2021/22 Rating Revaluation – Retailers, are you being overrated?

2021/22 Rating Revaluation – Retailers, are you being overrated? 281 339 Dwyer Lynch & Co

We believe the Rating and Valuation Department have significantly over valued retail premises in this valuation list. This is because the lack of market transactions has limited their ability to understand the true state of the market.

The 2021/22 Valuation List has now been published. It contains the updated list of rateable values (“RVs”) for each property in Hong Kong, forming the basis of the rates and government rent payments that are charged by the Hong Kong Government to owners or occupiers.

Rateable value is the estimated rental valuation prescribed by the Rating and Valuation Department (“RVD”) for given premises throughout Hong Kong. This applies to all types of assets including offices, retail units, warehouses, and hotels, among others. This notional rent is based upon an estimate of value – for the purposes of the present 2021/22 list – as at 1 October 2020.

A fixed percentage – 5% for rates and 3% for government rent – of this rateable value is then charged to either the owner or the occupier. It is therefore important to keep track of how the rateable value for the premises that you either occupy or own has changed between October 2019 (i.e., the 2020/21 year) and October 2020 (i.e., the 2021/22 year). The 2021/22 list came into force on 1 April 2021 and many owners and occupiers will soon receive their first demands based on the new rateable values if they have not already done so.

Have RVD correctly valued your premises?

Given the valuation date of 1 October 2020, these new rateable values should reflect RVD’s opinion of the impact of covid-19 on rental values in the territory, having failed to do so in the previous year’s list. This note focuses on the retail market in particular and RVD’s shortcomings in assessing rateable values for the same. It appears that the vast majority of retail premises in Hong Kong have been valued above their correct level, meaning that ratepayers are being over-charged.

The clearest way to illustrate this is by comparing the rateable values from the 2020/21 year against the new 2021/22 year. RVD have already confirmed that they omitted consideration of the impact of covid-19 in the previous assessment year. The difference between these two assessment years must therefore show RVD’s opinion of the perceived impact of the pandemic on retail rental values.

The table below highlights some examples of selected retail developments and the respective changes in their assessed rateable values between the 2020/21 and 2021/22 assessment years. We have taken a representative sample of units from each development to produce an indication of average reversions.

Building / DevelopmentChange in RV between

2020/21 and 2021/22

IFC Mall (Central)-29%
The Landmark (Central)-29%
Harbour City (Tsim Sha Tsui)-22%
1881 Heritage (Tsim Sha Tsui)-27%
SOGO (Causeway Bay)-18%
Times Square (Causeway Bay)-25%

The above table therefore gives a sample of prime shopping centres in three core districts, illustrating RVD’s opinion that retail rents have fallen by around 25% in the given time frame. (It should be noted that prime street-front retail properties have seen yet wilder fluctuations in value, compared to institutionalised retail malls.)

The actual impact of COVID-19 upon the Hong Kong retail market was far greater than a reduction in rental values of -25%.

International inbound tourism to Hong Kong has been at a virtual standstill since the onset of covid-19, with arrivals at the airport marking a fall of 99%. These tourists formed a significant portion of the customer base and vital revenue source for many of the retail tenants occupying developments such as those tabulated above. This, combined with government-mandated closures and other limitations on consumer behaviour, has led to rental reversions closer to the range of -50% to -75% being recorded both inside the developments listed above and also throughout the wider retail market. This is the evidence that should have been considered when re-assessing the rateable values for the 2021/22 year.

The prevailing issue that RVD face, however, is that rental transactions in these core retail districts (as well as the leasing market generally) have been increasingly infrequent in the current market as retailers are, generally speaking, not expanding or relocating their operations due to the increasingly poor trading environment and capital expenditure considerations. The few transactions that do take place are often not reported openly within the marketplace, or the details of such reversions have not yet been requisitioned from the relevant government authorities. RVD are therefore left with little hard, transactional evidence accurately reflect the situation that is unfolding ‘on the ground’ throughout the retail landscape. This is exacerbated by the fact that RVD have shown reluctance in considering the ‘indirect’ evidence of massively increased vacancies, reduced revenues, and/or the rental relief being provided by many landlords.

How we can help.

Dwyer Lynch & Co has been working with both landlords and tenants to understand the issues faced by retailers and landlords in this covid-19 economy, collating evidence of both rapidly decreasing footfall and falling sales across Hong Kong’s once bustling retail centres. As a firm of rental valuation specialists, we hold a database of rental transactions and supportive data that underpin the reality of the true impact that covid-19 has had on the retail market.

The then dominant issue of the social unrest in 2019 was not properly or comprehensively reflected in the 2020/21 list and we were able to achieve success in reducing our clients’ liabilities by correctly recalibrating RVD’s valuations. We have been and continue to act also on behalf of clients disputing the omission of covid-19 in the 2020/21 list, as well as in relation to a number of other issues.

If you would like Dwyer Lynch & Co to review your company’s latest rateable values across any of your occupied or owned premises within Hong Kong – we would welcome the opportunity to assist you with this process. Objections against the new rateable values must be submitted only in April and May this year.

For further information on how we might be able to assist your company – please do not hesitate to contact peter.linstead@dwyerlynch.co for further details.

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