Legislative Council Panel on Housing

Rent Reduction for Commercial Premises
in Public Housing Estates and Factory Buildings



This paper aims at providing Members with additional information on the Housing Authority (HA) rent reduction for commercial premises in public housing estates and factory buildings, further to the paper issued for the July 23 meeting and the follow-up responses to the discussion at the meeting.

Latest results of rent re-assessment for tenancies commenced or renewed between 1 January 1996 and 31 January 1998

2. Over 4,000 commercial tenants of the HA have applied for rent re-assessment since the commencement of the exercise on 1 July 1998. A breakdown of the results of completed cases is appended below -

Rate of Reduction

No. of Cases

Below 10%

30

10 - 19.9%

694

20 - 29.9%

891

30 - 39.9%

303

40 - 49.9%

55

50% and above

39

2,012

3. The rent re-assessment measures introduced by the HA are generally well received by its commercial tenants and over 40% of the eligible tenants have applied already. The HA's motive for rent re-assessment is to provide relief for those paying above market rent at a time of economic recession. Rent-reappraisal brings tenants' rents in line with current market rents. It provides the greatest benefit for those in greatest need. A 30% across the board reduction cannot serve this purpose because there are many cases where market rents have fallen more than 30%. There are also cases where the market rents have reduced very little.

4. Under the current arrangement, rents are re-assessed at market level as at 1 July 1998 for the residual term of individual tenancies. Factors such as the nature of business, the location and the physical characteristics of the premises, the size of the catchment area, the date of contract signed and the level of the existing rent etc. are taken into consideration in assessing the amount of rent reduction.

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

5. Rents are re-assessed when commercial tenants renew their tenancies with the HA. Factors considered in these cases are the same for those tenancies commenced or renewed between 1 January 1996 and 31 January 1998. There are concerns why some tenants could have a large rent increase upon renewal of tenancy when there was a 2.8% negative economic growth rate in the second quarter of this year. On this, Members may wish to note that 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 increase in rent re-assessed, the rents of these tenancies will be frozen at the existing level for a period of one year.

Rents for Flatted Factories

6. The HA currently manages 15 flatted factory estates, with a total of over 17,000 units occupying about 404,000 square metres. Of the 15 flatted factory estates, seven were built between 1959 and 1973 by the then Resettlement Department as part of the resettlement programme to reprovision squatter factories and cottage workshops. Rents for these factory units were originally fixed by reference to the Schedule in the now repealed Resettlement Ordinance. Such rents are referred to as "schedule rents". These rents are well below market levels and are reviewed biennially. For other lettings, three years fixed term tenancies are granted at full market rent.

7. Like other commercial tenants with tenancies commenced or renewed between 1 January 1996 to 31 January 1998, factory tenants on market rents with tenancies falling within the prescribed period can also apply for re-assessment of their rent payable as at 1 July 1998 for the residual period of their existing tenancies. Factors considered in rent assessment for these factory flats are similar to those for other commercial premises, which include locations, size, date of commencement of tenancy and existing rent level etc. For tenancies on schedule rent, the current arrangement for re-assessment does not apply to them as they are already below market level.


Housing Department
September 1998