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SMEs in certain sectors will be allowed to defer their rent payments by up to six months, Financial Secretary Paul Chan Mo-po said in his budget briefing. Photo: Xinhua

Hong Kong’s rent deferral plan will help small businesses stay afloat if UK, Singapore models are any guide, say property experts

  • The plan shares similarities with schemes in Singapore and Britain aimed at helping commercial tenants survive the pandemic
  • Singapore’s moratorium had ‘prevented disorderly systemic defaults by SMEs, said one analyst
Hong Kong’s planned moratorium on commercial rents is likely to be effective in helping small businesses survive the pandemic if similar relief measures in the UK and Singapore are any guide, according to property experts.
Small and medium-sized enterprises (SMEs) in certain sectors will be allowed to defer their rent payments by up to six months, Financial Secretary Paul Chan Mo-po said in his budget briefing on Wednesday.
The move, which will be backed by legislation, shares similarities with schemes in Singapore and Britain aimed at securing the long-term viability of commercial tenants, said Maggie Hu, assistant professor of real estate and finance at the Chinese University of Hong Kong.

“Without the rental moratoriums, a much higher businesses closure rate would have been observed in the past two years,” she said.

Singapore allowed businesses and individuals to defer certain contractual obligations such as rent in 2020. Last year, it went further and introduced an outright waiver on rents.

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Breaking down Hong Kong's dynamic zero Covid-19 strategy

Breaking down Hong Kong's dynamic zero Covid-19 strategy

The conditions appeared to be somewhat stricter than Hong Kong’s, requiring some proof of inability to pay rent.

The city state’s rental relief framework mandated rental obligations be shared equally between the government, landlords and tenants, property agent Colliers noted. Tenants were given rental waivers of between two and four months, with the government picking up the tab for half of the duration and landlords or owners paying the other half.

“It was effective in Singapore, as it helped companies, especially small and medium enterprises tide over from the impact of Covid-19 and ensure the continued viability of the rental and property market,” said Catherine He, head of research for Singapore at Colliers.

Christine Li​, head of research in Asia-Pacific at Knight Frank, said the rental moratorium in Singapore was effective in buying more time for businesses to embrace digital transformation, as they reviewed their existing models to meet the evolving consumer demands brought about by the pandemic.

“Hence the framework prevented disorderly systemic defaults by SMEs, and turned out to be very successful,” she said.

The British government first introduced a moratorium on evictions of tenants by commercial landlords in April 2020 as part of a series of measures designed to help businesses such as pubs, nightclubs and retail outlets, survive lockdowns enacted to cull the spread of Covid-19. The first lockdown in the UK began in March 2020.

The UK moratoriums prevented commercial landlords from evicting businesses who fell behind on their rent because of coronavirus pandemic lockdowns and from selling their belongings to collect on rent arrears.

Most of the other measures in the UK have lapsed, but the eviction moratoriums were extended last year and are set to expire on March 25.

It has been a big help for British hospitality companies, said Graeme Smith, a managing director at AlixPartners.

“The moratorium worked well in the UK and allowed time for landlords and tenants to work the position out,” he said.

“It looks like we’ll see around 10 per cent of [hospitality] sites fail to reopen, which is success as, at the start of the pandemic, commentators had estimated as many as 30 per cent could close.”

The potential problem with Hong Kong’s new measure is that the relief is only short-term, Hu said.

“The renters will still need to find ways to generate revenues and pay back the deferred rents,” she said. “After all, rent deferral is not equivalent to a rent waiver.

“The government should encourage the landlords and the renters to negotiate a long-term and sustainable scheme to navigate through the crisis and benefit all the stakeholders.”

The measure is likely to bring some uncertainty to the city’s commercial real estate investment market, according to Marcos Chan, head of research, CBRE Hong Kong.

“For some shorter-term investors and buyers with mortgages, missing three to six months of rent could pose a big risk,” said Chan. “Overall, it could slow down investment demand for commercial properties in the short term.”

It could result in prolonged rental disputes between landlords and tenants, said Kevin Lam, executive director and head of retail services, Hong Kong, at Cushman & Wakefield.

“This will not be a solution, and instead may create more legal and rental control problems in the process,” said Lam.

Additional reporting by Chad Bray


Additional reporting by Chad Bray

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