Submission to the Housing Panel Meeting For Tuesday December 16th, 2008.  CB(1) 411/08-09(01)

Respect of private property rights is no doubt one of the most fundamental elements
attributed to Hong Kong’s success. However, several incidents happened in recent
years suggest that the private property rights in Hong Kong are at threat. Activism by
some legislators in repeatedly calling to task The Link Reit to account for normal
business decisions is an example of most grave concern. Therefore, The Lion Rock
Institute made a submission to the Legislative Council in April 2007 to explain how
these actions would degrade private property rights and obstruct lawful contract
negotiation. Since then, our Institute has been invited by various media companies,
including The South China Morning Post, Apple Daily and RTHK, to express our
views on controversy with regards to The Link, especially recently on its decision to
increase rent. After series of interviews by the media and our dialogues with a
number of opinion leaders and the public, the Lion Rock Institute would like to
present to the Legislative Council again a summary of our main observations and our
stance on this matter.

Firstly, the most seen headline is about The Link Reit’s hefty rental rises. There are
only two reasons The Link wants to increase the rent substantially in an economic
downturn: 1. the current rent is far below the market level. If this is the case, their
effort in bringing the rent back to the market level is justifiable. 2. If Link is already
charging market rate and still want to increase the rent substantially, they might have
underestimated the impact of the financial turmoil and they will likely be suffered
from high vacancy and eventually need to bring the rent down. The rental market has
been functioning well in Hong Kong for years and there is no reason we single our
The Link and abandon our effective market mechanism.

Secondly, another most widely heard comment is the Government must act to stop the
Link to increase rent by acquiring controlling stake of The Link in order to protect
consumers. This action simply violates the property rights of all the minority
shareholders, who are mostly Hong Kong people. Even if the Government acquired
the controlling stake and forwent the welfare of the minority shareholders,
maintaining the rent artificially low will not benefit consumers. Sublet cases (where
the tenancy agreements were concluded back in the Housing Authority era) reported
by Ming Pao on March 8, 2007 and recently disclosed by government’s audit report
(Ch. 6, Report No. 51 of the Director of Audit) regarding the government-run wet
markets prove that rental subsidy only creates wastage, mismanagement and
inconvenience to consumers. At the same time sublettors pocket the difference
between the subsidized rate and the market rate so no consumers could benefit from
the Government’s subsidy. Obviously, no one except the sublettors will be winners
and the Government should never consider buying back The Link Reit as an option.

In conclusion, this incident merely involves two private entities and any
disagreements should be resolved by negotiation between them. The Government and
the Legco should respect private property rights and should not exert political
pressure on the landlord and tenants when they are negotiating their leasing terms.

Thank you for your consideration and continued work serving Hong Kong.

By and On Behalf of:
Peter Wong
The Lion Rock Institute