Soaring rents hit expat flat market

HONG KONG'S soaring residential rents are starting to take a heavy toll on corporate accommodation budgets and the pockets of self-paying expatriate tenants.

In the worst cases, landlords are asking for increases of between 50 and 100 per cent to renew rent contracts negotiated in 1992, with tenants told to pay up or ship out. So severe are the price rises that some companies are scaling down flat sizes available to employees.

Although rent increases are always a step behind price rises in the property market, the severity of the recent boom has taken players by surprise.

A spokesman for one United States investment bank said it had managed to slow down some of the rent rises by taking owners to the rent tribunal.

''Most of our rent renewals are due next year and we plan to fight them as much as possible, but asking tenants to move out would be an anathema to us,'' he said.

''We have agreed to pay asking prices for apartments only to discover that landlords come back to us with higher rent demands,'' he said.


''This behaviour is unethical and we will remember landlords who have been price gouges. What goes around comes around.'' The spokesman said the high rents had not yet led the company to curtail staffing levels.

According to First Pacific Davies residential director Isabel Michie, the term ''down-sizing'' is being used to describe the dilemma facing tenants who have to move out of existing flats because rent increases are more than they can afford to pay.

''Under the current circumstances, it sounds rather demoralising to describe it as a downgrading move,'' she said.

''Lots of corporations have gone with the market ride and increased accommodation allowances to maintain stability and staff morale.'' But, euphemisms aside, soaring rents have prompted a change in expatriates' perceptions and expectations of accommodation in Hong Kong.


Top accommodation packages, which once mirrored the spacious lodgings provided in the Government's class D flats (more than 1,100 square feet in area) and class E flats (more than 1,700 sq ft), have been the first to come down.

Ms Michie said employers were now looking at flats pegged close to the Government's class C flats, which start from 700 sq ft. In less severe cases, broad accommodation bands have been modified.


Accommodation allowances that once provided flats of up to 2,400 sq ft have been dropped to 2,000 or 1,900 sq ft and less expensive allowances that started at 1,900 sq ft have been lowered to 1,600 or 1,700 sq ft.

Ms Michie said the areas worst affected by the rent increases included Mid-Levels, the Peak and developments on the south side of Hong Kong island.

For tenants who are either paying their own rents or who do not receive an increase in their accommodation allowances, there are few choices.


If flat size is paramount, tenants can keep their existing budget and floor space by moving to areas less in demand, such as Clearwater Bay, Sai Kung, Tai Po and Yuen Long.

US companies in the financial sector are widely thought to be the most generous providers of accommodation packages. While this is good news for tenants and landlords, their willingness to pay up has led to accusations they have fuelled a rising market.

Colliers Jardine associate residential director Cathy Costin said the US financial sector had spoiled the rental market for other players.


''They have bumped up rental prices and, in many cases, their employees are only here for a short period,'' she said. ''The financial sector makes money overnight but for construction and engineering companies, many of whom are working on new airport contracts and other long-term projects, profits can take a long time to come in.'' Rental costs for flats rose 30 per cent in both 1992 and last year, and by 20 per cent in the first quarter of this year.

Despite the soaring cost of providing accommodation packages, Hong Kong is still regarded as the most logical base from which to enter the China market and, according to one personnel recruitment company, the market has reached a point where prices must either remain at their current level or come down.

''Hong Kong's high rents will bite extremely deep if there is a downturn in the economy,'' said Alfred Chown, managing director of personnel recruitment company Executive Leasing, which specialises in the placement of middle and senior level executives in Hong Kong.

''After making a decision at the boardroom level to set up an office in Hong Kong, companies will accept the initial set-up costs,'' said Mr Chown, ''but if rents continue to increase, two and three years down the track they may start to question what they are making out of it.'' One of the many cost management alternatives being explored by companies includes the relocation to China of staff who already spend considerable time travelling between Hong Kong and the mainland.

''Accommodation in China is quite expensive but still cheaper than Hong Kong,'' said Mr Chown.