTEXT OF study on how maintenance planning is FACILITY MANAGEMENT linked to the measuring process is also needed. Barriers exist between strategic and operational levels (Pitt and Hinks A recent study considers the 2001). However, the study of how these relationships between maintenance barriers can be improved, which are strategy and maintenance performance obstacles in achieving organizational (Wood, 2003b). There are studies goals and objectives efficiently and focusing on the major common factors effectively, is limited. The internal influencing setting priorities for planned factors influencing facility management maintenance (Shen 1997; Shen and operation processes have direct Lo 1999; Pitt 1997; Alani et al. 2002). impact on the building maintenance However, maintenance personnel operation processes, but there has are criticized for being too reliant on been no further investigation of how their technical experience, and some these factors influence the building of them are focusing on the major maintenance process in the context of criteria influencing priority setting by facility management. The methods for using an analytic hierarchy process in improving the operational processes are quantitative analysis. important but have not been addressed in the previous studies. In addition, There is a strong argument, in particular there is no information to explain how from the senior management, that there the effectiveness of the maintenance are challenges to the effectiveness of organization is measured in carrying planned maintenance (Wood 1999, out the maintenance activities. SBE 2003a; Horner et al., 1997; Spedding 95 Development of a Conceptual Framework for the Study of Building Maintenance Operation Processes in the Context of Facility Management Surveying and Built Environment Vol 19(1), 81-101 December 2008 ISSN 1816-9554

Better management of the facility to the building maintenance in the processes including building context of facility management. It is maintenance help to improve the sensitive particularly to the types of operational processes. Furthermore, hospitality buildings. There are lacks there is a general perception that cost of information on what the impacts saving for outsourcing activities in on building maintenance are in the the facility management context is the context of facility management in priority. Previous studies demonstrated terms of the three major aspects. Cost that there are unsuccessful cases (Brown is related to the facility operation and 2002; Copeland 2001; Crocker 1999; maintenance cost. Process considers James 2000; Van der Werf, 2000). with the long term strategy. However, Facility management influences not facility management also concerns with only cost but also the processes and short term and daily issues and require quality. There is no such information contingency approaches. about how the building maintenance is affected in terms of quality and processes. As there are different ways IMPROVEMENT OF of influencing among three major BUILDING MAINTENANCE aspects on building maintenance, OPERATION PROCESSES therefore understanding about the ways influencing among the three major aspects on building maintenance is One of the deficiency areas in the important to the operational level for building maintenance operation is providing facility management services. inadequate communication between the two different levels, organizational Building maintenance is under the and operational level. Maintenance strategic management of facility personnel are too reliant on their field of management and has impacts on the experience in particular on the technical development from facility management issue. There is no further investigation strategy. Most of the previous studies to address the problems of building indicate some organizations are maintenance operation processes in focusing on cost saving only and do not connection with the management of concern about quality and processes, different levels of strategies. This will which does not help to the improvement provide richer information on how the of facility management services process is improved at the operational (Amaratunga et al., 2000). Quality level. The more understanding of concerns with building users while the two levels strategies, the more processes are related to the different opportunities there are to reduce the two approaches to manage different levels barriers at the strategic and operational of strategy for implementation the level for accomplishing common goals. facility operation. Majority of previous There is also the question of how studies investigate the methods for cost maintenance planning links with the saving including outsourcing activities measuring process such as management (Pitts and Hinks, 2001; Chotipanich, of measuring approaches (Tangen, 2004). 2003; Coetzee, 1999).

However, there are limited studies There is little understanding from to address the management of previous studies about the types of quality and the operation process. factors and criteria influencing the SBE relationships between strategic and 96 Process improvement is important Surveying and Built Environment Vol 19(1), 81-101 December 2008 ISSN 1816-9554 operational issues as well as the to the building maintenance operation. reasons behind them. Understanding Otherwise, it does not help the internal factors influencing the facility organizational effectiveness. management operation process helps improvement when an item in the There is a link between performance building maintenance operation is and buildings users (Wood 2003a). identified. Knowing more about facility There are various developments for management processes helps to improve establishing the key performance the operation process. However, indicators in the building maintenance. there is no such information available The measuring of the efficiency about the ways to manage the facility of the building in the performance management function better. There management is to justify if the building has been no investigation to address user is satisfied, the results may show the ways of the management of the areas for improvement. However, processes if improvement opportunity the fundamental elements are to is identified. The improvement strategy improve the strategic process and the may come from top management at operational process. Moreover, there strategic level. The study of influencing may be variations, conflicts from the characteristics by the three aspects of organizational level’s internal processes facility management function (cost, and maintenance personnel during the quality and process) is not known. improvement processes. It is essential to These are related to physical, functional integrate these for better improvement. and financial, which is important for However, there is no information about minimizing the misunderstanding how the appropriate processes and between the two levels (Loosemore and procedures are formulated. Hsin, 2001).

In the context of facility management, CONCLUSION AND maintenance activities are no longer RECOMMENDATION stand-alone activities. Facility management and building maintenance The previous work related to building are required strategic directions with maintenance and its deficiencies consideration of not only of cost between the operational and effectiveness, but also concern with organizational levels are summarized. quality of building performance. These include challenges of However, there is the question of maintenance decisions and its influences the management of operational due to lack of justification on building processes, which requires more input maintenance objectives. In the main from the maintenance personnel at aspects in the building maintenance the operational level. The process operation, there are challenges involves strategic planning of from the top management on the maintenance strategy, implementation, maintenance efficiency and allocation supervision, monitoring, measurement of maintenance resources. With the and reporting. Therefore most of the development of facility management, previous studies were concerned with it has more expectations from the the performance management, which is organization and the customers. The important to the building maintenance challenges of maintenance strategy are operation. It identifies where the influenced by the three major aspects processes need to be improved. The of facility management as well as SBE result of the measurement is important 97 Development of a Conceptual Framework for the Study of Building Maintenance Operation Processes in the Context of Facility Management Surveying and Built Environment Vol 19(1), 81-101 December 2008 ISSN 1816-9554

the impact on building maintenance • How do maintenance people at operation processes. The performance the operational level develop the management helps to improve building maintenance objectives? operational processes. Based on the • Which types of maintenance development of a conceptual framework and the subsequent discussions, the strategy are more challenged by the following are the recommended top management and why? objectives for further studies: • What is the impact of the building maintenance (BM) operation • Define and identify problems in process in the context of facility the building maintenance operation management (FM)? processes • How to improve the operational • Understand how the maintenance process if the performance personnel plan / justify building measurement identified that there is maintenance objectives an opportunity for improvement? • Identify the categories of challenges of maintenance strategy • Identify the categories of the REFERENCES impact on building maintenance operation processes due to facility Alani AM, Tattersall RP and Okoroh MI (2002), Quantitative Models for management Building Repairs and Maintenance: A • Improvement of maintenance Comparative Case-Study, Facilities, operation processes from building 20:5/6, 176-189. performance management • Develop ways for improvement Alexander K (1994), Developing of gaps between top management Facilities for Competitive Advantage, at strategic level and maintenance Facilities Management, C F M , University of Strathclyde, Glasgow. personnel at operational level Amarantunga D and Baldry D As discussed earlier, there are gaps (2002), Moving from Performance between the top management at Measurement to Performance the strategic level and maintenance Management, Facilities, 20:5/6, 217- personnel at the operational level 223. in managing building maintenance operation processes. The maintenance Amarantunga D, Baldry D and Sarshar operation processes are also influenced M (2000), Assessment for Facilities by the aspects of facility management. Management - What next? Facilities, The recommended research objectives 18:1/2, 66-75. could specifically study these areas to identify the types and characteristics of Avis M (1995), Property Asset the gaps between the top management Management for Corporate and the maintenance personnel. The Performance, in Alexander K (Ed.), findings could be grouped, categorized Facilities Management, C F M and summarized as follows for closing University of Strathclyde, Glasgow, the gaps so as to improve the building 3-90. SBE maintenance operation efficiency. 98 Barrett P (1995), F a c i l i t i e s Surveying and Built Environment Vol 19(1), 81-101 December 2008 ISSN 1816-9554

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