OZP Distribution by Demolition Probability(Potential Demolition Heatmap)

Notes: Each zone represents an Outline Zoning Plan (OZP) Area in Hong Kong, and the shade of colour indicates the demolition probability, predicted through the probit model.

(a)Spatial Distribution of FAR Regulation on Residential Buildings

(b)Spatial Distribution of Residential Building By Age

（c）Spatial Distribution of Residential Building By Floor

Notes: Each dot represents the coordinates of residential buildings: In (a), red dots mark the coordinates of the 670 traced demolition sites from the Building Department and Urban Renewal Authority. In (b), the shade of colour indicates the prescribed FAR, ranging from FAR less than or equal to 1 to greater than 6, the information is extracted from the Town Planning Board’s Outline Zoning Plan; In (c), the shade of colour indicates the building age, ranging from age less than or equal to 18 to greater than 55, the information is extracted from the EPRC; In (d), the shade of colour indicates the building floor, ranging from floor less than or equal to 8 to greater than 46, the information is extracted from the EPRC. Green areas represent green spaces, such as parks, grass, forests, shrubs, heaths and orchards. Blue areas represent water.

Potential areas for Scheme #1 On-site density relaxations: Bonus potential

For the assessment of potential areas for Scheme #1, this study initially utilized property transaction data and FAR regulation information provided by the EPRC and Town Planning Board to obtain the building height and prescribed FAR limit for residential buildings in Hong Kong. Subsequently, these two variables were categorized into High, Medium and Low levels, separately.

Furthermore, residential buildings corresponding to building height and FAR regulations with different levels were identified. The residential buildings with Low Height and High FAR regulations offer developers greater bonus potential, due to their current low floor levels and the potential for greater FAR increases through redevelopment. Therefore, developers are more likely to pursue on-site redevelopment to obtain additional density relaxation in these types of residential buildings.

Consequently, if an OZP area contains a significant number of such residential buildings, it is defined as more suitable for implementing Scheme #1. Conversely, areas where most buildings are taller and have lower existing FAR regulations are unlikely to have bonus potential for implementing Scheme #1. The bonus potential in Hong Kong according to OZP distribution is illustrated in Figure 1.

 Potential areas for Scheme #2 Land-use variance: Distribution of residential-commercial spread

For the assessment of potential areas for Scheme #2, this study first utilized property transaction data provided by the EPRC and RCA to obtain information on transaction prices, transaction time, structural and locational characteristics for both commercial and residential buildings.

Subsequently, hedonic models were employed to analyze the transaction data for commercial and residential properties between 2008 and 2020, aiming to derive the annual return for each year. Then, the average annual return for each OZP area over the past decade was calculated separately for the commercial and residential markets. Finally, the residential annual return was subtracted from the commercial annual return to obtain the commercial premium, representing the level of the Residential-Commercial Spread.

Consequently, if the commercial premium within an OZP area is high, it indicates that developers would benefit more from redeveloping residential buildings into mixed-use buildings. Therefore, these areas are more suitable for implementing Scheme #2. The results are depicted in Figure 2.

Potential areas for Scheme #3 Density transfer to unused exclave: Distribution of developer experience

For the assessment of potential areas for Scheme #3, this study utilized developer information obtained from Midland Realty for residential buildings.

Specifically, the study first combined the High Residential Density zones defined by the Planning Department with the OZP map to identify high-density areas. Subsequently, statistics were compiled for developers of residential properties within each high-density OZP area, determining the dominant developer in each region. Similarly, this operation was carried out for low-density areas. Here, it was assumed that the government would be reluctant to further increase urban density in high-density areas, so these areas would serve as sending sites of transfer development rights (TDR), while low-density areas would serve as receiving sites. Combining the analysis with developer data, the study identified the five main developers in Hong Kong, including CHEUNG KONG, HENDERSON, KERRY, NEW WORLD, and SUN HUNG KAI, along with their development areas. Furthermore, the land bank availability and development experience of these developers in low-density areas can be inferred, which enabled the study to establish pairings between the sending sites in high-density areas and receiving sites in low-density areas for the same developer utilizing Scheme #3, as depicted in Figure 3.

In regions suitable for Scheme #3, sending sites are OZP areas located within high-density regions but do not belong to the OZP areas mentioned earlier for Schemes #1 and #2. Receiving sites are determined based on the corresponding regions within low-density areas where developers in the sending sites operate.

  Potential areas for Scheme #4 Transacting the unused density at the market rate: Distribution of residential market return

For the assessment of potential areas for Scheme #4, the analysis process is similar to Scheme #3, and the sending sites are also the same as in Scheme #3. However, the difference lies in the receiving sites.

The study estimated the annual return of residential property transactions from 2008 to 2020 using a hedonic model. The average annual market return was calculated for each OZP area, resulting in the distribution of market annual returns for each OZP in Hong Kong, as depicted in Figure 6.

In low-density regions, OZP areas with low annual market returns are more suitable for serving as receiving sites for Scheme #4. Alternatively, OZP areas in low-density regions that do not have pairings with developers from the sending sites may also be considered as receiving sites for Scheme #4. In such cases, developers may lack land bank or experience in developing in these areas, or they may not expect adequate returns. Consequently, they may choose to sell the receiving sites in these areas to others. Therefore, these areas are more suitable for implementing Scheme #4.

 Potential areas for Scheme #5 Density reservation for future usage: Distribution of residential market uncertainty

For the assessment of potential areas for Scheme #5, the analysis process is also similar to Scheme #3, and the sending sites are identical to those in Scheme #3. However, in Scheme#5, this study computed the standard deviation of annual market returns as a measure of market uncertainty. This calculation was based on the hedonic model estimation using residential properties transaction data from the EPRC, as mentioned in Scheme #3. The results of market uncertainty are depicted in Figure 5.

Since the receiving sites in Scheme #5 are intended for future usage by developers, this study selected OZP areas with higher market uncertainty as the receiving sites for Scheme #5, building upon the receiving sites identified in Scheme #3. Higher market uncertainty implies that the future value of the receiving site may be higher. Therefore, these areas are deemed more suitable for Scheme #5 as they are expected to be more conducive to future development.