Hit by the ‘our’ kind of asteroid

Monday 18 February 2013, 6.47am HKT

3.30am local time, 19°C (66°F), getting muggy

pet shop removal 2013 0217

OUR PLANET yesterday has had a near-miss with Asteroid 2012 DA14 (though the USSR Russia got whammed by the Chelyabinsk object), I’m sorry to say the above pet shop near my digs got hit with a Hong Kong asteroid — called The Unfathomably Astronomical Rent Increase Laid On You By Grubby Landlords At Your Closing Time.

Picture was taken last night (17 Feb). You can see an employee there ferrying the merchandise out at their usual closing time. I couldn’t manage a head-on shot because that’s kind of rude, like kicking sand in someone’s face while they’re down.

I love this pet shop. They sell Australian-imported kittehs. Every day I walk past it, waved and oggled at the kitties. Some Aussie kittehs actually wave back when they’re not high on catnip or some Australian lager.

I overheard the conversation going inside the shop that they’d just been hit with a massive rent hike. Apparently, if the shop owner won’t sign the new lease, they’ll have 10 days to clear out. So the shop owner decided it’s less painful to just bugger off there and then.

So now, I won’t have any kittehs to weeow and meow at me on my way to or from work. The bastards.

Can’t take a joke about money

This is the crap I hate and detest about Hong Kong — and Hong Kong landlords in particular.

Sure, our landlords make money. But I don’t like the way they make their money. Their attitude stinks and their manners revolting anyway.

There’s absoeffinglutely no rent control here, because that’s not supposed to be in the ‘basic tenet of a market-led economy,’ which is the government’s general catch-all spiel when it comes to money matters. Landlords therefore have a free hand in jacking up rent by several hundred percentage points.

Crackwhore bollocks

I’m not kidding you about several hundred percentage points. Lots of shops in my district on Hong Kong Island have gone under in the last year or two because of galloping rent increases.

Right now, my funk soul brutha, Hong Kong is the No. 3 highest rent place in the world (after No. 1 Manhattan and No. 2 somewhere in Austria). Third highest in both commercial and residential rentals.

The usual reason given out by landlords for such astronomical rent hikes is “the overheads are high” for them. That’s straight, unadulterated, crackwhore bollocks.

WHAT OVERHEADS?!! There are no overheads of any significance for landlords anywhere you could name in the world.

I’m a property owner (not to mention a mortgage payer). I’ve also been both a commercial and residential landlord before. I’m in the manufacturing sector too. My background is in law, and in law school we are actually trained in conveyancing, leasing and other property matters, starting midway in Year 1 under Contract Law. That’s why I said the spiel from landlords is bullshit.

Dad always said I can’t take a joke about money.

Actually borne by tenant

Take it from me, folks, there are very little overheads when you rent out a place. Roughly four-fifths of all property-running costs arising from leasing out is actually borne by the tenant as part of the tenant’s own operating overheads.

Here in Hong Kong, the landlord’s overheads are chiefly four things:—

  1. stamp duty (shared 50-50 with the tenant) for registering and re-registering of the lease transaction, and this basically comes to a paltry HK$100 (US$13 or £8.31) per every HK$2 million in the transaction value
  2. the (almost flat rate) 15% property tax on rental income, lease premium and mesne profits
  3. management fee (again, shared 50-50 with the tenant) payable to the premises’ management/security company for use and upkeep of the common areas — let’s say for convenience that this management fee for commercial premises is around HK$1,000 a month (the usual level throughout Hong Kong for the average commercial premises)
  4. the costs of occasional repairwork to the wear and tear of the structural fabric of the property that is part of the landlord’s contractual or statutory responsibility, and this kind of repairwork doesn’t really happen unless and until the tenant undertakes significant or substantial interior decoration work anyway

That’s it. Those are the goddamn overheads for the landlords.

I know so, because I’ve been through them myself as a landlord. Dad was also an architect, engineer, surveyor and mark master mason. Mum was owner of various properties in various countries, and I started really young helping Mum out in her paperwork department. With parents like them, I’m not exactly ignorant about these matters to begin with even before law school.

I’m no moneygrubbing tightwad, but I’m deadly serious when it comes to money and prices. I’ve wasted enough money in my time to know the true value of money.

Stunt last year

If our typical penchant for jacking up rent by hundreds of percentage points isn’t screwing up Hong Kong’s competitiveness, then the stunt by our government last year is making many in our foreign business community think twice about settling here permanently.

facepalmIn October 2012, the Hong Kong government suddenly announced the immediate implementation of a 15% property on ALL home purchases whether by locals or foreigners. That surprise move was meant to rein in skyrocketing property prices.

To be perfectly honest (and in full keeping with any real or imagined tenets of capitalism), our government could have achieved the same goal of reining in property prices much more simply and less painfully by exercising rent control first.

That’s because rent (more so than property purchases) is the No.1 Money Eater for four-fifths of any human being worldwide (Hong Kong included). With the astronomical high property prices typical of Hong Kong, you don’t have to be a NASA astrophysicist to see the majority of people are renters, not buyers.

Not that hard, actually

Wikipedia says 40 countries around the world have rent control, mostly for residential housing. It’s actually closer to 80 countries. Most of the European Union countries view rent control as a positive human right.

rent signRent control operate on several levels. First, it sets a rent ceiling for longstanding residential rental tenants, so these people are in a sense incentivised to remain lifelong renters, thereby helping the government to get property tax revenue from the landlords.

In turn, landlords are dis-incentivised to remortgage excessively because their rental income are set at a lower, controlled level. To remortgage excessively, landlords must jack up the rent to service the debt — but can’t because of rent control. That effectively reduces the size of the pool of mortgagees because repeat mortgagees will have been taken out of the ‘mortgage market’ merely by this simple market force.

Since the mortgagee pool is now smaller, market forces will see to it that upward price movements in the commercial and residential property sectors will be at slower, flatter rates.

It’s simple Economics 101, boys and girls. Don’t make things harder than they are, please.

Fear and loathing in Hong Kong

A typical scenario facing renters in Hong Kong is when the landlord mortgaged excessively (very common in Hong Kong). To service that debt, the landlord must jack up the rent by 100% to an unbelievable 800% — double to eight times the current rent. If that isn’t forthcoming, the property goes into foreclosure and the tenants evicted even in the middle of a lease.

In this way, without rent control, even tenants paying full rent can be forced out unexpectedly from their homes or shops through no fault of their own. That’s why the USA enacted federal legislation in 2008 and 2009 right after the subprime mortgage fiasco to protect tenants from foreclosure evictions.

It would be nice if our government actually tried to learn something from other people’s mistakes, instead of repeatedly adding to the problem with various stopgap stunts.

Rapid and negative fallout

The absolute Hong Kong purchasing mean (average) that crosses all classes of commercial and residential premises are:—

  • HK$3.75 million (US$450,000 or £290,000) for—
  • 500 square feet (46 square metres) of interior floorage

The fallout from that government stunt has been rapid and negative. Some of my clients are in the real-estate business, and they’ve left me with no uncertain impression that new property tax regime has in fact fuelled property prices and priced foreigners out of the market.

Mr Government, the science and art of the solution is up there in the foregoing paragraphs. Please read it again, you schmuck.



© The Naked Listener’s Weblog, 2013. (B13064)

Images: Pet shop image by author | Facepalm man via c4c | Rent sign via move.com.

6 Responses to “Hit by the ‘our’ kind of asteroid”

  1. A similar thing has been happening in Melbourne over the past decade or so. Once rents here were cheap but they have more than doubled on average in the past few years putting many people in the poor house.

    The main driving force behind it has been the artificailly inflated house prices here that were created by the banks giving out low doc or no doc loans with low deposit rates. Coupled with this the State Government in Victoria refuses to release new land for building houses which has created a housing shortage that has inflated the price of a house here to well over six times the average annual salary. Historically this ratio is around two or three times the rate of annual salary so it has also over inflated the price of houses here.

    This has caused a wave of foreclosures as people that should never have bought a house in the first place (because they didn’t really have the cash) can’t meet their obligations. While house prices were climbing banks refinanced homes based on the rising market values so that now, after the bubble has burst, there has been two years of declining house prices and many people are paying more for their house than it is worth- ultimately losing their homes and ending up back in the rental market and pushing rental competition to an extreme.

    Landlords see that they can keep raising the rent (I knew one who doubled the rent from $800 pcm to over $1,600 pcm in just TWO YEARS! This in spite of strict government regulation of rent increases. Not all landlords are this greedy (mine isn’t) but most are money grubbing bastards who don’t give a flying fuck about their tenets.

    The issue is so complex that the whole area needs to be restructured. It seems that this is a global problem.


    • There you go! What’s happened in your neck of the woods is exactly what’s happened in Hong Kong. The 6 times salary vs. property price difference is uncannily the same in Hong Kong AND mostly everywhere else, so we can assume the bankers are recycling the same mortgage playbook all over the place.


  2. Ed Hurst said

    The moans and groans of orthodox libertarians has always been based on a mythology of how the market works. Rent control may cause problems of its own, but greedy and unaccountable landlords are a problem, too. Social stability does mean something.


    • Oh, yes, rent control has its own set of problems, no question about that. Not having rent control worked (or may have worked) in the past because the population size was smaller. Today, with such massive populations in every city or town, you are right that social stability has to mean something. Unfortunately, it seems always to take disasters or accidents for some kind of remedy to take place.


  3. jamie-o-glenn said

    Unless specifically exempted under the Rating Ordinance (Chapter 116 of the Laws of Hong Kong), all properties in Hong Kong are liable to rating assessment, with rates payable at a specified percentage of the rateable value assessed on the property. Basically, the rateable value is the estimated market rental value of the property at a designated date.


    • Yes, it is true that ‘rates’ and ‘government rent’ are also payable by a landlord. Rates are a tax levied on properties and the revenue collected helps to pay for public services such as police, fire services, education, health and hygiene, which are of benefit to everyone in the community. For the fiscal 2011-2012 year, the maximum rates percentage charge is 5% of the property’s assessed market value – which is still peanuts within a landlord’s overall monetary outlay.

      Meanwhile, ‘Government Rent’ (previously Crown Rent) is payable under the Government Rent (Assessment and Collection) Ordinance (Cap. 515, Laws of Hong Kong) and applies to landlords holding leases from the government (which pretty much means all landlords of an ‘undivided’ share of land. The practical effect is simply that all landlords on a plot of land divvy up their portion of the Government Rent – in most cases the amount comes to a few hundred dollars per quarter. Not particularly onerous for the landlord.

      In other words, the stamp duty, rates, Government Rent, management fees and cost of repair altogether don’t come to anywhere near an onerous outlay for a landlord when matched against the rental income that could be derived from renting out.


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