LegCo Paper No. CB(1) 399/96-97
(These minutes have been seen
by the Administration)
Ref : CB1/PL/HG/1

LegCo Panel on Housing

Minutes of Meeting held on Monday, 4 November 1996 at 10:45 am in the Chamber of the Legislative Council Building

Members present :

Members absent :

Public officers attending :

Agenda item III
Housing Branch
Mr William SHIU Wai-chuen: Principal Assistant Secretary for Housing
Rating & Valuation Department
Mr WONG Chun-shiu: Deputy Commissioner
Mr POON Sze-ngok: Principal Valuer (Rent Control)
Agenda items IV & V
Housing Branch
Miss Sandy CHAN: Principle Assistant Secretary for Housing
Hong Kong Housing Society
Mr Victor SO: Executive Director
Mr S H NG: Director (Projects)
Ms L C WONG: Director (Estate Management)

Clerk in attendance :

Mrs Vivian KAM: Chief Assistant Secretary (1)2

Staff in attendance :

Miss Becky YU: Senior Assistant Secretary (1)3

I Confirmation of minutes of previous meetings

Matters arising

II Date and items for discussion at next meeting

III Rent control in private residential housing

IV Quality of flats in Tivoli Gardens at Tsing Yi

V Re-mortgage of Sandwich Class Housing Flats

VI Any other business

I Confirmation of minutes of previous meetings

(LegCo Papers No. CB(1) 179 and 185/96-97)

The minutes of the meetings held on 12 July and 5 October 1996 were confirmed.

Matters arising

2. The Chairman reported that at its meeting on 29 October 1996, the Subcommittee on Long Term Housing Strategy Review considered the two reports on "Study of Housing Demand Model" and "Study on Housing Demand" prepared by the Legislative Council Research and Library Services Division. The next meeting of the Subcommittee would be held on 26 November 1996 to seek elaboration from the Administration on the data provided in relation to the research reports and to address members concern on the lead-time taken for construction of flats for both private and public housing. Non-Subcommittee members of the Panel and members of the Panel on Planning, Lands and Works would be invited to join in the discussion.

3. The Chairman also informed the meeting that Hon Andrew CHENG Kar-foo had withdrawn from the Panel with effect from 29 October 1996.

II Date and items for discussion at next meeting

4. The next meeting would be held on Monday, 2 December 1996, at 10:45 am to discuss the following items:

- Consultation paper on the sales description of overseas uncompleted residential properties; and

- Clearance of squatters on mixed lots.

(Post-meeting note: The subject of "Strengthening of senior directorate structure of Housing Department" was subsequently included for discussion at the next meeting.)

5. In connection with the first agenda item for the next meeting and at the Chairmans request, Mr William SHIU agreed to convey the Panels request for the Law Reform Commission to take into account members views on the subject at the meeting on 2 December 1996 before finalizing its recommendations for the consultation paper on "Sales description of overseas uncompleted residential properties".

III Rent control in private residential housing

(LegCo Paper No. CB(1) 224/96-97)

6. The Chairman expressed dissatisfaction at the late provision of the Chinese version of the information paper for this agenda item, and re-iterated the request for the Administration to make available bilingual information papers at least five working days in advance of meetings. In response, Mr William SHIU explained that complex data was required for preparation of the information paper and the delay was on account of the time required to collate and check such data.

7. At the invitation of the Chairman, Messrs William SHIU and WONG Chun-shiu briefed members on salient points in the information paper. Mr SHIU highlighted the fact that LegCo passed a resolution in 1993 to allow for the decontrol of rents by phases. The Administration held the view that rents of private housing should not be a welfare item and should be determined by a free market in order that owners interests would not be adversely affected. Rent control was only a short-term measure to protect tenants against exorbitant rent increases and this should be removed when circumstances permitted. To tie in with the scheduled decontrol of rents by the end of 1996, the Rating and Valuation Department had conducted surveys in 1994 and 1996 on Part I and Part II Controlled Premises. According to the statistics on median rent-to-income ratios (RIRs) provided by the Census and Statistics Department and the survey results, the rent decontrol process under Parts I and II of the amended Landlord and Tenant (Consolidation) Ordinance had been working satisfactorily. Under such circumstances, the Administration considered that the rent control should be lifted on 31 December 1996 as stipulated in the legislation. Mr SHIU offered to provide copies of the survey results to members for their reference. Mr WONG added that as at April 1996, there were some 19,500 controlled premises and these constituted only about 2% of the total number of private domestic premises in Hong Kong. He elaborated on the survey findings as set out in paragraph 6 of the information paper.

8. In referring to Annex C-3 of the information paper, members noted with great concern that over 18,000 households living in controlled flats had to pay on average 30% of their income on rent, in particular principal tenants whose RIR was over 55%. They were worried that the situation would be aggravated in the event of rent decontrol. Some members made reference to the existing policy whereby sitting tenants in public housing units whose RIR exceeded 20% could apply for rental assistance, and asked if the Administration would consider providing similar assistance either to tenants in controlled premises facing financial difficulties and who at the same time were applicants on the General Waiting List (WL) or landlords who had been suffering as a result of rent control. Hon Mrs Selina CHOW expressed reservations at such a proposal; she considered that tenants who were WL applicants should be accorded priority in the allocation of public housing units rather than rental assistance. Dr Hon YEUNG Sum cautioned that it would be unfair to other WL applicants if priority were accorded to these protected tenants. He remained of the view that rental assistance would be a more feasible alternative.

9. In response, Mr SHIU emphasized that if the rental market was considered a part of the overall market system, rental increases should be market-driven. Rent control would distort the market, and artificially low levels of rent at the expense of landlords would deprive them of a reasonable return. He pointed out that it was inappropriate to retain rent control which was not only unfair to landlords but also indiscriminate by nature i.e. it applied to all protected tenants irrespective of their income level. Families facing genuine financial hardship should be taken care of under the Comprehensive Social Security Assistance (CSSA) Scheme under which rental allowance would be made available. To facilitate a better understanding of the actual situation, members requested and the Administration agreed to provide as far as information was available: the full report of the survey conducted in April 1996 on tenancies protected under Parts I and II of the Landlord and Tenant (Consolidation) Ordinance; an analysis on the percentage distribution of households by type of accommodation and RIR for Part IV tenancies, as in Annex C-3; a projection on the number of households in controlled premises whose RIR would exceed 20% in the event of rent decontrol. In reply to a related question on the number of tenants in controlled premises who were WL applicants and the period they had been on the Waiting List, Mr WONG advised that 4,500 out of the 19,000 households living in controlled premises were WL applicants. Of the remaining tenants, some were not eligible for public housing as their monthly incomes exceeded the income limit while others preferred not to apply. Mr WONG undertook to check if the breakdown was available but cautioned that the Rating and Valuation Department (RVD) might not keep such information as the period on which these 4,500 tenants had been on the Waiting List.

10. Some members insisted that the Administration should re-consider the need for rental assistance for households with genuine financial difficulties after rent decontrol as not all tenants would be eligible for CSSA. Mr SHIU said in reply that the average rent increases for controlled premises under Parts I and II of the Ordinance had been projected on the basis of a 10% annual increase in market rent which was already higher than the average annual increases of 7.5% and 5% of market rent over the past five and three years respectively. The additional sums of monthly rent payable after decontrol would range from $15 to $573 and the impact of such increases in rent was considered to be manageable and would unlikely create severe hardship for tenants concerned. He re-iterated that CSSA already served as one form of assistance to the needy. There was also a compassionate re-housing scheme whereby the Social Welfare Department made referrals to the Housing Department for public housing. Priority would also be accorded to elderly people under various elderly priority housing schemes. Households with elderly family members would also be offered a reduction of three years in waiting time. At members request, the Administration undertook to provide information on the rate of rent increases for controlled premises over the past five and three years respectively.

11. While members were well aware of the channels through which eligible tenants could seek assistance, they remained concerned about the impact of rent decontrol on those who were not eligible for such assistance. Some members considered that since the schedule for rent decontrol was drawn up in the year 1993, there was a need for reviewing the schedule taking into account changing economic and social situations to ascertain its applicability. Dr Hon YEUNG Sum argued that if the Administration were to uphold the free market policy, rent control should not have been introduced in the first place. A deterioration in the economic situation of high rent and low income had now called for a review of the decontrol schedule. He acknowledged that this might be unfair to owners but pointed out that this was a macro problem warranting special consideration. Hon CHAN Kam-lam on the other hand suggested that rent control should only be allowed to lapse if the supply of public housing improved.

12. In reply, Mr SHIU highlighted the fact that the Administration had already made a performance pledge for increasing the supply of public rental housing and reducing waiting time. He also emphasized that not all tenants in controlled premises would be eligible for public housing under the prevailing income limit. He reminded members that when the subject of rent decontrol was discussed in 1993, it was agreed that rents of controlled premises should be increased gradually by steps to the market levels. Taking into account the progress of the decontrol process, the Administration remained of the view that there was no need to alter the pace of rent decontrol and that rent controls under Parts I and II should be allowed to lapse as scheduled. Otherwise, the interests of owners would be unduly affected. Furthermore, rent control, which was an economic means, could not be used to achieve a welfare purpose. Members were disappointed at the Administrations response and Hon James TO Kun-sun advised that he might move a resolution to disallow rent control to lapse on 31 December 1996 in order to protect the interests of the needy.

13. As for the relatively high RIR for principal tenants outlined in Annex C-3, Mr WONG advised that this had yet to be ascertained as tenants concerned might not have stated the rental from their sub-tenants. He also pointed out that even including RIR for principal tenants, the overall average of RIR for protected tenants under Part II of the Ordinance was 27.7% which was lower than those for unprotected tenants under Part IV who had to pay on average 30% of their income on rent. Members considered that RIR might not reflect the actual situation as tenants might be forced to take up smaller accommodation in the event of rent increases. To facilitate better understanding, members considered it useful to have information on the changes in flat sizes of tenants for the period between 1994 to 1996. Mr POON Sze-ngok advised that according to available information, the average flat sizes of controlled tenements under Part II of the Ordinance were 54.4, 53.7 and 53.8 square metres in 1996, 1994 and 1992 respectively. RVD did not keep such information as changes in flat sizes or the number of tenants under Part II who had moved to uncontrolled premises under Part IV of the Ordinance.

14. Members were worried that the sales value of controlled premises would rise upon rent decontrol and landlords might ask for higher compensation in connection with urban renewal projects. They asked if measures were available for tackling the impact of rent decontrol on the pace of urban renewal programme. In response, Mr WONG advised that a substantial rise in the sales values of these premises was not envisaged as tenants concerned would be accorded security of tenure under Part IV of the Ordinance after rent decontrol. He added that the effect of decontrol on compensation for renewal projects would be minimal as the amount of compensation was determined in accordance with the prevailing rateable value of properties concerned. At members request, the Administration undertook to provide a comparison between the Consumer Price Index and housing-related expenses over the past few years.

15. Hon James TO Kun-sun proposed the following motion:

"that the LegCo Panel on Housing disagreed with the Administrations plan to allow rent control to lapse on 31 December 1996 as scheduled".

While Dr Hon YEUNG Sum moved an amendment to the motion as follows:

"that the LegCo Panel on Housing considered it inappropriate for the Administration to allow rent control to lapse on account of the lack of measures for tackling the impact of rent decontrol".

Mr TO subsequently reworded his motion as follows:

"that following the discussion with the Administration, the LegCo Panel on Housing disagreed with the plan to allow rent control to lapse on 31 December 1996 as scheduled on account of the lack of measures for improving the rent-to-income ratio of tenants in controlled premises and the Administrations refusal to offer rental assistance to tenants concerned".

While Hon CHAN Yuen-han was in support of the intention behind the motion, she suggested inclusion of the element of changes in economic and social situations in the motion.

16. Mr TO deemed it unrealistic to incorporate all points in the motion and suggested that his original motion should remain as follows:

"that the LegCo Panel on Housing disagreed with the Administrations plan to allow rent control to lapse on 31 December 1996 as scheduled".

Dr YEUNG subsequently withdrew his amendment to the motion.

17. The Chairman sought members views on the motion and it was passed by all members present at the meeting; Hon Mrs Selina CHOW expressed reservations although she did not object to the motion. The Chairman instructed that the motion be conveyed to the Administration.

(Post-meeting note: A letter to the Administration on the motion was issued on 5 November 1996.)

IV Quality of flats in Tivoli Gardens at Tsing Yi

(LegCo Paper No. CB(1) 224/96-97 (02)/(03))

18. The Chairman explained that the Panel was concerned about the scope for improving the quality of flats under the Sandwich Class Housing Scheme (SCHS) and the monitoring mechanism and had therefore included the subject on the agenda for the meeting.

19. Mr Victor SO acknowledged that there had been defects in flats in the Tivoli Gardens. In the light of past experience, the Hong Kong Housing Society (HKHS) had stepped up control on the quality assurance of SCHS projects in order to prevent recurrences. Contractors would be required to provide "sample work rooms" for reference by each trade in order to standardize their work procedures and ensure a consistent level of good workmanship for the whole project. Model flats would be set up on sites for general reference upon takeover of the flats, and particular attention would be given to such problems as water seepage through outside fittings. Mr SO added that he personally would be held responsible for any recurrence of defects such as those in the Tivoli Gardens in the future. Members were appreciative of the assurance given by Mr SO.

20. In referring to the approved list of contractors for building works at Annex A of the information paper, members noted that only 23 listed contractors could tender for contracts for unlimited value. They enquired if such an arrangement had regard to the capability of contractors. Mr SO advised that the list referred to was drawn from the contractors lists of the Housing Authority and the Works Branch of the Government Secretariat. The suitability of these contractors would be assessed based on their track records, financial capability and current workload. Mr SO supplemented that for every SCHS project, eight potential contractors from the list would be invited upon the advice of the Project Architect to tender for the construction of the project. These contractors were fully aware of the requirements of HKHS and regular on-site inspections would be conducted by HKHS to monitor the progress of construction. Mr SO cautioned however that problems due to unforeseen reasons might occur. He also added that the construction trade was experiencing shortage of labour and this might affect completion targets. In reply to a member on the actions taken against the contractors of Tivoli Gardens, Mr SO advised that the contractor concerned was no longer on the approved list of contractors.

21. Hon Zachary WONG Wai-yin noted that the Occupation Permit had been granted for the Tivoli Gardens notwithstanding the fact that some parts of its public areas were still under construction. This was different from the case of the Sheung Shiu Centre which had been denied of the permit on account of the uncompleted green areas. He sought clarification in this respect. Mr S H NG advised that Occupation Permits would be granted upon completion of the structure, fire services installations, water and electricity supply facilities. The Chairman remarked that the granting of Occupation Permits fell outside the remit of HKHS and requested the Clerk to follow-up with the Buildings Department.

V Re-mortgage of Sandwich Class Housing Flats

(LegCo Paper No. CB(1) 224/96-97(04))

22. In response to the Chairman, Miss Sandy CHAN advised that the Housing Branch had consulted the HKHS, the Hong Kong Monetary Authority and the Financial Services Branch regarding the Panels concern on the re-mortgage of SCH flats. The Administration had no objection to HKHS allowing borrowers under the loan scheme of SCHS to re-finance their first mortgages with banks so long as the spirit of the loan scheme and the interest of the Government could be safeguarded, and no legal or administrative costs for the execution of the necessary legal documents would be borne by the Government.

23. As to the difference in re-mortgage arrangements between a flat under the loan scheme and a private sector residential flat, Miss CHAN advised that a flat purchased under the loan scheme was normally subject to two mortgages - a first mortgage arranged with a bank and a second mortgage provided by HKHS. To obtain a new bank loan, an eligible applicant would have to discharge the First Charge whereupon the Second Charge covering the down-payment loan would immediately become the First Charge. The new bank loan could only be secured by a "New First Charge", which would have a priority second to that of the Second Charge created by HKHS. This accounted for the reservations of banking institutions in approving re-financing applications. Efforts had however been made by HKHS to ease the concern of banking institutions by agreeing in writing that the "New First Charge" would always have priority over the Second Charge as if it had been created and registered prior to the Second Charge. With such an assurance, one bank had already finalized a loan modification document with HKHS with a view to effecting the re-mortgage arrangements. While the Administration was hopeful that the technical problems could be resolved, Miss CHAN emphasized that this involved basically commercial decisions. Ms L C WONG supplemented that over 20 applications had since been processed by the bank which Miss CHAN referred to earlier and that a number of banking institutions had informed HKHS of their intention to review their existing policy on SCHS.

VI Any other business

24. There being no other business, the meeting closed at 12:50 pm.

Legislative Council Secretariat
28 November 1996

Last Updated on 20 August 1998