Legislative Council

LC Paper No. CB(1) 782/98-99
(These minutes have been seen
by the Administration)

Ref: CB1/PL/HG/1

Members present :

Hon LEE Wing-tat (Chairman)
Hon Gary CHENG Kai-nam (Deputy Chairman)
Hon HO Sai-chu, JP
Hon LEE Cheuk-yan
Hon NG Leung-sing
Hon James TO Kun-sun
Hon CHAN Kam-lam
Dr Hon YEUNG Sum
Hon SZETO Wah

Members absent :

Hon David CHU Yu-lin
Hon Edward HO Sing-tin, JP
Hon Albert HO Chun-yan
Hon Fred LI Wah-ming
Hon Mrs Selina CHOW LIANG Shuk-yee, JP
Hon Ronald ARCULLI, JP
Hon Christine LOH
Hon CHAN Yuen-han
Hon LEUNG Yiu-chung
Hon Andrew WONG Wang-fat, JP
Hon LAU Kong-wah
Hon Andrew CHENG Kar-foo
Hon Timothy FOK Tsun-ting, JP
Hon TAM Yiu-chung, JP

Public officers attending :

Housing Bureau

Mr C M LEUNG, JP

Secretary for Housing (Acting)

Mr Patrick LIN

Assistant Secretary for Housing

Rating and Valuation Department

Mr C S WONG, JP

Deputy Commissioner of Rating and Valuation

Mr L M YIP

Principal Valuation Surveyor (Acting)

Clerk in attendance :

Ms LEUNG Siu-kum

Chief Assistant Secretary (1)2

Staff in attendance :

Miss Becky YU

Senior Assistant Secretary (1)3

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I Rent control under the Landlord and Tenant (Consolidation) Ordinance
(LC Paper No. CB(1) 622/98-99(01))

At the invitation of the Chairman, the Secretary for Housing (Acting) (S for H (Ag)) briefed members on the information paper entitled "Rent control in private residential housing" which was tabled at the meeting. He said that rent control was first introduced to protect tenants against exorbitant rent increases as a result of the acute shortage of rental accommodation in the private sector. However, as rent control distorted the market and rents suppressed at artificially low levels at the expense of landlords would discourage landlords from maintaining their premises, the Administration held the view that this should be removed when circumstances permitted. In 1993, the Legislative Council endorsed amendments to the Landlord and Tenant (Consolidation) Ordinance allowing controlled rents to increase by phases to the market levels by December 1996. The phased programme was however set back when the Legislative Council resolved in December 1996 that the expiry date of rent control be deferred to 31 December 1998. To assess the impact of decontrol on tenants, the Rating and Valuation Department (RVD) conducted a survey on Parts I and II controlled premises in mid-1998 and the results revealed that the impact of decontrol would be minimal. Given the increase in the overall supply of rental premises in the private market and the recent downward adjustment in rental levels, the Administration concluded that rent control under Parts I and II should be allowed to lapse on 31 December 1998 as scheduled.

2. To elaborate on the effect of rent decontrol on tenants in controlled premises under Part II, the Deputy Commissioner of Rating and Valuation (DCRV) advised that 3,481 out of the 5,039 tenancies of controlled flats due for rent revision in 1999 would not face any immediate rent increase since the sole or principal tenants concerned were already paying market rent. 1,235 tenancies would face an average increase of less than 10% of the existing rent which was already allowed by the present legislation. The remaining 323 tenancies would face an average additional increase of 10% upon decontrol. For sub-tenancies of small bedrooms, bedspaces and cocklofts, DCRV said that as sub-tenants living in these premises were on average paying more than 90% of the prevailing market rent (PMR), the impact of decontrol on them would be fairly small. It was anticipated that only 255 out of the 1,693 sub-tenancies due for rent revision in 1999 would be subject to rent increase. As regards the situation in 2000, DCRV replied that 6,177 out of the 7,681 tenancies of controlled flats due for rent revision would experience nil increase and only 1,504 tenancies would face an average increase in rent of 13.5%.

3. In reply to Mr James TO's question, DCRV said that 42.3% of sole and principal tenants and 8% of sub-tenants paid on average over 40% of their income on rent. Dr YEUNG Sum expressed grave concern about the heavy burden of rent on tenants, in particular on those sub-tenants since most of them were low income families. He asked if the Administration would consider providing rental assistance to these tenants. S for H (Ag) clarified that the analysis on rent-to-income ratios was based on the tenant's household income which might be under-reported. Furthermore, families facing genuine financial hardship could seek assistance from the Comprehensive Social Security Assistance (CSSA) Scheme under which rental allowance would be made available. Dr YEUNG however pointed out that the Administration had planned to reduce the levels of CSSA and there was no increase in rental allowance for CSSA recipients. S for H (Ag) assured members that the Social Welfare Department (SWD) would assess each application according to individual needs. To alleviate Dr YEUNG's concern, S for H (Ag) undertook to forward particulars of the sub-tenants concerned to SWD for necessary follow-up, subject to their consent to disclose their personal information.

Admin

4. On the rationale for the rise in the average controlled rent to PMR ratio from 72% in 1996 to 83% in 1998, DCRV explained that the gradual increase in controlled rents over the years and the recent fall in rental market in the private sector had narrowed the gap between PMR and controlled rent. In response to Mr CHAN Kam-lam's question, S for H (Ag) advised that RVD had not conducted an analysis on rental profits made by principal tenants from sub-letting. However, he agreed that landlords would be discouraged to upkeep their premises in the absence of a reasonable return of rents.

5. As to whether PMR in 1998 had dropped as projected by the Administration, DCRV confirmed that as at to date, PMR had dropped by more than 27% which was very close to the original projection of 30%. A further 10% drop in PMR was expected in 1999. Mr LEE Cheuk-yan however pointed out that household incomes had also dropped as a result of the economic downturn. He therefore considered it more appropriate to allow rent control to lapse in 1999 when PMR was at a lower level. While acknowledging Mr LEE's concern, S for H (Ag) reiterated that rent control was only a short-term measure which should be removed when circumstances permitted in order that owners' interests would not be adversely affected. Given that the impact of decontrol on tenants would be minimal as revealed by the survey, the Administration remained of the view that rent control should be allowed to lapse on 31 December 1998 as scheduled. Mr CHENG Kai-nam asked if the Administration would re-introduce rent control in the event of unreasonable increase in rents. S for H (Ag) replied that efforts would be made to stabilize the property market but he did not rule out the possibility of re-introducing controls if circumstances so required.

6. While agreeing that it was an appropriate time for decontrol, the Chairman emphasized the need for the Administration to ensure an adequate supply of flats so that rent levels could be maintained at a reasonable level. As such, supply constraints such as the moratorium on land sales should be lifted as soon as possible. S for H (Ag) assured members that the Administration was determined to achieve the housing production target through a steady and sufficient supply of land.

II Any other business

7. There being no other business, the meeting ended at 10:30 am.

Legislative Council Secretariat
21 January 1999