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Evictions Loom for Hong Kong Retailers Offered Little Relief

Evictions Loom for Hong Kong Retailers With Little Rent Relief

Retailers everywhere are feeling the pinch from the pandemic, though none quite as much as shop owners in Hong Kong like Don Leung.

His business already stung by months of pro-democracy protests and a deep recession, Leung now faces possible eviction because his landlord won’t budge on the rent.

“The landlord immediately charged extra interest for late payment and warned he’ll send legal letters if there are late payments in the future,” Leung said in an interview from his fragrance store, where he pays HK$45,000 ($5,800) a month. “They don’t have a single bit of social responsibility and conscience.”

Evictions Loom for Hong Kong Retailers Offered Little Relief

While governments and landlords in countries across Europe, the U.S. and parts of Asia are offering some form of rent relief -- and Hong Kong’s central bank announced mortgage support for commercial property owners this week -- retailers in the finance hub are on their own after getting some help at the start of the pandemic.

According to the Hong Kong Retail Management Association, which represents more than 9,000 companies, almost half of its members surveyed have received legal letters from their landlords for delayed payments. The group has warned that one in four shops may close this year without substantial support.

The letters usually demand tenants pay rent and interest as soon as possible, otherwise the landlord can terminate the contract and seize the deposit. In cases where tenants are unable to pay for a prolonged period, they could be evicted, said Peter Shiu, a legislator representing the wholesale and retail industry.

Leung’s landlord Texwood Ltd., a local jeans retailer, didn’t respond to a request for comment.

The pain extends to big companies too. G2000 Apparel Ltd., a professional workwear chain with about 40 outlets, was forced to close two of its stores temporarily in Harbour City, Hong Kong’s biggest mall, on Aug. 12 because it couldn’t pay the full rent for the past few months, said founder Michael Tien.

The court bailiff will auction off the store’s inventory on behalf of the landlord, Wharf Real Estate Investment Co., to recoup the missed payments, according to Tien.

“If the landlord was a heavily indebted individual, then I’d understand their struggle when I couldn’t pay rent,” Tien said. “But these listed companies have earnings in the multi-millions every year, and they are still a stakeholder in society even though they may be making a loss right now.”

Other Nations

Wharf, a developer with revenue of HK$16 billion last year and a market value of HK$95 billion, said it extended HK$1 billion to tenants in the first half of this year. The company declined to comment on G2000, citing confidentiality agreements.

Pleas from retailers and their industry association for extended help have largely been ignored, though some developers provided rent breaks of 10% to 50% starting in February. That’s in contrast to other developed economies. Retailers in the U.S. have been able to cushion the blow with $40.4 billion in federal aid, while Singapore and the U.K. have programs in place to prevent eviction.

Evictions Loom for Hong Kong Retailers Offered Little Relief

Hong Kong’s government, which offered one-time relief to retailers of up to HK$80,000 in March, has verbally urged landlords to provide support, but hasn’t legislated anything.

Chief Executive Carrie Lam “has repeatedly mentioned in public that she has appealed to the real estate sector that, as landlords, they should ride out the difficult times with their tenants together,” a government spokesman said in an emailed statement.

Flat No

Tommy Cheung, a member of Lam’s advisory council, said she responded with a “flat no” when he suggested she provide more support for restaurants and other retailers. He’s proposing the government pay two months’ rent for tenants who have lost more than 30% of their revenue, and legislate that landlords provide an additional two months’ relief.

Cheung said Lam has called the landlords and urged them to get on board and give reductions before “all hell breaks loose.”

“I’m hoping the landlords will come through,” Cheung said. “But nothing is for sure until we have legislation that makes them do it.”

In Hong Kong, landlords have considerable clout. Seven of the 10 richest people in the city made their fortunes from property, with a combined net worth of more than $100 billion, according to Bloomberg’s Billionaire Index.

Evictions Loom for Hong Kong Retailers Offered Little Relief

The four biggest developers -- CK Asset Holdings Ltd., Sun Hung Kai Properties Ltd., New World Development Co. and Henderson Land Development Co. -- own everything from the city’s most expensive skyscrapers to supermarket chains and electricity suppliers. In Causeway Bay, where some of the tycoons’ malls are located, street shop rents eclipse even New York’s Fifth Avenue and the Champs-Elysees in Paris, according to data from Cushman & Wakefield Plc.

Sun Hung Kai declined to comment on rent relief. The last time it offered concessions was in April. New World Development said it had offered rent reductions according to tenant needs, without specifying the amount. CK Asset and Henderson Land didn’t immediately respond to email requests for comment.

Evictions Loom for Hong Kong Retailers Offered Little Relief

To be sure, landlords face their own challenges. Property sales have been slow as buyers avoid going out, and the office vacancy rate is at its highest in more than a decade. Prominent landlords like Swire Properties Ltd. and Wharf REIC saw their property valuations reduced. The index tracking the city’s developers has plunged 19% this year, more than any other industry group.

Henderson Land saw its net income slump by 62% for the first six months of 2020, mainly due to a loss of HK$2.3 billion in value for its investment properties, according to an exchange filing Thursday.

Evictions Loom for Hong Kong Retailers Offered Little Relief

“Big landlords have to be responsible to their shareholders,” said Simon Lee, co-director of the International Business and Chinese Enterprise Program at the Chinese University of Hong Kong. “If they reduce rents, it would affect their valuations. So they either don’t do it, or cut rents just by a small portion.”

Even though they risk losing tenants with evictions, landlords are confident they can find replacements once the pandemic eases, said Patrick Wong, an analyst with Bloomberg Intelligence. “They aren’t too worried about not getting tenants if some of their space is vacant, especially when they have properties in prime locations.”

In the meantime, small shop owners like Leung are just trying to hang on.

“The rental contract will not expire for another one-and-a-half years,” he said. “We can only endure everything until then. We don’t really have other options.”

©2020 Bloomberg L.P.