LegCo Panel on Housing

Concerns raised by members at the meeting on 23 July 1998 requiring follow-up by the Administration

(A) Rent Reduction for Commercial Premises in Public Housing Estates

Frozen of rents for one year

Amidst the economic downturn and the drop of rent in the property market, members were surprised to find that over 80% of the 1,234 commercial tenancies renewed since February 1998 received rent increases. Among these 80% tenancies, 50% had rent increase of more than 15% with the highest increase of over 40%. Although the concerned tenants could have the rent frozen for one year, they found it unfair because (a) their rents should be reduced as rent level in the market had dropped in 1998 compared with that three years ago which was at the peak when their tenancies were made; and (b) after one year, they still had to pay the higher new rents. Members in general considered that the measure in freezing the rents for one year could not help relieve the hardship experienced by the tenants in the present difficult economic environment.

Rent re-assessment

As the rent re-assessment was not conducted by an independent body and the Housing Department (HD) did not publicize how the re-assessment results were arrived at, members considered the whole process unconvincing. In order to help members to have a better understanding of the re-assessment exercise, members requested the Administration to provide them with a copy of the internal assessment manual. Members considered that HD should set a time table for announcing the results of the future rent re-assessments, increase the transparency of the re-assessment exercise and institute an appeal avenue. They would also like to know how the complaint cases on the subject referred by members would be handled by HD.

Vacancy of the Housing Authority (HA) Commercial Premises

Members were also concerned about the high vacancy rates of commercial premises under HA. Members understood that if the tenants could not afford the high rents and gave up their businesses, it would further aggravate the vacancy rates. To enhance members' understanding of the existing vacancy situation in housing estates under HA, members requested the Administration to provide detailed information on the vacancy of shops/market stalls of different trades e.g. vegetable stalls, meat stalls, in the past five years. The information should include facts on the vacancy period before a shop/market stall was re-let to a new tenant and the comparison of rents between the previous tenancy and the new tenancy.

In sum, members considered that the freezing of rents for one year and the rent re-assessment were not effective measures to alleviate the tenants' hardship. They urged the Administration to adopt a 30% across-the-board rent reduction for all commercial tenants and to re-assess individual rents where necessary to address the varying impacts the economic downturn made on different businesses after implementing the 30% rent reduction.

(B) Sandwich Class Housing Schemes

In addressing the grievances expressed by the prospective owners of sandwich class housing flats, members considered that the Administration should appreciate the willingness of the prospective owners to complete the purchases despite their flats had turned into negative assets. Members were of the view that the Administration should be more flexible and should re-consider the request for the provision of a choice of 40%/50%/60% discount for the prospective owners. The introduction of the flexible discount rate system did not induce extra expense on the part of the Government since the owners would pay the discounted portion upon resale of the flats. Members understood that the $600 million mortgage interest subsidy that set aside for the prospective owners had not been utilized at best. Nevertheless, the introduction of the flexible discount rate system on the other hand would directly benefit the target group and serve the purpose of alleviating their hardship. They considered that amidst the economic downturn, the purpose of introducing special relief measures was not to provide same assistance to all, but appropriate and reasonable assistance to those who were in need. The flexible discount rate system would harm no one, but benefit both the Housing Society (HS) and the prospective owners. Members anticipated that if these owners were to rescind their purchases, the loss to HS would be even greater.

Legislative Council Secretariat
27 July 1998

Legislative Council Panel on Housing

Responses to questions raised by Members
at the meeting held on 23 July 1998

The following provides additional information required by Members on the Housing Authority (HA) commercial rents following the discussion at the LegCo Panel on Housing meeting held on 23 July 1998.

Frozen rent for one year for tenancies due for renewal between 1 February and 31 December 1998

2. The freezing of rents of all tenancies due for renewal between 1 February 1998 and 31 December 1998 for one year is one of the positive measures implemented by the HA to relieve the immediate hardship experienced by commercial tenants in the present economic environment. When the tenancies are renewed, the HA will re-assess the rent payable. If the re-assessed rent is lower than the original rent, tenants will pay the new lower rent. If the rent re-assessed is higher, tenants will have their rent frozen for a period of one year.

3. Members are concerned why the re-assessed rent of some 81% of tenancies (1006 out of 1234 cases) which were renewed between 1 February and 30 June 1998 have a rent increase. Members may wish to note that over 77% (770 cases) of these cases have a rent increase of below 20%. Such increase is not excessive, as the original rent for these tenancies was set in 1995, at which time the general property price was at a relatively low level. Despite the increased rent assessment, the rents of these tenancies will be frozen at the existing level for a period of one year.

Rent re-assessment mechanism

4. The HA runs commercial premises on a commercial basis. Rents form part of binding contracts between the HA and commercial tenants. Rental re-assessment for commercial premises of the HA are conducted with great care and professional skill by professional estate surveyors of the Housing Department (HD) who are familiar with the special characteristics of the commercial premises in public housing estates.

5. Estate surveyors of the HD are members of professional body and are governed by stringent professional ethic and rules. They assess rent with their professional skill and judgement, having regard to the trade, location, size, catchment and pedestrian flow etc., of individual premises. There is no internal assessment manual governing the re-assessment of individual commercial premises. However, there are administrative guidelines issued to estate management staff to assist them in handling enquiries on the procedure of application for rent re-assessment.

6. The HD has pledged to complete rent re-assessment within four weeks from the date of receipt of application. Re-assessed rent is payable for the residual term of the existing tenancy if it is lower than that in the tenancy agreement. HD welcomes information from tenants in support of their applications for re-assessment. In accordance with the established practice, tenants dissatisfied with the rent assessment may request for a review of the assessment with the provision of supplementary information or rental evidence. Request for review would be handled by an officer of senior rank. As regards complaints referred to by LegCo Members, directorate level staff in the HD will be responsible for overseeing them. Members may wish to note that the HD has published a pamphlet to inform commercial tenants of the procedures of application for and the basis of rent re-assessment.

7. The HD is now fully concentrated on the rent re-assessment exercise in order to meet the four-week pledge. As at the end of June 1998, over 3,000 tenants had applied for re-assessment. Although there is no set timetable for announcement to the public of the results of applications, it is anticipated that the results of the next batch will be announced sometime in August 1998 when sufficient results across all trades will be available.

Vacancy of the Housing Authority Commercial Premises

8. The overall vacancy rate of the HA commercial premises has been kept at a low level and is substantially below that of the private sector. From January 1997 to June 1998, the quarterly vacancy rates of the HA commercial premises are as follows:

9. Due to the large portfolio and complexity in the types of commercial premises managed by the HA and the often changing designated trades for individual premises, HD does not maintain statistics on the vacancy positions of shops or market stalls of different trades in all estates for the past five years. Should Members require information on the vacancy position of a specific premises in a particular estate, HD would endeavour to provide the relevant information as far as practicable.

Conclusion

10. To recapitulate, the HA considers that the rent freeze for tenancies due for renewal between 1 February and 31 December 1998, and the rent re-assessment scheme for tenancies commenced or renewed between 1 January 1996 and 31 January 1998 are positive measures to assist tenants in alleviating their financial hardship. A 30% across-the-board rent reduction does not accord well with the principle of rational allocation of public resources, nor is it a fair approach to tenants in view of the varying effect the economic downturn has had on their businesses, and the different levels of rent currently paid by tenants.

Housing Department
August 1998