Rent Protection For SMEs, Rates Hike For Pricey Flats

The government on Wednesday said it’s looking to urgently introduce a new law that would stop landlords from kicking out smaller businesses that have fallen behind on their rent for at least three months.

Financial Secretary Paul Chan also announced in his latest budget that big landlords would stop benefiting from future rates concessions offered by the government.

The added protection for smaller businesses, Chan said, is needed as “many SMEs currently face huge challenge amidst the adverse business environment”, adding that rents typically take up a large portion of their operating expenses.

In a press conference later, Chan said this will cover premises subject to current Covid curbs as well as retailers.

Once the new law is in place, landlords would be barred from terminating tenancy agreements even if the rent hadn’t been paid on time. They would also be barred from suing their tenants or withdrawing services to them.

The protection would last three months, and, if necessary, be extended by another three months, after which it would automatically lapse.

"The arrangement will provide enterprises in deep water with breathing space and help secure employment," Chan said.

“The market is very quiet, some shops – the smaller ones in particular – are operating in a very dire situation... we hope landlords and tenants can ride out the storm together."

The chairwoman of the New People's Party, Regina Ip, says other countries have also implemented similar eviction bans, but she says the government should also consider putting in place rent waivers or holidays.

"At the end of six months, businesses which have been devastated still have to pay rent, management fee or other expenses. How are they going to afford to do that?

"They have to think about how much they can exempt rent, can they grant a rent holiday, maybe only the big businesses to grant limited rent waivers... how to go about it? I think the government needs to think through these implications," Ip said.

Shih Wing-ching, the founder of Centaline property agency, said the initiative is new to Hong Kong which has generally protected the interests of property owners. But he pointed out that landlords are suffering as well amid the pandemic.

"Of course it can benefit the tenant, but why should the landlord pay for this? This is the problem of the whole society, not just individual landlords. They have their own problems also."

The finance chief added that the Hong Kong Monetary Authority will be in close communication with the banking sector, and banks will exercise flexibility if the repayment ability of any landlord is affected, owing to a reduction in rental income.

Major landlords will also be affected by a separate initiative announced in the budget, under which rates concessions will in future be given only to individuals, who can only apply for the discount for one property.

Chan said this move – targeted to be put in place in 2023 – will save the government around HK$3.1 billion for each one-off rates concession in future.

In 2024-25, the government is also looking to introduce a progressive rating system for domestic properties – such that pricier flats would be subject to a higher percentage in property rates.

Rates for properties with a rateable value of HK$550,000 or below will remain unchanged at five percent.

But those valued above that threshold will be charged at five percent for the first HK$550,000, eight percent for the next HK$250,000 and 12 percent on the value exceeding HK$800,000.

Chan said this can better reflect the “affordable users pay” principle, and will bring in about an extra HK$760 million in government revenue each year.

A Deloitte China's partner, Roy Phan, said the government's proposal to change the rates system is a good one, especially with so much economic uncertainty right now.

"It's actually fair for the government to look for additional revenue streams or additional income to cope with the pandemic situation," he told RTHK, noting the new system would add extra costs for landlords with multiple properties or more expensive flats.

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