Following the announcement of a rental moratorium to support retailers as part of Hong Kong’s budget rollout last week, financial secretary Paul Chan is urging Hong Kong developers to, “consider lowering rents or adjusting the rent structure (as much as) possible”, so that small to medium enterprises can survive government restrictions targeting the city’s worst ever COVID-19 outbreak.
With city leaders now indicating that a citywide lockdown is on the way, chief executive Carrie Lam and other officials have taken to personal blogs and social media posts to call on commercial landlords for increased tenant support, with Lam in a 26 February Facebook post asking developers to reduce the burden on tenants by providing rental waivers.
“Although the catering and retail industry can still operate partially, business has dropped significantly, and (owners are in great need of support),” said Lam. The statement came four days after the chief executive announced a compulsory universal testing scheme, which is now expected to be followed by a mass lockdown that would further dampen the property market.
The financial secretary on 1 March also held a conference with the Hong Kong Real Estate Developers Association (REDA), chaired by Stewart Leung Chi-Kin, who later revealed that “no consensus has been reached” regarding the rental enforcement moratorium, Guandian reported.
Far From Recovery
The latest wave of COVID-19 had caused economic stagnation, and the collapse of small and medium-sized enterprises could lead to a rebound in unemployment rates and social instability, said Chan in his blog post last week.
Local tycoons were driven by the looming lockdown to speak up, with nightlife and entertainment magnate Allan Zeman, who chairs Hong Kong’s Lan Kwai Fong Group, responding by complaining of mixed messaging on pandemic rules from city leaders in an interview with broadcasting service RTHK this week.
Zeman told RTHK that he was concerned those with “international links” would leave Hong Kong due in part to the lengthy quarantine periods. “Now they’re moving their offices to Singapore and other places, which is hurtful to me, because Hong Kong has such a great reputation. We’ve always been a super-connector between China and the West,” he said.
The rental enforcement moratorium was introduced to prevent landlords from terminating tenancies, cutting services or taking legal action against tenants from vulnerable sectors which fail to pay their rent on time, Chan said in his announcement of the 2022-23 budget on 23 February. The relief would remain valid for three months and, if necessary, be extended one more time for the same duration.
Retail Takes a Hit
In the conference call between Chan and the Real Estate Developers Association this week, REDA chairman Leung pointed out that if tenants were to vacate properties after six months without rent payments, landlords would struggle to recover rent arrears, while still having to pay bank and other expenses, Guandian reported.
With rents for high street retail having fallen 4.3 percent year-on-year in 2021, and the latest COVID-19 outbreak bringing in more than 10,000 new COVID-19 cases daily, Hong Kong’s retail landlords could see their rental income take a hit, due to the proposed six-month rent free period amid the sector’s already-disrupted recovery.
Real estate developers that mainly rely on retail rents for income are among those to be impacted the most, said Alex Leung, senior director at local surveying firm CHFT Advisory and Appraisal Limited.
“Retail leasing and transaction volumes are expected to tumble in the current quarter compared to the same period last year,” he said. However, with the consumption voucher scheme, which would distribute a fresh round of electronic spending coupons totaling HK$10,000 for Hong Kong permanent residents and immigrants aged 18 and above beginning in April or later, retail spending is expected to rebound significantly when the pandemic is contained, said Leung, who expects to see more short-term leases in the coming quarters.
In their call for help from the city’s landlords, both Chan and Lam praised Swire Properties, which on 25 February said it would offer full rental waivers for tenants at its Pacific Place and Cityplaza shopping malls until 20 April – the scheduled end-date for Hong Kong’s government-mandated closures.
A day before that announcement, Asia’s largest real estate investment trust Link REIT said in a statement that it has been running a HK$120 million scheme to support tenants in Hong Kong since early February this year, although relief measures are offered on a case-by-case basis, rather than across the board.
Within the same day, Hongkong Land, Central district’s biggest landlord, released a statement which said the developer had in total provided over HK$400 million of rent relief for tenants in the period from early 2020 to June 2021.
“The rental relief remains in place and will be evaluated on a case-by-case basis to support tenants during this extremely difficult period,” read the statement.