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Following is a question by the Hon Frankie Yick and a written reply by the Secretary for Transport and Housing, Professor Anthony Cheung Bing-leung, in the Legislative Council today (November 27):
Question:
Some members of the logistics industry have relayed to me that the Government's current practice of leasing out logistics sites on short-term tenancies (not more than three years) by way of tendering is not conducive to the development of the industry. These people have pointed out that many tenancies are on a fixed term of one year only, and although the tenancies thereafter may be extended on a quarterly or monthly basis, the rents will usually be raised substantially. However, lessees of logistics sites (especially those used as open storage areas or container yards) need to invest heavily on site formation, development of infrastructures and purchase of operation tools and equipment before they can do business. Since the term of the tenancies is fixed at one year only, the lessees often find it difficult to recoup the costs on infrastructures; and upon the expiry of the tenancy term, once they are informed that the tenancies will not be extended, they must move out of the sites within one month, but they find it difficult to find suitable sites for relocation in such a hasty manner. In this connection, will the Government inform this Council:
(a) of the following information on each logistics site leased out on a short-term tenancy in the past five years (set out in table form):
(i) site location;
(ii) land use;
(iii) site area;
(iv) the date on which the existing lessee was first granted the tenancy, and the cumulative duration of the tenancy to date; and
(v) the commencement date and fixed term of each tenancy, and the rate of rent increase (%) as compared to the preceding tenancy, as well as the reasons for termination of tenancy (if applicable);
(b) whether the authorities will consider leasing out logistics sites on a longer fixed term (e.g. five to seven years) so that the lessees can have the opportunities to recoup the costs on infrastructure investment; if they will, of the details; if not, the measures put in place by the authorities to reduce the financial loss suffered by the lessees due to non-renewal of short-term tenancies; whether they will, in re-tendering a logistic site, consider giving priority to the former lessee who has invested substantially on that site in leasing the site, and determining the new rent based on the rent of the former tenancy adjusted by the cumulative inflation rate, instead of determining the new rent in accordance with the change in land value of the sites nearby; and
(c) of the details of the logistics sites to be leased out by the authorities on short-term tenancies in the coming three years, and set out the information in the following table?
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Expected Location Land Area Tenancy Anticipated
commence- use term rent
ment
date of
the
tenancy
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Reply:
President,
The port back-up and logistics sites made available by the Government are mainly in the Kwai Tsing District in order to provide direct support to the operation of the Kwai Tsing Container Terminals. Up to now, the Government has provided over 100 hectares of short-term tenancy (STT) sites in Kwai Tsing for uses including container storage, cargo handling and container vehicle parking. Over the years, these port back-up sites have been released through STT to maintain flexibility in land use so as to cope with the latest operational needs of the port/logistics industries. The STT arrangements also allow small and medium-sized enterprises interested in running related business to bid for suitable STT sites at different times.
The Lands Department (LandsD) leases the sites through open tender in line with the principle of fair competition. When determining the fixed term of the STT concerned, LandsD will consider factors such as the proposed use and its nature of operation, and whether the Government needs to allow flexibility for the land to be used shortly for other purposes. Information including the term of tenancy will be explicitly listed out in the tender document. People or corporations who are interested in operating port back-up business may, having regard to their business considerations and in accordance with the terms of the land and its STT open for tender from time to time, bid the land concerned by means of tender.
Currently, the fixed term of STT granted through open tender for logistics use is three years in general. When the three-year fixed term expires, the District Lands Office (DLO) will arrange for re-tendering of the site if the site does not need to be used for other purposes in the short term. The existing lessee and other parties who are interested in the site may take part in the tender exercise. If the site is not suitable for re-tendering in cases where, for example, the land needs to be used for other purposes in the near future, its tenancy will be renewed according to the terms concerned, normally on a quarterly basis.
The logistics industry has commented that STT with a fixed term of only three years is unable to meet their operational needs. In view of their comments, the Transport and Housing Bureau has requested LandsD that when they handle STT sites for port back-up and logistics uses in Kwai Tsing, they should consider increasing the fixed term from three years to five years for the container storage and cargo handling sites when such sites are re-tendered and where the circumstances permit (such as where the sites are suitable for a longer STT use). The tenancy of four STT sites, involving about 6.6 hectares of land, has now been increased to five years (Note).
On rent adjustment, the DLO concerned will, upon expiry of the three-year fixed term, assess the rent on the basis of the prevailing market rent and in accordance with the tenancy agreement and the existing applicable procedures. If the market rent assessed is higher than the existing rent, a notice of adjustment will be issued to the lessee. Generally speaking, when reviewing the rent of a STT, the DLO will use the market rent of the subject STT site as the benchmark and assess the new rent taking into account factors such as the prevailing comparable market rent; the use, location and size of the STT; and any special condition(s) and remaining term of the tenancy. If the lessee objects to the level of the adjusted rent, he/she can lodge an appeal to the DLO concerned. The lessee should set out their proposal on the rental level and provide justifications supplemented by rental assessment information to support the appeal. The DLO will process the appeal according to the established mechanism and inform the lessee of the outcome upon completion of the process. If the lessee does not accept the rent as adjusted after an appeal, he/she can lodge an appeal again, and the DLO will refer the appeal, together with relevant justifications, to the Valuation Section of the Lands Department for consideration.
Our reply to different parts of the question raised by the Hon Frankie Yick Chi-ming is as follows:
(a) With respect to the port back-up and logistics sites released by the Government which are concentrated in the Kwai Tsing District, detailed information on the STT of port back-up sites leased out over the past five years are provided at Annex.
(b) and (c) On the term of tenancy, as mentioned above, the Transport and Housing Bureau has asked LandsD to extend the fixed term of sites involving container storage and cargo handling in the Kwai Tsing District from three years to five years when circumstances allow in view of the logistics industry's comments. Moreover, the industry has recently raised with us a number of comments on the use and term of tenancy as well as the lease arrangement for the port back-up sites. Since the industry views are diversified, we will conduct a review with LandsD and other relevant departments on the subject matters concerned. The review will look into better ways to manage and allocate the Kwai Tsing port back-up sites in the longer term in order that they can be more effectively used to support the operation of the Kwai Tsing Container Terminals. We will consult the industry on the outcome of the review and the recommended measures. During the review, we will maintain the status quo of the port back-up sites as far as possible.
When conducting the review, we will consider the views and suggestions put forward by the industry, including the feasibility of suggestions mentioned in the Hon Yick's Question, i.e. to extend the tenancy term to seven years, to give priority to the former lessee who has made substantial investment to renew the tenancy and to calculate the rent based on cumulative inflation rate. On the suggestion to give priority to the former lessee who has made substantial investment to renew the tenancy, the Government would have difficulties in verifying the amount of investment made. The suggestion may also affect fair competition by creating a barrier to new operators who are interested in submitting a tender. As such, there are practical implementation difficulties and the suggestion requires careful consideration. With respect to the suggestion on rent, it should be examined in the context of the Government's overall fiscal policy. Nevertheless, we will give careful and comprehensive consideration to all of the views when conducting the review.
Regarding the Hon Yick's Question on the detailed arrangements for releasing port back-up and related logistics sites in the next three years including their area, use and tenancy term, as explained above, the Government will conduct a review on the long term arrangements for the management and allocation of port back-up sites in Kwai Tsing. The future arrangements will be subject to results of the review and consultation with the industry. Before the review is completed and the way forward determined, the Government will maintain the existing tenancy renewal arrangements through established mechanism. In other words, except for individual cases, the existing lease arrangements of STT sites in Kwai Tsing (see Annex) would be maintained in general.
Note: One of the STTs has been terminated due to contravention of the tenancy terms by the lessee.
Ends/Wednesday, November 27, 2013
Issued at HKT 14:02
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