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1. Court told of potential $48b loss for Housing Authority

2. Outbreak of dengue is expected

3. A leader honed in the art and skills of politics

4. Launch of housing projects back on track as health crisis eases

5. Restoring relevance to the chief executive post

6. Office woes may signal real estate is maturing

1. Court told of potential $48b loss for Housing Authority
MAGDALEN CHOW, SCMP 14 May 2003

The Housing Authority would be $48.7 billion out of pocket if rents were reduced to a statutory level over the next decade, the Court of First Instance heard yesterday.

Barrister Gerard McCoy SC told the court there was no obligation for the Housing Authority to lower rents, even if the median income ratio exceeded 10 per cent, as stipulated in the amended Housing Ordinance, which came into effect on March 13, 1998.

The submission was made in the landmark legal challenge launched by two tenants over the legality of the Housing Authority's decision not to lower rents and to defer its review of rents.

Barrister Philip Dykes SC and Johannes Chan SC, for the two tenants - Ho Choi-wan, 73, a retired dim sum waitress, and Lam Kin-sum, a security guard - have argued that the rents have reached an unlawful level and are unaffordable.

They said the authority had failed its duty to keep the rents in line with the statutory formula.

The ruling could affect 2.12 million people who live in public housing estates managed by the authority or the Housing Society.

Mr McCoy said the amended ordinance did not require any review of rent to take place at any fixed interval of time. He said its legislative intent was to prohibit the Housing Authority from increasing rents frequently in times of inflation.

He said rents in most estates were still at 1995 levels, and two-thirds were paying less than $1,500 a month. Various rent-relief measures were available for tenants on low incomes. "Public rental housing in Hong Kong is very affordable by local and international standards," Mr McCoy said.

He said in the case of Ms Ho, she was entitled to rent relief because the rent-to-household income ratio exceeded 25 per cent.

He said the authority estimated that if it kept rents below the statutory benchmark of 10 per cent over the next decade, the lost rental income would be $48.7 billion.

In the case of Mr Lam, he and his wife and three children, who live on an income of $12,000 a month, have voluntarily moved to a new flat in Kwai Chung Estate at a rental of $2,110, an increase of $297. Mr McCoy said if they could not afford the rent they could choose a smaller flat.

2. Outbreak of dengue is expected
CHOW CHUNG-YAN, SCMP 14 May 2003

Chow Chung-yan The Hong Kong Medical Association has warned there is a high risk of a dengue fever outbreak this summer. The disease first swept through Hong Kong last year and is now regarded as endemic.

Association spokesman Dr So Man-kit said the average ovitrap index, also known as the "mosquito index", showed that the risk this year was high.

"According to the Singapore experience, if the index is close to 2 per cent, it is sufficient for epidemic transmission. So far the index in Hong Kong has been higher than 2 per cent,'' Dr So said.

He said 20 people contracted dengue fever during last year's outbreak, proving that mosquitoes in Hong Kong were carrying the virus. Kenneth Lee Kwing-chin, professor of the Chinese University's school of pharmacy, warned that people infected with dengue fever should not take aspirin or the Cox-2 inhibitor, both of which are commonly used to cure fever.

He said aspirin could cause internal bleeding and permanent organ damage in dengue fever patients. It is particularly dangerous for children, pregnant women and the elderly.

Dr Lo Wing-lok, who represents the medical sector in the Legislative Council, urged the public to help keep the environment clean to stop dengue fever.

"We should make it a habit to clean up our living environment and ensure we get rid of stagnant water," he said.

3. A leader honed in the art and skills of politics
SCMP, 14 May 2003

However hard he has tried to project himself as a strong leader in Hong Kong's fight against severe acute respiratory syndrome, Chief Executive Tung Chee-hwa's handling of the crisis has been lacklustre at best. His order to get the number of medical workers infected with Sars down to zero has taken much longer to achieve than he must have hoped. With so many Sars patients still in hospital, there is also a hollow echo to his call on the World Health Organisation to lift its travel advisory against Hong Kong. Overall, his response to the Sars crisis has been reactive rather than pro-active.

Still, while the community is just emerging from the Sars-induced sense of gloom and doom, Hong Kong people are realistic enough to refrain from clamouring for a change of leadership, knowing full well that it is impossible to remove Mr Tung when his second term began only 10 months ago. The motion debate on no confidence in the chief executive can therefore only be seen as a cheap shot at an unpopular leader. It will make its proponent feel good, but will have no practical effect. It should and will fail.

Symbol of dissatisfaction

The debate's importance is as a symbol, as a sign of profound dissatisfaction with the Tung administration. Despite his best intentions, whatever Mr Tung has tried to do in the interest of Hong Kong is clearly not working. From a high of 70.1 per cent in late 1996, when he was elected the first chief executive of the Hong Kong Special Administrative Region, his popularity rating dropped to 39.5 per cent in April. Last week, his popularity rebounded a little as the Sars situation got better, but no one in his position would be happy with a 41.2 per cent rating.

Early on in his candidacy, Mr Tung hinted that he would serve just one term. Despite his plummeting popularity, he changed his mind to run for a second term. That might have been prompted by a desire to vindicate himself as a visionary leader who established firm foundations for Hong Kong as part of China under "one country, two systems" and whose hard work during the first term would not bear fruit until several years down the road. And time may indeed be in his favour. It is probable that in two to three years, when his second term is about to end, the business cycle will have come full circle to pull Hong Kong out of the economic abyss, and the recovery will likely push his popularity back to its previous high, if not higher.

Change of Style

For the time being, however, Mr Tung would do well by learning from his experience. It might have been his style to run his family business with a firm grip of every detail of its operation. Yet, in running the government, he should have learned by now that it has not worked for him to maintain such a hands-on approach.

There is no doubt Mr Tung cares about Hong Kong and devotes a lot of time thinking through the issues that confront the community, now and into the future. But as a novice to politics until he was appointed to the Executive Council by the last governor, he lacks the necessary political skills to sell his ideas to a sceptical public and to say the right thing at the right time to invigorate the people. Worse, having failed to do these, he has fallen back to doing a job for which he was not trained and at which he is not very good - overseeing the daily routine of running the government.

A change of his style of governance is certainly in order. Mr Tung will probably be better off taking a back seat very much like the chairman of a company does, charting the course of Hong Kong while delegating the responsibility of steering the ship to the managing director and taking him to task when it veers off course. Mr Tung would be doing what he is good at, and leaving the work of turning his ideas into fruition to his ministers and civil servants who have a better grasp of the art of administration than he does.

He should take heed of the polls' findings that he is shunned by young, well-educated professionals, but supported by the elderly, the lowly educated and new arrivals from the mainland. One interpretation is that his grandfatherly image goes down well with the latter, but not the former, and the policies he has pursued has alienated him from the former, who are the backbone of the society.

For Beijing, it is time the leadership rethought the wisdom of appointing a businessman with no experience in government to run Hong Kong. As the head of a family shipping company, Mr Tung had no political baggage, which made him acceptable to both Britain and China as a suitable figure to steer Hong Kong through its early years as a post-colonial society returning to the embrace of its motherland. But as a person who had spent his whole life running a family business, he has proven ill-adapted to traversing the choppy waters of politics.

Leadership

That should be a point our leaders at the national level know only too well. All of them have spent their entire careers in politics, mostly by joining the communist party when they were young and working their way up either through the party apparatus or the government bureaucracy. They would not have made it to the top without mastering the art of anticipating the aspirations of the masses, communicating with the people and delivering what the community wants.

A leader who has these qualities would have brushed aside advice from his doctors and aides to visit the medical staff at risk of being infected while treating Sars patients. He would also have taken decisive action to dismiss officials who committed serious errors of judgment that led to disastrous consequences as a means of demonstrating accountability to the public. Instead, Mr Tung dutifully followed his minders' advice to stay away from hospitals just when his presence would have been most appreciated. He also failed to allow his financial secretary to go after he had clearly become a liability. Hong Kong under British rule was fortunate in that the community never needed to worry about politics. Governors appointed by London came and went without the need to involve the population in any political process. The colony was also spared the trauma of de-colonisation struggles as most people were in fact quite content with colonial rule, which had shielded them from instability on the mainland for a century and a half.

But the absence of politics in Hong Kong until the last years of British rule has ironically led to a dearth of political leaders, for which the community is suffering. After Mr Tung, what Hong Kong needs is a leader whose professional life has been about politics and public leadership. Given local conditions, he or she may be a long-serving civil servant or a legislator who has had to cross swords with officials while trying to juggle competing demands of the electorate. He or she may also be a businessman, but one who has devoted time and energy to heading professional groups, sitting on public bodies, leading community campaigns and, ideally, running elections.

4. Launch of housing projects back on track as health crisis eases
EUNICE WONG, SCMP 14 May 2003

Developers are planning to step up marketing for several new residential projects in the coming weeks as the health crisis gradually eases.

Upcoming projects to be launched include The Cairnhill in Tsuen Wan, developed by Cheung Kong (Holdings); Sereno Verde phases three and four in Yuen Long, by partners New World Development and Henderson Land Development; and Rambler Crest in Tsing Yi, developed by Hutchison Whampoa.

Sereno Verde phases three and four, called La Pradera, is expected to be launched this week or next.

Centaline Property Agency regional manager Christopher Chow said 425 units could be released for sale.

The developers had said they would like to price the units at about HK$2,000 per square foot, he said.

Cheung Kong executive director Justin Chiu Kwok-hung said the company would launch its 770-unit Cairnhill project at the end of this month.

"We have already got the government's consent to sell the units," he said.

Mr Chiu also said overall sentiment was becoming more positive and the market more active.

Parents appeared less worried about the outbreak as they were starting to take their children to look at show flats, he said.

Hutchison will soon release Rambler Crest, a 1,560-unit joint venture with Cheung Kong.

Wharf (Holdings) will relaunch its phase-two units at Sorrento development in Kowloon this week. Wharf assistant director Ricky Wong Kwong-yiu said the company would launch 200 units ranging from 1,100 sq ft to 1,300 sq ft. The average price would be HK$4,000 to HK$5,000 per square foot.

"We are now waiting for the banks' financing promotions. However, we are not planning to cut prices," Mr Wong said, adding that the new show flats would open on Saturday.

He said the company had arranged to launch the units last month, but market sentiment was poor at that time.

"Obviously, the Sars crisis is under control now, and the market is more active," he said.

Wharf will also relaunch some high-level units at its Bellagio project in Sham Tseng at the end of this month or early next.

Midland Realty executive director Victor Cheung Kam-shing said: "The stabilisation of the Sars crisis has caused developers to launch projects. Projects to be launched in March and April have been held back. The accumulated stocks will be launched in May."

Centaline Property Agency chairman Shih Wing-ching said: "If developers still keep on holding back sales, their earnings results would be affected. There were many transactions last Sunday and I believe developers have in mind the level of prices they would set."

Mr Shih said even if the Sars crisis had not stabilised, property developers would still have to launch projects.

5. Restoring relevance to the chief executive post
MARTIN LEE, SCMP 14 May 2003

The people of Hong Kong believed, in the run up to the handover, that it would be the engine to pull the mainland forward in implementing its four modernisation programmes.

The city had the rule of law, freedoms, a level playing field, prosperity, stability and above all, money. The only thing lacking would be democracy, which many rich and powerful thought unimportant, and some even believed democracy obstructed economic success.

When there were natural disasters on the mainland, Hong Kong people were on hand to help, collecting money on busy street corners. In 1991, for example, my former party, The United Democrats of Hong Kong, joined other concerned groups and raised more than $100 million for the flood victims of eastern China.

So it is no wonder so many people in Hong Kong were shocked to see Chief Executive Tung Chee-hwa last week receive medical supplies in Shenzhen from State Councillor Tang Jiaxuan, the newly appointed official responsible for Hong Kong and Macau affairs. The once-proud Hong Kong taking alms from the once-poor mainland.

Who, before 1997, could have imagined this reversal of fortune? Who in Hong Kong still remembers Deng Xiaoping's promise of no change in 50 years?

Look at our civil service. We were told in 1997 that Hong Kong's civil servants were the best in the world. That was why many measures were introduced to entice them to stay. But now they are treated like dirt, and scheme after scheme has been introduced to get rid of them. Their high morale has long since disappeared.

Look at the levelness of the playing field. In politics, not only does Mr Tung favour the pro-communist political parties, he has effectively become the titular head of the Liberal Party and the Democratic Alliance for Betterment of Hong Kong. He ignores the Democratic camp. The Democratic Party, still the largest political group in Legco, recently requested a meeting with him on the Sars crisis, only to be told "it would be very difficult".

In business, it is common knowledge that we now have an uneven playing field, which leans more and more towards Hong Kong's richest - Li Ka-shing and his two sons.

Mr Tung runs Hong Kong like his own family business. I was reminded by a solicitor friend who did a lot of work for Mr Tung's father - owner of the world's largest fleet of oil tankers at one time - that Mr Tung managed to bring his family business to insolvency in 10 years - which also happens to be the time he has in the post of chief executive. Whenever there is a crisis, people look for leadership, and leaders often emerge - British prime minister Winston Churchill in World War II, New York mayor Rudolph Giuliani after September 11, for example. As the saying goes: "Cometh the hour, cometh the man." But in Hong Kong it is: "Cometh the hour, but where is the man?"

Mr Tung is in the position not because we want him there, but because the central government chose him. And the great majority of people do not want him to continue as chief executive. But because he has the support of the majority of members in the undemocratically constituted Legco, he will easily survive today's motion calling on him to resign.

Thus, he will continue in his post until June 30, 2007. For the majority, however, he has become irrelevant. People change channels when he appears on television, while others tell unflattering jokes about Mr Tung and his government. The Internet is full of such remarks.

With the anticipated passage in July of the controversial National Security (Legislative Provisions) Bill into law, against the will of the majority, the "mainlandisation" of Hong Kong will be complete.

But we must not give up and allow this to happen. We must do everything in our power to make sure the next chief executive serves Hong Kong well.

It will, however, be wrong to ask the central government to remove Mr Tung from office, for two reasons. First, if we ask officials in Beijing to remove a bad chief executive today, they may remove a good one tomorrow. Second, there can be no guarantee that the next leader selected by the central government will be any better.

The right thing to do is get better organised in our fight for democracy, with the objective of having the next chief executive democratically elected in 2007, and the entire legislature democratically elected in 2008 - both of which are allowed in the Basic Law.

Only then will Deng Xiaoping's dream of Hong Kong people ruling Hong Kong come true. We must not delay - time and tide wait for no man.

Martin Lee Chu-ming is a legislator and a former chairman of the Democratic Party.

6. Office woes may signal real estate is maturing
ANTHONY COUSE, SCMP 14 May 2003

As Hong Kong's skyline has become one of the wonders of 20th-century architecture and urban planning, so high rents and property prices have become one of the main measures of the city's success.

This is changing.

Office market indictors including weak demand, high vacancy rates and falling rents - interpreted by many as symptoms the Hong Kong economy and office market are past their sell-by dates - may turn out to represent just a difficult stage in the welcome evolution of a more mature property market.

Today, Hong Kong is a heavily service-oriented economy. Its office market has grown tenfold in the past three decades, from 10 million square feet in 1973 to 100 million sq ft as its modern skyline has taken shape.

On average, three million sq ft of new space has been completed every year.

The office market has been strongly cyclical. Each of the past three peaks in the rental cycle (1994, 1997 and 2000) was lower than the previous one.

While this might not seem to be good news for property investors, it has provided a reality check for the market.

It appears real estate is becoming a more mature asset class, with more in common with institutional stock and bond investments than with the speculative trading mentality that characterised much of its rapid growth phase.

Hong Kong boasts one of the most transparent office markets in Asia.

It has an active leasing market with a broad representation of multinational and local companies. Net absorption has averaged 2.6 million sq ft a year over the past 20 years.

A small number of well-established, listed developers dominate the market. They are among the world's largest and most financially secure listed real-estate firms. They co-exist with a sizable number of smaller developers and some institutional investors.

This has given rise to great diversity in terms of premise type and location. Competition among landlords has always been keen.

From 2000 to last year, there was a window of very short supply, with just two million square feet completed.

There is a myth that new supply has caused the current rental downturn. It has not. The prime reason for the downturn has been demand-side weakness, a phenomenon affecting office property markets around the world.

The Hong Kong market is characterised by cycles with short wavelength and long amplitude, and therefore a wide variation in face and effective rents.

In an economic downturn, landlords are prepared to offer incentives to secure tenants.

For large tenants, the rent-free periods can vary from more than 12 months on a six-year lease when demand is weak to as little as a month when demand is strong. This results in volatile rents for tenants and volatile income for landlords.

To an extent, this has been the consequence of the relatively short leases common in Hong Kong, which have typically been three years, compared with 10 to 15 years or even longer in more mature markets such as London.

There has been increasing evidence recently that tenants, notably those with sizable requirements, have been committing to longer leases, taking advantage of attractive leasing packages with more generous incentives.

For tenants, longer leases give protection against fluctuations in real-estate costs and a longer write-off period for move-related costs; for landlords, longer leases provide stable net operating income over a long period of time and reduce costs associated with void periods.

Another consequence of a longer lease structure is a reduction in leasing activity. The result will be reduced rental volatility.

Property companies have over the past two decades developed office premises outside the traditional central business district. New office areas along mass transit transport routes have emerged. Some "older" areas have been redeveloped for new uses. Examples of successful new office districts include Island East in Quarry Bay, developed by Swire Properties, and Millennium City in Kwun Tong, developed by Sun Hung Kai Properties. These developments have given tenants greater choice of location, quality and cost.

Hong Kong office rents have topped the league tables for many years, but the cost of business accommodation is competitive.

First, anecdotal reports of premium rents paid when the economy was rapidly expanding fuelled perceptions of high costs. However, those rentals were exceptional cases rather than the market average.

Second, it depends what you compare. Most global comparisons misleadingly concentrate on headline rents, without taking into account incentives and other operating expenses.

In addition, companies in Hong Kong provide less space per head than companies elsewhere do, making Hong Kong one of the least expensive cities in terms of total business cost per employee.

This provides an opportunity for Hong Kong to redefine its economic role in Asia.

Hong Kong's integration with the Pearl River Delta will be a catalyst for a mature office market. Hong Kong's office market has thrived on the growth of "non-native" multinational companies, but Hong Kong needs to develop a domestic economic sector concentrating on the opportunities in the region - similar to those in Tokyo, London and New York.

The demand base for Hong Kong offices will be increasingly dominated by small- and medium-sized enterprises with roots in Hong Kong or China.

The Hong Kong office market is being transformed into an efficient, competitively priced provider of accommodation for economic activity and a sophisticated investment asset class.

A mature office market will be an important ingredient in the territory's recipe for future success.

Anthony Couse is international director and head of agency for Asia at Jones Lang Lasalle.