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Government ownership the provision of housing would be carried out as a social obligation and not as a profitable business. Interest at 4% would therefore be ample to cover interest on borrowed money and rents could then be reduced to $5 per month. If however money for building purposes is borrowed a sinking fund must be provided for amortisation of loan and this would raise the flat rents up to about $7 per month, the top limit of the desired scale.
rate.
72. A possible alternative to a loan is to raise revenue by means of a special Rates however are included in a tenant's rent and any increase in rates would certainly be passed on and result in a rise in rents.
73. A third possibility is to issue Housing Shares, in the same way that a commercial firm issues shares in order to raise capital. To be a success interest would have to be comparatively low and therefore to be attractive must be guaran- teed. Share capital would be covered by property erected, and as can be seen from Table 5 in Appendix, IV, there is every prospect of a steady increase in the value of this cover for, as a district matures, shop rents could be raised without inflicting any hardship. By this method the cost would be limited to payment of interest during the period of construction and the deficit between income and interest rates in the early years. On an average expenditure of $2,000,000 and interest at 34% this would be between $70,000 and $95,000 per annum so long as the building programme lasted. In the later stages of development it is possible that higher interest rates than 31% would be drawn from the earlier portions of the development and this might cover partially, or even wholly, the annual deficit.
As an additional inducement to investors a possible course is to pass on any increase in rents until 4% interest is being paid. Thereafter any further increase might be divided between the building concern and the shareholders. It seems fairly certain that, if this method of raising funds be adopted, Government would have to provide the guarantees.
74. It will be noticed that in the Tables in Appendix IV the valuations under Government ownership differ somewhat from those for private ownership. It is expected that under Government ownership buildings would be better constructed and better maintained than under private ownership. Replacement of buildings therefore could be deferred longer and the necessary contribution to sinking fund reduced. The rate of interest which the sinking fund is likely to derive will probably be lower in the case of the smaller property owner than in the case of Government, with the latter operating in much larger sums, and with greater opportunities for investment. Working on a bigger scale the risk of empties and defaults is much reduced and, with a larger turnover, rates of interest can be reduced. Further, Government can afford to carry its own insurance. There is however one item which must appear under Government ownership, which is absent from the valuation for private ownership. That item is management '. The small landlord collects his own rent and deals with his property. The large property owner must employ rent collectors.
75. For rehousing the poor, management must not be confined to rent collect- ing but must include social work as well and the cost will therefore be higher. In some quarters it is contended that, although this type of management costs more, in the long run it is the cheapest form. This type of management would be new to Hong Kong, so no accurate estimates of local costs can be made. The figures shown under this item in the valuations are based on figures worked out for England, where 4% of rent is normally allowed. For Hong Kong an allowance has been made of 44% on average rents for A and B type houses under Govern- ment ownership with land values of $0.50, $1.00, and $1.50 per square foot and has been adopted as a fixed charge for Type A, four storied and Type B, five storied. Some reduction was considered justifiable for three storied houses.
76. Two other items in the valuations may be considered to require explana- tion. They are the rents adopted for shops and the proportion of shops to flats. The rents which can be reasonably demanded for shops may bear no relation to the cost of building the shop. Favourably situated shops will frequently command a rent which will provide a handsome return on outlay, not only for the shops, but all the flats above them. A shop rent of $90 per month is more than sufficient to show 6% on the total outlay for a house costing $9,000, and this without a cent in rent from the upper floors. On the other hand an unfavourably situated shop