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2. We ascertained from official records covering the years 1920-1926, during which time the principle of rent restriction was fully debated, and restrictive legisla- tion was enacted and permitted to expire, that it was then conceded that a net return of 8% on capital outlay was a fair return. The Government Assessor of Rates stated in evidence that "in 1923 and onwards for some years, it was customary for valuers in Hong Kong to work on the assumption of 8% clear profit for Chinese tenements and property generally". In answer to our question whether that might at present be regarded as a fair figure, he expressed the opinion that 7% clear profit would be a more reasonable average to work on. A Chinese witness, the whole of whose evidence greatly impressed us, agreed that an average return of 7% was the normal return for investments in house property, and added that any less return would not attract private enterprise. The witness pointed out that at the present time 6% or 64% could be obtained on shares without difficulty.
3. Without unduly delaying this Report it is impossible fully to analyse the mass of figures we received, but we have no doubt whatever that in the great majority of cases property owners have not been receiving a reasonable income from their property investments, and have not for several years earned a figure approaching 7% on capital outlay. It should be remembered that in many cases the possession of one or two houses is the sole means of livelihood of the owners. In some instances property owners may have been somewhat over-generous in their estimates of capital outlay, but the contentions of the larger property owners were exceedingly well documented, and we do not feel that there has been any substantial attempt to mislead us on this head.
4. A good example may be found in the case of a European company which until recently mainly confined its activities in the Colony to advancing money on building mortgages at 8%. The advance was in each case limited to two-thirds of the amount certified on valuation. We are asked not to disclose actual figures, but it was established that owing to defaults by mortgagors the company had to take over forty properties in respect of which a vast total amount had been advanced, and that during the year 1937 the net revenue derived by the company from rents exceeded 4% on the amount advanced in only four cases, was in most cases under 3%, and in a number of cases less than 2%. This revenue was on a sum which before the depression had been certified as only two-thirds of the value of the properties, and must be compared with the 8% which would have been earned if the mortgagors had been able to carry out their side of the bargain. It should be added that borrowing money for building is a universal practice, without which develop- ment would come to a standstill, and that 8% at the time of the loans was a common rate of interest for building mortgages in this Colony. The company now for the first time since taking over the properties is able to obtain tenants for all its premises, and proposes an all-round increase in rentals calculated to yield, pro- vided that there are no defaults and vacancies, between 5% and 6% per annum on capital outlay. Many complaints have been made against this company, at least one of which appears to have been deliberately untruthful, but most of which can be explained by the movement of tenants referred to in paragraph 3 of Part II of this Report. We are satisfied that the company has been a good landlord.
5. Another example is furnished by the case of a European company which gave a general notice to tenants of a block of flats let at an average rental of $120 per month, of an increase as from the 1st March, 1938, to $170 per month, or $150 in the case of tenants who signed a lease for at least one year. The increase appears large, but we were given figures to prove that the landlords had had to borrow at 6% and then at 5% to carry on their business, and had not been earning more than 4%, and at one time less, from their property. The landlords satisfied us that in spite of their notice of general increase, concessions had been made in particular cases, and that the net revenue estimated to be produced after the increases became effective, amounted, given full occupation, to approximately 6% on capital outlay.