TNAG-2968-FCO40-4247-Future-of-Hong-Kong-British-Consulate-General-inclusion-of--1993 — Page 4

31-DEC-1993

BRITISH TRADE COMM

7.08

I note from your letter of 17 November that Wootton mentioned, in the context of charging a computed land value that the Treasury would "expect" a land value to be reflected in the rent. This is encouraging because presumably exceptions can be made.

On this basis, we think that we should go for 3(ii) (b) which is a rent of £27, 358 but excluding any supplement for land rent and running service costs. Although in capital return terms, this may be difficult to defend, it is a sum which is very close to what we have calculated would be a commercial rent. Late last week, Russ Jarvis spent some time with Richard Ellis Estate Agents to look into the matter more closely. In Richard Ellis's view a commercial development in the Colvin House area could expect to attract HK$50 per square foot per month. The cost of land in that area would represent about 70% of the build cost leaving 30% for civil construction work. The developer would expect a return of 7.5% on his capital and the landlord a return of 6.5%. This works through to an annual rent of £29, 606. Although this figure has never been mentioned by the Chamber, they have enough members expert enough to work it out and it is unlikely they would accept to pay more. So we must try to ensure that we do not exceed this net sum;

if we can charge slightly less (the option at 3(ii)(b) in Wootton's letter of 17 November, so much the better it would show that we were keen to be supportive. I enclose a copy of Alan Murray's minute of 25 November, just received.

Also on the subject, I might raise a couple of points mentioned in your subsequent minute of 14 December. We are not at all clear what complication "gifts" has given rise to (para one of your minute). We would therefore be interested to hear further from you once Wootton has cleared the point. We are astonished to hear that Security Department are now having second thoughts about housing the Chamber within the Commercial Section. Why they should have taken so long to come forward with this thought foxes us all. Much of what we have agreed in the past will be lost if the Chamber had to be located elsewhere in the building. The advantage of collocation is obvious and has been discussed before Could you please find out if Security Department's objection is going to cause a major re-think?. entirely agree with the line you have taken in para three of your minute. Meanwhile we have not raised any of these issues

(including rent) with the Chamber.

Yours, ancamla

I

J Smith-Laittan