_Attentive policy making - the key to securing the future of Private Recreational Clubs

With the government’s six-month public consultation on Private Recreational Lease policy drawing to a close on September 19, let’s delve into some of the proposed changes and look at possible solutions to some of the potential issues we foresee therein.

Alnwick Chan September 16, 2018

Nominal Land Premium a Suitable Solution

The review report proposed changes to the current Private Recreational Lease arrangements and lease conditions, including granting a concessionary premium, equivalent to one-third of the full market land value, to private recreational clubs who are eligible for renewal.

Since most, if not all, private sports clubs are non-profit oriented or budgeted to break even or even run at a loss, their sites would only command nominal premium from a land valuation perspective.

Therefore, we recommend a nominal land premium to be charged for private recreational clubs, on the grounds that land usage, lease terms, and land lease restrictions governing these private sports clubs, cannot be objectively compared or benchmarked against transactions of commercial properties in the open market. Further, there is no market comparable for assessing the full market value of these sites.

Annual Levy Based on Rateable Value a Feasible Plan-B

In case the government rejects the notion of a nominal premium, Knight Frank recommends an annual levy based on a particular percentage of the rateable value.

Similar to the government rent calculation, the rateable value could be revised on an annual basis in line with the market sentiment. Additionally, if the private clubs are required to pay the premium or levy annually, they should be allowed sufficient time for fundraising.

Regardless of the level of the land premium, the government should recognise private recreational clubs’ operating and financial constraints, restrictions of the current leasing conditions, and the clubs’ contribution to society overall.

Offering Longer Lease Term

On the basis of private clubs’ role in enriching society, they should be encouraged to invest in their own futures, to promote sports and ensure they can provide quality facilities to both members and non-members.

One way the government could help to facilitate this is by offering longer lease terms. We recommend that private recreational leases expiring in, or leases being extended at nominal premium to, 2027 should be granted a lease renewal for 21 years + 15 years, subject to the annual levy or premium and the policies of the Home Affairs Bureau.

Several Aspects Deemed Unfavourable to Private Clubs

We believe the proposed instalment option for existing private recreational leases – similar to that under the industrial revitalisation scheme, which has yet to be taken up by industrial building owners due to high interest rates – as potentially unattractive to private clubs.

We also oppose the proposal to restrict and regulate the issuing and trading of debentures, as this is against the principle of free market and interferes with private clubs’ operation.

Private recreational clubs are rich aspect of Hong Kong’s vibrant social fabric. With forward-thinking policy-making that serves to support the clubs’ function and growth, we can help to ensure not only their survival, but their flourishing in future generations.

For more information contact: Alnwick.chan@hk.knightfrank.com