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(a) Statutory Restriction of Rents.
2. As disinterested witnesses of importance have unanimously testified, the great difficulty inherent in a statutory restriction of rents is to devise an equitable basis upon which a standard rent may be assessed. If the level obtaining immediately before the present rise in rents commenced be taken, then as we have shown the effect will be artificially to continue the depression as regards house property owners and to deprive them of a living income. The evidence of a European banker on this point is worth considering in some detail. "If you are going to restrict rents, what guarantee in return are you going to give the landlord? Are you going to guarantee payment of his rent in bad times?.
If a man has property and you restrict his resources so that he cannot pay his bank interest, there will be a crisis. ......if you start banks calling in mortgages, then you will have a serious crisis. On the same point a prominent Chinese stated: "Inability to pay interest induced by any legislative action may result in foreclosure (which word we think he used to describe all mortgagees' remedies) which would mean depression of market values to the great detriment of the Colony's prosperity." Bearing in mind the quotation we have already made from the Economic Commission's Report, these are words of grave significance. Legislation which will further undermine the already depreciated value of investments constituting "a very large portion, if not the bulk, of the wealth of the Colony" can only work against the best interests of the community as a whole. The ruin of private enterprise with holdings on so vast a scale must lead to repercus- sions the extent of which it is difficult to exaggerate. It is especially worthy of note that we have evidence that large corporations controlled by both Europeans and Chinese, including Chinese banks, have been forced to borrow from European banks in connection with their dealings in house property.
3. If the level of rents obtaining before the depression be taken as the standard, then in our view no benefit will be derived by the tenants, for we consider that the increases now proposed seldom restore the present rents to the level then obtaining. If rents be limited to a certain reasonable net percentage return on capital outlay, again the tenants will not benefit as against the majority of landlords, for we are satisfied that landlords as a class will not derive an undue revenue from their invest- ments even when the proposed increases are taken into account, and such a measure would invite fraudulent valuations of property. No one with any experience of con- veyancing in this Colony will question the possibility of such fraudulent valuations. It may be objected that rent restriction is still in force in England, and was at one time in force in this Colony, to which we reply that the circumstances in which such restrictions were imposed bear no comparison with those which we are now considering. In this Colony rent restriction was imposed in 1921, which was a period of great prosperity, and there was no hardship in limiting the landlords' rents to the level obtaining in 1920. The time at our disposal does not allow us to consider the details of earlier legislation. We must content ourselves by observing that the distinction between the state of the property market then and now is vital and sufficient, and that official records show that it was considered both at the time when the earlier legislation was permitted to lapse and when suggestions of its reintroduction were made, that it had largely failed in its object. We can only reach the conclusion that the statutory restriction of rents is an impracticable measure in present conditions.
4. Legislation prohibiting evictions alone without at the same time restricting increases of rent would prove useless. It might, for example, be evaded by the device already referred to of raising the rent beyond the tenant's means, but in our view the time is not ripe for intervention until the rent actually charged exceeds a figure which is fair in relation to the class of property in question.
(b) Inception of Rapid House Construction Work.
5. The solution of rapid building, apart from its necessarily slow consummation, is attended by many difficulties. It is necessary to restore confidence in the pro- perty market before much development can be expected at the hands of private enter- prise. "Who to-day', asked a witness, "will develop property in Hong Kong"? We
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endeavoured to answer this question, and were shown graphs by the Executive En- gineer in charge of the Buildings Ordinance Office, of which copies are not available, showing a continuous decline in construction since the year 1931. In 1932, 1.472 houses were actually completed. In 1937 only 168 houses were completed. Tables showing the actual building of houses now in progress are given in Appendix III to this Report. It is obvious that the present rate of building is wholly inadequate.
6. Several witnesses told us that there is plenty of money lying idle in the Colony, but that investors have no confidence in land. They have before them the losses incurred by landlords during recent years, and they require to be assured that there will be a continued demand for accommodation before they will supply it. For this reason, although there is a general rise in rents, and a sharp decline in vacant accommodation, the market for the sale of land and house property remains depress- ed. Investors are not convinced that this demand for premises is more than tempo- rary, and they fear that if they put their money into house property they will, on the cessation of the present hostilities, be faced with the same question of vacancies,
7. Another factor which is undoubtedly depressing the market is the excess water problem, and we invite reference to Chapter X of the Economic Commission's Report. (Sessional Paper No. 3 of 1935). The question of Government policy does not concern us, but we have found as a fact throughout our inquiry that charges for the consumption of excess water have imposed a heavy burden on landlords, especi- ally as regards Chinese tenement houses, and one of the reasons for increased rents, now that there is a demand for accommodation, is to lighten this burden. In the case of some property in Kowloon acquired as an investment, the gross rental was approxi- mately $24.000 per annum, and in one year the charges for excess water were about $4,000. "The question of water", said a witness, ". is a genuine hardship
on the landlord, and it is putting the price of property down. Until something is done about it, we shall never get a good land market in Hong Kong for Chinese tenement house property'. Investors also fear that should the present increase in population prove only temporary, the constant defaults in payment of rents will again recur. Re- ferences to extracts from landlords' books show that rents in a huge number of cases were constantly in arrear, and that in many cases tenants slipped away owing several months' rent. Rather than earn no income at all, landlords permitted such tenants to stay on in the hope that they would ultimately pay something.
8. It was pointed out to us by a prominent landlord, that the remedy of dis- tress, a powerful weapon available to a landlord in England, is in this Colony, at least as far as the majority of Chinese tenants are concerned, almost completely useless. We asked the Deputy Registrar of the Supreme Court to supply us with figures, and we found that sales under distraints since September, 1937, until the present time amounted to a farce. The claims for arrears of rent were in many cases substantial, claims in excess of $100 being common, and in excess of $200 not in- frequent. The returns in these cases were often nil returns, or returns showing recovery of a few cents. In the very great majority of cases the landlord did not
recover even the costs of the distraint. There is no doubt that there is often collusion between principal tenants and sub-tenants as regards the ownership of goods in premises which are the subject of distress. The Deputy Registrar supplied us with further figures showing that landlords are resorting to distress in a greater number of cases in recent months. but we think that warrants are issued more with a view to getting rid of undesirable tenants than with any hope of recovering arrears of rents. It is possible that in some cases landlords have abused the remedy of distress, for example by refusing rent when tendered and then alleging that rent is in arrear, but we received no evidence of this. The only complaint we received was from a tenant who claimed that distress had been issued for an amount in excess of the amount actually due. This witness was invited by a member of the Commission to attend with him at the Registry of the Supreme Court in order that the complaint might be investigated, but the witness did not appear at the Registry, and on hearing the landlord we were satisfied that the amount claimed was in fact owing. Again, we concerned with policy, but we find as a fact that the remedy of distress is singularly ineffective in this Colony.
are not
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