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HKU Department of Real Estate and Construction releases research findings on Acquisition and use of land for bus depots by two franchised bus companies and related government policies

03 Jan 2014

Professor Lawrence Lai and Dr. Daniel Ho with the Ronald Coase Centre for Property Rights Research at the Department of Real Estate and Construction, the University of Hong Kong (HKU) have completed their research funded by a Public Policy Research Grant (No. HKU 7007-PRR-11) entitled “Land Administration Practices and the Redevelopment of Franchised Bus Depots: an Implicit Consideration Analysis of the Terms of Bus Franchises and Land Leases”.

With a focus on the two franchised bus companies China Motor Bus (CMS) and Kowloon Motor Bus (KMB), the study involved both archival research on history of public bus development since 1946; public data kept by the Public Records Office, Land Registry, and Town Planning Board as well as professional valuation and planning analysis.

The findings address three basic questions of public interest:

(1) Has government ever allocated land for bus depot use below market value?
(2) Were the modification premia for redevelopment of bus depot sites reasonable?
(3) What is the general comment on policies towards allocation of land and change in use of land for bus depots?

A first key finding is that all bus depots except two were obtained from government in public auction or second hand in the land market. The conditions of sale are for industrial and not restricted to garage use, therefore do not restrict competition. The two sites granted were also purchased at market prices.

The second important finding is that the lease modification premia for three redeveloped depots were at market prices.

An issue that falls outside the scope of the study but of public interest is the combination of the old system of land purchase in the open market with the new system of private treaty grant and short term tenancy agreements.

Detailed findings:

From the franchise conditions for public buses from 1946 to 1972, the research team found that the government did not guarantee bus companies any actual or direct assistance. To the contrary, a franchised bus company had to fulfill a set of conditions including keeping the company listed in the stock exchange; providing adequate facilities for keeping the bus fleet in good operational order; using buses of good standards; and paying royalties.

Indirect assistance has been provided in the form of well-located and well-planned bus terminals which are used exclusively by public buses at no cost.

From 1945 to 1976, bus fare had been restricted and kept almost constant. The major upward adjustment in 1976 was met with protests organized by students in higher education. The “regularization” of minibuses infringed on the franchise conditions and the government normalized this by abandoning the geographical franchise by a line franchise concept.

Other than the abnormal years of 1967 and 1968, the two franchised bus companies KMB and CMB made profits; witnessed growth in ridership (till 1985 for CMB). From 1946 to 1979, the public bus and ferry companies in Hong Kong were rare examples of successful private transport enterprises in the world. One key factor for the success of the two bus companies is the provision of bus depots, which allow a degree of overnight parking and are essential for assembling bus parts; maintenance and repair of buses.

An interesting question is: were land parcels for bus depots obtained at a subsidy?

From land transaction documents kept in the Public Records Office and Land Registry, the study confirmed that all CMB depots were purchased in government auctions. As regards KMB, the same happened to most depots. Other depots were actually purchased second hand from other private owners. Only two KMB depots were granted directly from government.

For the depots obtained in auctions, half were obtained at a price above the upset prices, implying strong and open competition.

The study examined if the conditions of sale artificially lowered land prices by being too restrictive and found that other than the first CMB depot at North Point, no such restriction was present. That CMB depot was sold immediately after the war in a remote area and hence was not considered abnormal.

As regards the direct grant depot, a valuation exercise was conducted and the premia were found to be reasonable.

A careful valuation exercise for the depots which have been redeveloped for non-depot uses found that the premia reflected market values at the time. (Report P. 29 to 36)

Now, all bus depots were allocated on the basis of Short Term Tenancies and the rent should be market levels reviewed on a regular basis.