CO129-617-4 New American Consulate building- lease for site 19-4-1949 - 11-7-1949 — Page 20

After 30 years

It

40

#

#1

50

#t

ft

60

It

雪常

70

n

75

11

2

Gab

TABLE I (cont.)

$ 952,742

$958,860

$ 967,918

$ 981,341

$1,001,194

$1,014,448

19

CROWN RENT: This is a purely arbitrary charge on land arising from Home Government directives regarding the sale of land in the Colony in its early days and in the case under discussion is so low ($1,078 p.a.) as to be almost nominal. It has always been found best from the point of view of valuation practice, however, to beat it as a straightforward ground rent as applied to development properties.

In so far as a freehold ownership of the lot would encourage the American Government to develop the lot perhaps more lavishly than if it were held for the term of 75 years renewable, it is reasonable to consider the rent charge (Crown Rent) if þaid on a freehold to be better secured than the ground rent (Crown Rent) payable under lease terms.

Therefore the "Years Purchase" figure (or rate of interest) used for commutation of Crown Rent on a freehold should be more favourable to the vendor than the figure used in the case of a leasehold. I suggest the figure of 3% as it is a first class security and is in line with the tendency of well secured freehold ground rents to follow the rates of interest of Government securities.

In England the practice before the war was to capitalise leasehold ground rents of the order of 75 years, and freehold ground rents, at the rates of 5 51% and 4 - 42% respectively, though I believe that these percentages are now decreasing.

In Hong Kong we have in the past, as in the case under dicussion, adopted the figure of 4% for capitalising leasehold ground rents.

Now that the question of capitalising freehold ground rent has arisen (and this may not prove an isolated example) I submit that 3% should be accepted as the rate of interest for this purpose.

The value of the Crown Rent of $1,078 per annum, for perpetuity assuming interest at 3 is 1,078 x 33.333 * $35,932.97. (The corresponding figure at 4% is $1,078 x 25

=

$26,950).

This will be the value of the commuted Crown Rent whether the freehold is taken up now, in 10 years, or in 100 years' time.

From the point of view of rent, the cost of converting the leasehold of 75 years * to a freehold would be $35,932.97 minus the commuted value of the Crown Rent for the unexpired terms of the 75 years.

For example. as follows :-

H

t # #

The cost of conversion (rent only) after 10 years would be

$35,932.97 $35,932.97

$35.932.97 $11,088.30.

(1078 x YP at 4% for 65 years) (1078 x 23.047)

$24,844.67

The renewal period of a further 75 years cannot be considered in this case as we reserve the right to revise the Crown Rent by mutual agreement, and the rate is unpredictable, Failure to agree to a rate, etc. might conceivably form the grounds for termination of the tenancy.

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