LC Paper No. CB(1) 150/98-99
(These minutes have been seen
by the Administration)

Ref: CB1/PL/HG/1

Legislative Council
Panel on Housing

Minutes of meeting
held on Thursday, 23 July 1998, at 11:00 am
in the Chamber of the Legislative Council Building

Members present :

Hon LEE Wing-tat (Chairman)
Hon Gary CHENG Kai-nam (Deputy Chairman)
Hon David CHU Yu-lin
Hon HO Sai-chu, JP
Hon Edward HO Sing-tin, JP
Hon LEE Cheuk-yan
Hon Fred LI Wah-ming
Hon NG Leung-sing
Hon Mrs Selina CHOW LIANG Shuk-yee, JP
Hon Ronald ARCULLI, JP
Hon James TO Kun-sun
Hon CHAN Yuen-han
Hon LEUNG Yiu-chung
Hon Andrew WONG Wang-fat, JP
Hon LAU Kong-wah
Hon Andrew CHENG Kar-foo
Hon SZETO Wah
Hon TAM Yiu-chung, JP

Members absent :

Hon Albert HO Chun-yan
Hon Christine LOH
Hon CHAN Kam-lam
Dr Hon YEUNG Sum
Hon Timothy FOK Tsun-ting, JP

Public officers attending :

For item IV

Housing Bureau

Miss Ophelia TSANG,

Acting Principal Assistant Secretary (2)

Housing Department

Mr Raymond Bates,

Business Director/Commercial and Services

Mr YIM Ka-yan,

Chief Estates Surveyor/Commercial Properties

For item V

Housing Bureau

Ms Eva TO,

Principal Assistant Secretary for Housing

By invitation :

For item IV

Alliance of Commercial Tenants of Public Housing Estates in Hong Kong

Mr CHAN Wai-chun

Mr LAU Yiu-nam

Ms MA Lai-mei

Mr TSO Shiu-keung

Ms LAU Yin, Lonly

Joint Committee of Shopkeepers' Strike in Hong Kong on 7 July

Mr WONG Yin-kai

Mr LAM Wai-yin

Ms TSANG Yin-ping

Mr CHONG Lam-cheong

Ms LAM Nga-sze

Joint Council of Hong Kong Estates Shopstalls Tenants

Mr LEE Man-tang

Mr WONG Sing-tak

Mr NGAN Chor-yin

Mr SO Hon-man

For item V

Hong Kong Housing Society

Mr Victor SO,

Executive Director

The Concern Group on the Rights of Prospective Owners of Sandwich Class Housing Flats

Mr WONG Chi-leung

Mr YIP Ka-yuen

Mr LEE Ying-kit

Ms YAN Siu-man

Ms YEUNG Wai-man

Clerk in attendance :

Ms LEUNG Siu-kum, Chief Assistant Secretary (1)2

Staff in attendance :

Miss Becky YU, Senior Assistant Secretary (1)3

I.Confirmation of minutes of previous meeting

(LC Paper No. CB(1) 49/98-99)

The minutes of the meeting held on 14 July 1998 were confirmed.

II.Information paper issued since last meeting

2. Members took note of an information paper on "Review of the Tenants Purchase Scheme" provided by the Administration and a letter from a Ms LEE expressing views on the existing housing policy circulated vide LC Paper Nos. CB(1) 34 and 51/98-99 respectively.

III.Date of next meeting and items for discussion

3. The next meeting would be held on Monday, 7 September 1998, at 4:30 pm. Members agreed that the agenda for the meeting should be worked out by the Chairman in consultation with the Deputy Chairman.

(Post-meeting note: Subjects on "Rent reduction for commercial premises in public housing estates and factory buildings", "Sandwich Class Housing Scheme" and "Abuse of Home Starter Loan Scheme and Home Purchase Loan Scheme" would be discussed at the next meeting.)

IV.Rent reduction for commercial premises in public housing estates

Meeting with the Alliance of Commercial Tenants of Public Housing Estates in Hong Kong

(LC Paper No. CB(1) 53/98-99 (01))

4. While acknowledging the intention of the Housing Authority (HA) to assist retailers in public housing estates to adjust to the present economic downturn, representatives from the Alliance of Commercial Tenants of Public Housing Estates in Hong Kong was disappointed that despite repeated requests, HA insisted on adopting a rent re-assessment scheme rather than applying an across the board 30% rent reduction on all commercial premises. They were of the view that the rent re-assessment scheme was unfair as all rental re-assessments were conducted by estate surveyors of the Housing Department (HD) and there was a lack of an appeal channel for adjudication of disputes over the re-assessed rents. Furthermore, tenants who had their rents frozen for one year would not be eligible for rental re-assessment. The deputation therefore urged HA to:

- include all commercial tenants in the rent re-assessment scheme;

- apply the same criteria on all applications for rental re-assessment; and

- increase the transparency of the scheme by disclosing the results of the re-assessments.

Meeting with the Joint Committee of Shopkeepers' Strike in Hong Kong on 7 July

(LC Paper No. CB(1) 53/98-99(02))

5. Expressing similar concerns on the rent re-assessment scheme, representatives from the Joint Committee of Shopkeepers' Strike in Hong Kong on 7 July considered that HA should model after the Provisional Urban Council (PUC) and the Provisional Regional Council (PRC) to apply to all commercial premises an across the board 30% rent reduction which was a simpler, more open, impartial and direct measure to help alleviate the hardship of commercial tenants.

Meeting with the Joint Council of Hong Kong Estates Shopstalls Tenants

(LC Paper No. CB(1) 53/98-99(03))

6. Representatives from the Joint Council of Hong Kong Estates Shopstalls Tenants also opined that HA should apply a 30% across the board rent reduction to all commercial tenants, including those who had their rents frozen for one year, and that an independent mechanism should be set up to deal with appeals regarding rental re-assessments.

Meeting with the Administration

(LC Paper Nos. CB(1) 53/98-99(04), (05) and (06))

7. In response to the Chairman, the Business Director/Commercial and Services (BD/C&S) said that HA had been very proactive in alleviating the hardship faced by its commercial tenants in the present economic downturn. A number of positive measures had been introduced since January 1998. These included reducing or freezing the rents of all tenancies due for renewal between 1 February and 31 December 1998; waiving the requirements for tenants to serve advanced notice to quit and to pay compensation to HA for early surrender; and allowing tenancies commenced or renewed between 1 January 1996 and 31 January 1998 to apply for re-assessment of rents. Rents would be reduced for the residual term if the re-assessed rent was lower than that in the tenancy agreement.

Freezing of rents for a period of one year

8. Some members noted that since the announcement of the measure of freezing the rents of commercial premises for one year until 30 June 1998, 1,006 out of 1234 commercial tenancies had been renewed with rent increases with the highest increase up to 80%. Given the fact that Hong Kong had been experiencing a negative growth since February 1998, members questioned the rationale for such an increase. In response, the Chief Estates Surveyor/Commercial Properties (CES/CP) clarified that the majority of these cases had a rent increase of below 20%, and that the increase was not excessive as the original rent for these tenancies were set in 1995, during which the general property price was at a relatively low level. Apart from the measure of re-assessing rents before the tenancies were expired, HA introduced another measure of freezing the rents for tenancies due for renewal. In accordance with the normal procedure, HA would re-assess the rent payable when the tenancies were renewed. For those tenancies due for renewal between 1 February 1998 and 31 December 1998, if the re-assessed rent was lower than the original rent, tenants would pay the new lower rent. Otherwise, tenants would have their rent frozen for a period of one year. Members remained unconvinced that HA should increase the rents of commercial premises amidst the economic downturn and the drop in rental market. Moreover, the freezing of rents for one year was not an effective measure to alleviate the hardship of tenants as they would have to pay the higher rents after the expiry of the one-year period. In response, CES/CP undertook to revert to HA for consideration the rent level after the one-year period.

Rent re-assessment scheme

9. Members considered the scheme unfair since rental re-assessments were not conducted by an independent body; criteria for re-assessment were unknown to the public and an appeal mechanism was not available for disputes over the re-assessments. In reply, the Administration emphasized that HA ran commercial premises on a commercial basis. As rents were fixed with reference to market conditions at the time of reaching tenancy agreement and formed part of binding contracts between HA and commercial tenants, it would be inappropriate for an outside party to conduct rental re-assessments. CES/CP assured members that rental re-assessment for commercial premises of HA were conducted with great care and professional skill by professional estate surveyors of HD who were familiar with the special characteristics of the commercial premises in public housing estates. They would assess rent with their professional skill and judgment, having regard to the trade, location, size, catchment and pedestrian flow of individual premises. HD would welcome additional information from tenants in support of their applications for re-assessment, including turnover of businesses as suggested by a member. Regarding appeal mechanism, BD/C&S explained that commercial tenancies were executed with the mutual consent of the landlords and tenants and an appeal mechanism never existed, as was the practice in the private sector. Nevertheless, tenants dissatisfied with the results of rent assessment might request for a review with the provision of supplementary information or rental evidence. Referrals for review from members were also welcomed. At members' request, the Administration undertook to provide information on how the referrals from members would be dealt with.

10. Some members noted that the rent re-assessment exercise was to ascertain a fair market value of commercial premises. However, as HA's commercial premises were leased out through different ways such as negotiation, open tender and restricted tender, they questioned how a fair market value could be arrived at under such circumstances. Without an objective basis, the results of re-assessment could not be convincing. The substantial difference in the re-assessed rents between an appliance shop and a clinic within the same commercial premises was a case in point. CES/CP explained that HA would make reference to market conditions and market rents in determining rents of HA's commercial premises. He reiterated that rental re-assessments were done having regard to the location, size, catchment and pedestrian flow etc. CES/CP supplemented that the two shops referred to were leased through open tender in 1997. The one with a higher bid received a greater rent reduction.

11. As to why tenants who had their rents frozen for one year were not eligible for rental re-assessment, CES/CP explained that the objective of the rent re-assessment scheme was to provide immediate relief to tenants whose tenancies were not due for renewal within a short period of time. Since HA would assess the rents of commercial premises upon renewal of tenancies, it would not be appropriate to include those due for renewal between 1 February and 31 December 1998 in the re-assessment exercise again. Some members however considered that it would only be fair if those tenancies renewed within this period and received rent increase were allowed to have a second chance for rent assessment. At members' request, CES/CP undertook to relay members' views to HA for consideration.

12. Some members asked if tenants in commercial premises managed by single operators were also eligible for rental re-assessment. CES/CP advised that single operators could apply for rental re-assessment but they had to undertake to reduce the rents of their tenants accordingly based on the re-assessment results. However, HA would not interfere in the rental arrangements between the single operators and their tenants. In reply to a related question, BD/C&S confirmed that tenants of flatted factory buildings managed by HA could apply for rent re-assessment in the same way as their counterparts in other commercial properties.

13. As to whether HA would set a time table for announcement of the results of re-assessment, CES/CP considered it not possible for the time being because HD was now fully engaged in the rent re-assessment exercise. However, HA would endeavour to disclose the results in due course.

14. In order to facilitate a better understanding of the rent re-assessment exercise, the Administration was requested to provide an internal assessment manual setting out the guidelines for conducting the re-assessment exercise and the criteria for re-assessment of commercial premises for members' reference.

An across the board 30% rent reduction

15. Members were of the view that the most effective way to alleviate the immediate hardship of tenants was to apply an across the board 30% rent reduction as was the case with PUC and PRC and to allow those who were in genuine need of additional assistance to apply for rent re-assessment. In reply, CES/CP considered a direct comparison between HA and the two Municipal Councils inappropriate as they were all independent bodies. As landlord, HA retained the final decision on rent to be charged. On the suggestion of an across the board 30% rent reduction, CES/CP explained that rents payable by tenants reflected the market conditions at the time of reaching tenancy agreements with HA. Given the different sizes and locations of the commercial tenants and the varying impacts the economic downturn had on different businesses, a 30% across rent reduction was not a fair approach and did not accord well with the principle of rational allocation of public resources. The only equitable way of assisting the commercial tenants was to invite those who experienced business hardship to apply for rent re-assessment. This opportunity was offered to ensure that commercial tenants in public housing estates retained their competitiveness, and that services to domestic tenants were uninterrupted as far as possible. A member was not convinced of the Administration's assertion as the freezing of rent increase was also applied across the board on tenancies due for renewal between 1 February and 31 December 1998, despite varying effect the economic downturn had on different trades.

V.acancy rate of the Housing Authority commercial premises

16. Some members cautioned that a rise in the overall vacancy rate would be expected if tenants found the rents too high and gave up their businesses. In response, CES/PC agreed with a member's observation that the vacancy rate of markets which ranged from 8% to 30% was much higher than that of commercial premises which was kept at 4.5%. Measures which included simplifying the leasing procedures and reviewing the mix of trades within the premises would be taken with a view to attracting more potential tenants. BD/C&S supplemented that at present, there was no evidence indicating an increase in the number of tenants serving notice to quit. Nevertheless, HA would keep in view the situation. To facilitate a better understanding, the Administration was requested to provide information on the vacancy positions of shops or market stalls of different trades such as vegetable and butcher stalls in the past five years, in particular on the vacancy period before a shop or a market stall was re-let to a new tenant and the rent difference between the previous and the new tenancy.

17. In view of the significance of the issue, the Administration was requested to address members' concerns raised at the meeting within two weeks.

(Post-meeting note: The Administration's response was circulated to members vide LC Paper No. CB(1) 102/98-99.)

VSandwich Class Housing Schemes

Meeting with the Concern Group on the Rights of Prospective Owners of Sandwich Class Housing Flats

(LC Paper No. CB(1) 53/98-99(07))

18. At the invitation of the Chairman, Ms YAN Siu-man highlighted the salient points in the submission. Ms YAN appreciated the efforts made by the Housing Society (HS) in assisting buyers of Sandwich Class Housing Scheme (SCHS) projects to obtain mortgage loans. She however pointed out that despite the willingness of SCHS buyers in completing the assignments, the deepening of the economic downturn had hampered their repaying ability. To alleviate the financial hardship of these purchasers, Ms YAN urged HS to consider:

- applying flexible discount rates on the selling price of SCHS flats;

- providing a full buy-back guarantee for SCHS flats;

- re-assessing the Full Market Value (FMV) of SCHS flats;

- allowing SCHS buyers who were not able to obtain mortgage loans to get back full or part of their deposits and to be exempted from future legal liabilities upon rescission; and

- waiving the property ownership restriction on buyers who rescinded purchases so that they could be eligible for SCHS again.

Ms YAN stressed that the proposed flexible discount rates would not affect the financial situation of HS as the difference in sale prices would be reflected in the premium upon resale of flats. Mr WONG Chi-leung also urged HS not to lower the sale prices of the remaining flats in Highland Park and those of subsequent phases since this would be unfair to the preceding buyers. Furthermore, he was disappointed that HS had failed to alert buyers of Highland Park the possible impact of aircraft noise.

Meeting with the Administration

(LC Paper No. CB(1) 53/98-99(09))

19. In response to the Chairman, the Principal Assistant Secretary for Housing (PAS for H) advised that the Administration and HS recognized the difficulties faced by some SCHS buyers. To this end, HS had agreed to assist purchasers to obtain adequate mortgage loans by sharing banks' losses in default cases within the first five years and to subsidise purchasers' mortgage cost by reimbursing purchasers the difference between the prime rate and the bank's best mortgage interest rate for the first three years. The mortgage interest subsidy alone would cost HS $600 million. So far, HS had secured the support of 26 banks for these arrangements. The Executive Director/HS (ED/HS) supplemented that the remaining flats in Highland Park were being sold at the original prices, and that the prices of flats of subsequent phases would have to be determined taking into account market situation. He also considered it inappropriate to comment on aircraft noise at this stage as the issue was still under discussion by relevant authorities.

20. Members remarked that as the economic downturn deepened, the measures taken by HS might not be sufficient to alleviate the hardship of SCHS buyers whose repaying ability was deteriorating. They generally felt that additional measures should be mapped out to help these buyers. Some members asked if the Administration would consider the proposals put forward by the Concern Group, in particular the one on flexible discount rates since this would not incur additional financial burden on HS.

21. In reply, PAS for H emphasized the need to be cautious in considering further assistance for SCHS purchasers in order not to give a wrong impression that the Administration and HS was targeting to help a particular group of people. In fact, the Administration had considered the proposals of the Concern Group and concluded that these could not be acceded to having regard to the far-reaching implications on the existing housing policy. For example, the suggestions to adopt a flexible discount rate system retrospectively and to re-assess the FMV of SCHS flats that had been sold would set an undesirable precedent whereby contractual obligations entered into could be varied due to changing market conditions and price fluctuations. These would also have serious implications on other subsidized housing schemes, such as the Home Ownership Scheme (HOS) and the Private Sector Participation Scheme of HA. Furthermore, the introduction of a choice of discount rates would reduce the revenue and affect the cash flow of HS since it had to remit part of the selling proceeds to the purchasers. On the provision of full buy-back guarantee, PAS for H warned that this would create a contingent liability of $17 billion on HS which would far exceed its current net total asset. It would also be inappropriate for the Administration to provide the full buy-back guarantee as was the case with HOS by HA as the latter was targeted at low income group. Moreover, the arrangement made by HS with the banking institutions to enable SCHS buyers to obtain mortgages up to 80% of the selling price of SCHS flats already gave the buyers an advantage over their counterparts in the private sector whose mortgage ceiling was only 70%. As such, it would be inappropriate to use public money to further subsidize SCHS purchasers. CE/HS supplemented that despite the recent drop in the property market by 40%, the repaying ability of SCHS buyers should not be affected if their financial situation remained unchanged since the prices of SCHS flats were still at a discount of the market price.

22. A member was not convinced of the Administration's response as the purpose of introducing special relief measures was to help those who were economically vulnerable rather than providing the same assistance to all. He cautioned that group rescission might take place if the Administration and HS refused to offer flexible discount rates to SCHS purchasers, and that the financial loss incurred to HS would be substantial if it had to re-sell the flats at lower prices afterwards. ED/HS explained that apart from discount rates, SCHS buyers would take into account other factors, such as location and design of flats in reaching a decision on transactions.

23. As regards the feasibility for HS to exempt SCHS buyers from future legal liabilities upon rescission, ED/HS advised that HS had to be careful in assessing each case according to individual merits in order to avoid possible abuse.

24. Members remained of the view that HS should adopt a more flexible approach in alleviating the hardship of SCHS buyers. While acknowledging the need for flexibility, PAS for H stressed that some fundamental principles should not be sacrificed for quick fixes. ED/HS undertook to explore other possible alternatives for SCHS buyers without injecting additional public money apart from the $600 million that had been set aside for mitigation measures. He agreed to revert to the Panel within two weeks.

VI.Any other business

25. There being no other business, the meeting ended at 1:40 pm.



Legislative Council Secretariat
2 September 1998