A30SGROUPRESEARCH

TABLEOFCONTENTSEXECUTIVESUMMARYFOREWORDTOURISM IN HONG KONG OVERVIEWSOMEFACTSABOUTOURVISITORS TOURIST ACCOMMODATION IN HONG KONG HOTELVS. GUESTHOUSE NO. OFROOMSANDINCREASEINROOMRATENUMBEROFLICENSEDGUESTHOUSESDISTRIBUTIONGUESTHOUSEOPERATIONIS A GROWINGBUSINESSFIELD RESEARCH: GUESTHOUSE IN HONG KONG ANNUALUNACCOUNTEDDEMAND=6.9MROOMNIGHTSINVESTIGATIONONUNLICENSEDGUESTHOUSESEXTREMELYPROFITABLE: $184PERSQ. FTRENTMORETOBEFOUNDONLINEDISCUSSIONS GUESTHOUSESTAKEUPRESIDENTIALUNITSSHORTAGEOFAFFORDABLEHOUSINGHITSGRASSROOTSINCREASESHORTAGEINHOUSINGSUPPLYINCREASEDOMESTICRENTSVINTAGEDMCSDONOTREGULATELANDUSECHAINEFFECTLACKINGDETAILEDSTATISTICSPOLICIES ON GUESTHOUSE POLICYONHOTELLANDSUPPLYPOLICYONLICENSINGANDENFORCEMENT RECOMMENDATIONS CONTROLTHEGROWTHOFTOURISMCOMPREHENSIVESTRATEGYONHOTELLANDUSECOMPREHENSIVEASSESSMENTONTOURISMIMPACTENFORCEMENTANDPROSECUTIONOPEN DATA WHATIS OPENDATA?WHYSHOULDWEPROMOTEOPENDATA?WHATTHEGROUPHASDONE?ACKNOWLEDGEMENTAPPENDIX

2

EXECUTIVESUMMARY

There are 862 licensed guesthouses in Hong Kong as of June 2014. They provide 8,080 rooms, which is equivalent to approximately 1/10 of visitor accommodation available in Hong Kong.

Calculating based on the available figures, it is estimated that every 4 guesthouses found in Hong Kong, there are 3 unlicensed. Unaccounted accommodation demand amounts to 6.9 million room-nights per year, and it means that roughly 2,273 unlicensed guesthouses have been operating to cater for this unaccounted demand.

We believe the gap is filled out by the many unlicensed

guesthouses operating in town. The Groups field research reveals that on Dundas Street, 7 out of 16 guesthouses found within some 200-meter distance are unlicensed. In just one single Hang Lung Mansion, 6 out of the 14 operating guesthouses are not found in the Governments licensing database.

The business of guesthouse operation is extremely profitable. Based on information collected in its field research, the Group estimates that the income generated from a guesthouse of 1,141 sq.ft averages to HK$210,366 per month (without deducting costs). (see Chapter 3)

Average income approximates to $184 per sq. ft,

while Tai Koo Shings rent is only $35-45 per sq. ft. (see Chapter 3)

Most of these unlicensed guesthouses overspread in Yau Tsim Mong, which are districts that have housed most low income class. The impact of guesthouse business operation is directly felt by this most vulnerable group.

Hong Kong already runs short of affordable housing. Unlicensed guesthouses further reduce available flats for lease by taking up residential units which are supposed to house local people.

3

Hong Kong has bare hotel land use planning and there is no segregation between tourist accommodation land use and domestic land use.

Although the Government proposes to amend the Hotel and Guesthouse Accommodation Ordinance (HAGAO) to empower the Authority to refuse to issue/renew licences or cancel the existing licences where the Deed of Mutual Covenant (DMC) of the building concerned contains explicit restrictive provisions stipulating that guesthouse operations or commercial activities are not allowed, such proposal will not resolve the problem to great extent.

As reflected in the field research, many unlicensed

guesthouses situate in buildings with vintage DMCs that simply do not regulate the use of the premises. Owners are free to use the premises for whatever purposes.

Although the relevant authorities have spared no effort to combat unlicensed guesthouses from operation, our research reveals that no convicted persons have been fined for more than HK$20,000, even though the statute has empowered the court to impose a maximum fine of HK$200,000. Only 22 persons are sentenced to imprisonment in the past 5 years for committing the offence, and most of them stayed in jail for less than 2 months.

We recommend Hong Kong to strategize its tourism development. Master plan on hotel land use is welcome. Consultation on master planning of hotel land use should be introduced regularly to ensure democratic participation of the planning process.

Review of existing hotel land use policy, including the

hotel-site only initiative introduced in 2008 but not followed up afterwards, is most in need.

Taking into account our tourist carrying capacity, we should

consider accepting fewer tourists.

The Group pioneers to apply the Open Data Research Method to conduct the current research with the aims to introduce open data research to the civil society, as well as to nurture a more transparent and accountable research environment. All research data collected and material referred to are available and open to public.

4

EXECUTIVESUMMARYCHINESE

2014 6 862 8,080 1/10

6 9 2,273 4 3

200 16 7 14 6

1,141 $210,366

$184$35-45

$200,000 $20,000 5 22 2

2008

5

FOREWORD

Tourists take up urban space. Other than making us to wait for another MTR, they also take up our living space by occupying residential units that have been converted into unlicensed guesthouses.

Urban academics have been discussing the phenomenon, but no systematic research has yet been conducted in this respect.

The 30SGroup is willing to take the initiative, and the preliminary findings are astonishing. Turn to Chapter 3 and see the field research results.

More significantly, we strive to open our data so that you and everyone in the civil society can pick it up and continue with the research. The Group pioneers to introduce the Open Data Method. All of our research data are open and we expect the civil society to take up and lead this journey further.

Now, lets turn over the page and face the reality.

The 30S Group

http://www.30sgroup.org/

6

1)INTRODUCTION:TOURISMINHONGKONG1.1OVERVIEWWhile Hong Kong has only a population of 7.2 million1, we received annual visitors arrivals of 54.3 million in 2013, which is 7.6 times of our population.

Graph 1.1 Total Hong Kong Population and Visitors Arrivals in 2013 2013 vs. ()

1.2SOMEFACTSABOUTOURVISITORS Table 1.1: Visitors to Hong Kong

Total number of visitor arrivals in 20132 2013

54.3M (5.43 )

Number of overnight visitor arrivals in 20133 2013

25.6M (2.56

Visitors arrivals between January and May 20144 2014 1 5

24M (13.6% year-on- year increase) (2.4 ) ( 13.6%)

Visitors from Mainland China between January and May 20145 2014 1 5

18.4M (76.7%, a 17.6% year-on-year increase) (1.84 ) ( 76.7%, 17.6%)

Average length of stay of overnight visits of mainland visitors in 20136

3.4 nights, it peaked (4.8 nights) in 20037 and dropped gradually to 3.4 nights in 20098

1 Population, Hong Kong Statistics, Retrieved from http://www.censtatd.gov.hk/hkstat/sub/so20.jsp 2 Hong Kong Tourism Board, A Statistical Review of Hong Kong Tourism 2013, p.8-9 3 Hong Kong Tourism Board, A Statistical Review of Hong Kong Tourism 2013, p.8-9 4 Hong Kong Tourism Board, Visitor Arrival Statistics, May 2014 5 Ibid 6 Hong Kong Tourism Board, A Statistical Review of Hong Kong Tourism 2013, p.54, Part 3.2 7 Hong Kong Tourism Board, A Statistical Review of Hong Kong Tourism 2013, p.49, Part 3.2 8 Hong Kong Tourism Board, A Statistical Review of Hong Kong Tourism 2010, p.50, Part 3.3

54.37.2

VisitorsArrivialsHongKongPopulation

No.ofpeople(Million)

7

2)TOURISTACCOMMODATIONINHONGKONG2.1HOTELVS. GUESTHOUSETable 2.1: Hotel vs. Guesthouse in Hong Kong (as of June 2014) 9

( 2014 6 )

Hotel Licensed Guesthouse

Number

229 hotels 862 guesthouses Number of

rooms

71,066 rooms 8,080 rooms

Average occupancy

rate

89% 87.5%

Average room rate

(year-on-year increase)

()

$1,463 (+2.8%) $546(+8.5%)

Distribution of

guesthouses

80 in Yau Tsim Mong 40 in Wan Chai 41 in Central

21 in Eastern District a few in other districts

706 in Yau Tsim Mong 76 in Wan Chai

a few in other districts

In 2012, total value-added of the tourism industries was $230.2 billion, or 11.4% of Hong Kongs Gross Domestic Product (GDP). Among them, the retail trade generated VA of $82.0 billion and contributed 4.1% to GDP, followed by food and beverage services industry (2.2%)10.

2.2NO.OFROOMSANDINCREASEINROOMRATEThe chart below shows the number of Hong Kongs four kinds of hotel and guesthouse accommodation - High Tariff A Hotel (

9 Hong Kong Tourism Board, Hotel Room Occupancy Report, June 2014, (Average from January to June 2014) 10 Census and Statistics Department, Tourism Satellite Account for Inbound Tourism of Hong Kong, Hong Kong Monthly Digest of Statistics, May 2014, para 2.4

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2. 4DISTRIBUTION706 of these licensed guesthouses concentrate in Yau Tsim Mong. 76 guesthouses are in Wan Chai, with only a few in other districts.

2.5GUESTHOUSEOPERATIONISAGROWINGBUSINESSThe business of operating guesthouse records significant growth in all respects in recent years.

BETTEROCCUPANCYRATEOccupancy rate of guesthouse went up to 88% by June since 201413. It almost catches up with the occupancy rate of hotels, and in any event, it has significantly increased by 35% in the past 11 years (compares with 200314)

Graph 2.2 Occupancy rates of Hotel and Guesthouses

BETTERGROWTHINROOMRATEChapter 3 of this report reveals that the guesthouse business is also growing relatively more profitable when compares with other types of hotel operation. To be brief, in 2013, despite the room rate of all other types of hotel has slightly decreased by 2.8%, the room rate of guesthouse has, in contrary, surged by 2.4%15. Between January and June 2014, average room rate of hotel increased by a

13 Hong Kong Tourism Board, Hotel Room Occupancy Report, June 2014, (Average from January to June 2014) 14 Hong Kong Tourism Board, Hotel Room Occupancy Report, December 2003, section 1 15 Hong Kong Tourism Board, Hotel Room Occupancy Report, December 2013, section 2 Part 2

65

70

75

80

85

90

95

2008 2009 2010 2011 2012 2013 2014June

Percen

tage HighTariffAHotel

HighTariffBHotel

MediumTariffHotel

Guesthouse

10

slight 2.8% while that of guesthouse sprang up by 8.5% on a year-on-year basis16.

Table 2.3 Room Rate of Hotel and Guesthouse in the past decade (full data available in Appendix II)

() 2004 2012 2013 2014 June

High Tariff A Hotel 1,356 2,457 2,382 2,446

High Tariff B Hotel 638 1,228 1,201 1,204

Medium Tariff Hotel 414 781 758 740

Average rate of hotel 803 1,489 1,447 1,463

Guesthouse 285 510 552 546

16 Hong Kong Tourism Board, Hotel Room Occupancy Report, June 2014, (Average from January to June 2014)

11

3)FIELDRESEARCH:GUESTHOUSEINHONGKONG3.1ANNUALUNACCOUNTEDDEMAND=6.9MROOMNIGHTSGiven the huge volume of annual visitors we receive, it is understood that there exists a shortage in the supply of hotel and guesthouse in Hong Kong. But what is the scale?

The Group attempts to calculate the size of the shortage, and it is estimated that the hostel demand unaccounted by all hotels and licensed guesthouses in Hong Kong equivalents to 6.9M rooms-nights per year.

The calculations are as follows:-

Unaccounted Demand (no. of room-nights): = Annual Hostel Demand - Annual Hostel Supply = 32.6 - 25.7 M = 6.9M room-nights

Assuming the average party size (i.e. number of guests sharing a room) = 2 persons17

Annual Hostel Supply: 79,146 Rooms X 365 days X 89% occupancy rate = 25.7M Annual Hostel Demand: 25.6M overnight visitors X 75% of them stayed in commercial hostel 18 X 3.4 nights (length of stay) / 2 (party size) = 32.6M

In that case, how many hotels or guesthouses are needed to satisfy this Unaccounted Demand?

No. of extra hotel rooms in need: = 6.9M room-nights / 89% occupancy rate / 365 nights = 21,364 rooms

21,364 rooms more or less represent the total number of households settled by almost 3 Choi Hung Estate ()19. Given the average number of rooms in each guesthouse is 9.4

17 Party size is significant to our calculation. Yet, this figure is not available from the Tourism Board or any relevant Government departments. The Group has made enquiry to professionals in the hotel industry, and understood that this number should be roughly 2. 18 Tourism Board, A Statistical Review of Hong Kong Tourism 2013, p. 54 (Types of Accommodation / All Country 2013) 19According to the Wikipedia, the Choi Hung Estate contains 7,400 flat units.

12

rooms20 , these 21,364 rooms equivalent to roughly 2,273 guesthouses.

Taking into account that Hong Kong has 862 licensed guesthouses (by June 2014), it is estimated that in every 4 guesthouses found in town, there is 3 unlicensed.

The above is a very rough estimation based on the best available data. The estimation may not be accurate but it gives a projection of the actual demand, as well as the scale of the problem.

3. 2INVESTIGATIONONUNLICENSEDGUESTHOUSESTo satisfy the above unaccounted demand, numerous guesthouses operate without licensed. The Groups field research reveals their astonishing number.

6OF14GUESTHOUSESFOUNDINONESINGLEBUILDINGAREUNLICENSEDDundas Street: On Dundas Street, 7 out of 16 guesthouses found within a 200-meter distance (between Nos. 33-46) are unlicensed. In just one single Hang Lung Mansion, 6 out of the 14 operating guesthouses are not found in the Governments license database.

Table 3.1: Guesthouses on Dundas Street, Yau Ma Tei ()

Guesthouse

Address

Building

Floor

With license 33-35 1 Y 33-35 1 N 44-46 2 N

Q Q Hotel 44-46 4 Y 44-46 4 Y

44-46 4 Y 44-46 5 Y 44-46 6 Y 44-46 N

44-46 7 Y 21 44-46 7 N

20The average room number of unlicensed guesthouse is deduced from figuresobtainedfromtheTourismBoard.AccordingtotheTourismBoard,asofJune2014,there are862 licensed guesthouses inHongKong,providing8,080 rooms, so theaverageroomnumbershouldbe8,080/862=9.4rooms.21HADLA,updatedon11August2014

13

44-46 7 N 44-46 7 & 10 N

44-46 9 Y 44-46 9 Y 44-46 10 N

Shanghai Street: Of the 7 guesthouses found within 250m on Shanghai Street, 6 are unlicensed.

Table 3.2 Guesthouses on Shanghai Street, Yau Ma Tei ()

Guesthouse

Address

Building

Floor

With license 453-455 - 1 Y 453-455 - 1 N

453-455 - 1 N 459 - N 494-496 - N 512 - 2 N 516 - 2 N

Bute Street: 2 of the 5 guesthouses are unlicensed between Bute Street No.60 and No.77.

Table 3.3 Guesthouses on Bute Street, Mong Kok ()

Guesthouse

Address

Building

Floor

With license

75-77 1 Y 75-77 1 Y 64-66 N 60 - 2 Y 60 - 3 N

Although the distribution of guesthouse is quite uneven so the above information is not capable to show the accurate and complete picture of unlicensed guesthouse operation, the above simple street count exercise already revealed the severity of the problem.

METHODOLOGYThe Groups researchers paid site visits to selected districts and observed name plates of buildings on a particular part of the streets to locate the potentially unlicensed guesthouses.

14

Noting down the names of the operating guesthouses, researchers matched the names with the Government license database. Guesthouses which names were not found in the database would be considered unlicensed.

Researchers then paid second visit to the unlicensed guesthouses to confirm that they are operating. Researchers also made calls to some of these guesthouses to check room rates.

Online research was also conducted. Some of the unlicensed guesthouses were found in hotel booking websites.

All data of visits is open and exhibited in the appendix to this report.

Limitations:

Sampling may be biased. Streets in Yau Tsim Mong are selected because most of the guesthouses (whether licensed or unlicensed) concentrates there.

Shadow guesthouses might not be detected.

3.3EXTREMELYPROFITABLE:$184PERSQ. FTRENTHugh profit can be derived from the operation of guesthouse business. Table 3.4 below summarizes the monthly average income generated per sq. ft. of some unlicensed guesthouses (without deducting costs). Most of them triple the monthly yield of residential leasing, see Table 3.5 below to compare the return of the two investments.

Table 3.4: Monthly Average Income Generated per sq. ft. by Some Unlicensed Guesthouses (see below for calculations)

()

Guesthouse

Location

Monthly Yield per sq. ft($)

Yau Ma Tei 184

Table3.5:MonthlyYieldofResidentialLeasing

Property

Location

Monthly Yield per sq. ft($)

(Saleable / Gross)

22 Wan Chai 54/42

22 2014 07 17

15

11 1223 Hunghom 33/28 124 Shatin 43/35

25 Quarry Bay 45.9/40.6 226 Lai Chi Kok 38.5/27.0

Operating guesthouse is extremely profitable. Below are calculations of income derived from some guesthouse businesses.

AVERAGE OCCUPANCY RATE (JAN JUN 2014) 27: YauMaTei/MongKok:93%CASE 1 Guesthouse:Address:2ndFloor,No.512ShanghaiStreet,Kowloon( 512 2 )Floorarea:notavailable28Totalnumberofroom:morethan9rooms29Roomrate:$50030Estimatedmonthlyincome:HK$125,550

CASE 2 Guesthouse:Address:4thFloor,WahMayBuilding,BlockB,No.211PortlandStreet,Kowloon( 211 B 4 )Floorarea:1,141sq.ft31Totalnumberofroom:1332Roomrate:58033Estimatedmonthlyincome:HK$210,366Averagerentpersq.ft:$184CASE 3 Guesthouse:Address:Floorarea:notavailableTotalnumberofroom:103423 ibid. 24 ibid. 25 3 3.25 46 2014 07 09 26 Ibid. 27 Hong Kong Tourism Board, Hotel Room Occupancy Report, June 2014, Table 3 Hotel Room Occupancy ( By District ) 28 Centadata, 16 Years Transaction Web, accessed on 22 July 2014 29 Cold call on 24 July 2014 30 Cold call on 24 July 2014: rent depends on date, around RMB 400 31 Centadata, 16 Years Transaction Web, accessed on 22 July 2014 32 http://www.hkzhan.com/func/common/h-1-344.html 33 Cold call on 24 July, check-in date: 20 Aug 2014; 2nd cold call on 17 August 2014, check-in date: 1 Sep 2014 34 http://www.hkzhan.com/func/common/H-1-278.html

16

Roomrate:72535Estimatedmonthlyincome:HK$202,275METHODOLOGYFloor area of particular premises is found by searching through the Centadata database.

Room rates and number of rooms of particular guesthouses are available from the websites which provide booking service. Researchers also made calls to some of these guesthouses to double check room rates, extra charges and numbers of room.

Monthly income (without deducting operative costs) is calculated with the following formula:

Numbers of room X average room rates X occupancy rate of that particular district X 30 days

Monthly average income generated per sq. ft is calculated with the following formula:

Monthly income (without deducting operative costs) / floor area of particular premises

Limitations:

Seasonal fluctuation of room rates is not reflected in the results;

Actual occupancy rate varies between different guesthouses; Floor areas (saleable and gross) of the premises might not be

accurate since no floor plan is available, this will affect the accuracy of the average profit per sq. ft calculated;

Numbers of room might not be accurate since comprehensive inspection of the internal structure of the guesthouses is not available; and

Operative costs vary and no data is available.

3.4MORETOBEFOUNDONLINEOur online investigation also reveals that many guesthouses operating in Hong Kong are unlicensed.

179.hk introduced guesthouse accommodation to travellers. 19 out of 77 guesthouses it introduced are unlicensed. Details are included in Appendix III.

35 Cold call on 17 August 2014, check-in date 1 Sep 2014

17

4)DISCUSSIONS

The Groups field research indicates the scale of the problem of unlicensed guesthouses may be more severe than one have imagined. 4.1GUESTHOUSESTAKEUPRESIDENTIALUNITSStiff competition exists between residential and hotel land uses because Hong Kong lacks comprehensive hotel land use planning.

Both Hang Lung Mansion and Kingland Apartments, the two sampling buildings examined by the Group, have almost been converted entirely to guesthouse towers. According to the Home Affairs Departments Database of Private Buildings in Hong Kong, Hang Lung provides 56 and Kingland provides 128 flat units. Amongst them, more than 100 units of residential flats have now disappeared from the rental market by the aforesaid conversion.

In other words, tourists displace existing tenants. There is no available data to estimate the actual floor area taken up by guesthouses (whether licensed or unlicensed), but the scale must be tremendous.

4.2SHORTAGEOFAFFORDABLEHOUSINGHITSGRASSROOTS Most of these unlicensed guesthouses located in Yau Tsim Mok, which are areas that have housed many of the lower income class.

A number of residents in these districts cannot afford reasonable flats, but they are also not benefited from the public housing system, either because they are not eligible or they have already been waiting in the long queue. The raging business of guesthouse displaces grassroots households, and mashes the most vulnerable group in the housing supply hierarchy.

4.3INCREASESHORTAGEINHOUSINGSUPPLY Hong Kong already faces shortage of affordable housing. The intrusive occupation by the guesthouse industry further tightened supply.

4.4INCREASEDOMESTICRENTS Quite a number of these unlicensed guesthouses situate on or above the 2nd floor of their respective buildings, and they take up domestic units that were supposed to be let. This intensifies the shortage of housing supply.

As more units have lost to the guesthouse market, the tightened supply further drives up the rent.

4.5VINTAGEDMCSDONOTREGULATELANDUSE

18

In the latest Governments consultation on the amendment of the HAGAO, the Government relies on the proposed provisions that would empower the LAO to consider the DMC of the building before granting license to particular guesthouses, as an allegedly effective measure to counter the development of guesthouse in residential areas.

However, this measure will only affect buildings which their DMCs contain explicit restrictive provisions stipulating that guesthouse operations or commercial activities are not allowed, or the premises are for private residential use only. In other words, mixed commercial / residential buildings (without such explicit restrictive provisions) are not taken into account by the proposed amendments. As a result, the proposed amendments would have limited impact.

Both of the two sample buildings the Group has examined are with vintage DMCs, and both DMCs do not restrict the use of the premises as guesthouses. It implies that the owners cannot rely on the DMCs to make injunction application to court against owners who intend to use their premises to host visitors. In this case, the proposed amendments of the HAGAO are of no assistance to the owners.

4.6CHAINEFFECTThe conversion of flats from domestic households to guesthouses initiates a chain of events. Nearby shops, adopting to the demographic shift, start changing their business strategy to cater only the needs of tourists. Bye Bye Barcelona a recent documentary36, reveals how tourism stifles ordinary and everyday life of the local Spain. Shops which serve locals only would be displaced when they could not pay the competitive rent affordable by the jewellery chains, luxury brands and drug stores.

4.7LACKINGDETAILEDSTATISTICSThe Group noted that much important data is missing from the public eyes. At least, the followings are not made available to us:-

actual number of domestic leasing units available to the market

actual demand of domestic leasing units (in other words, the size of the domestic leasing market)

total floor area occupied by guesthouses business (both licensed and unlicensed)

geographical distribution of guesthouses (both licensed and unlicensed)

36 Eduardo Chibas, Bye Bye Barcelona, Youtube

19

assessment on the impact of guesthouse development on nearby environment (i.e. traffic flow, density, air quality, property price etc.)

The impact of tourism on the existing urban fabric needs to be evaluated. Development of hotel and guesthouse will affect the flow of pedestrians and traffic. They also displace original residence and commercial blocks, dissolve and reorganize the urban fabric.

Without comprehensive data and full knowledge on hotel land use, it is impossible to formulate any planning or policy, or to carry out meaningful assessment on facilities in need to support the growth of tourism.

20

5)POLICIESONGUESTHOUSEChapters 3 and 4 of the report reveal the scale of our tourist accommodation problem. In light of that, what is the Governments vision on catering the increasing demand and tackling the sustained shortage? After all, what are our existing policies on hotel land use?

5.1POLICYONHOTELLANDSUPPLYHotel land comes from the following sources:-

1. HOTELONLYSITESTo increase supply, the Development Bureau introduced in 2008 some pilot measures to facilitate development of hotel land. The 2008-2009 Application List started to include sites specifically dedicated for hotel land use. However, no follow-up action or impact assessment has been initiated by the Development Bureau after the launch of the pilot measures.

On a pilot basis, sites have been included in the 2008-2009 Application List (AL) to be disposed of specifically for hotel development (the AL Method). The Conditions of Sale of the respective site will provide that the whole site or part of the permissible development on the site, as the case may be, will be restricted to hotel purposes with the amount of GFA for hotel stipulated (the hotel only sites). The reserve prices for triggering and auctioning such hotel only sites from the 2008-2009 AL should be set on the basis of Lands Departments assessed premium for hotel purposes only.

2. CONVERSIONAt the same time, applications for lease modifications / land exchanges for hotel only development was allowed. (the Lease Modification Method)

According to a report released by the Land Justice League Hong Kong in February 2014, only 44 hotel projects developed after 2004 acquired land through the AL Method. On the contrary, most of the other hotel projects acquired land by conversion: 98 residential blocks and 105 office units have been converted to hotel land use37.

The above report also reveals the growing trend of conversion of existing residential land use to hotel land use by making application to the Town Planning Board (TPB). 35 hotel projects were completed between 2004 and 2013 by applying to the TPB for conversion, and another 65 projects were approved by the TPB and yet to be built.

37 The Land Justice League , 10 90 , 23 February 2014

21

3. ILLEGALCONVERSIONMeanwhile, many guesthouses are operating without license. Premises of residential land use are converted to hotel and guesthouse accommodation illegally.

However, such development also subject to certain limitations:-

RESTRICTIONSONDEVELOPINGHOTELLAND1. TOWNPLANNINGREQUIREMENTSHotel is always permitted under Commercial zones and Other Specified Uses annotated Mixed Use zones. In a number of other zones, hotel use requires planning approval by the Town Planning Board (TPB).38

2. THEBUILDINGSORDINANCEConcessions on GFA - To encourage hotel development for supporting Hong Kongs tourism industry, the Building Authority has been exercising discretionary power to grant concessions to bona fide hotel developments since 1969, mainly in the form of exempting certain hotel areas from GFA calculation under section 42 of the Buildings Ordinance (Cap. 123) (BO).

The concessions were formalized in November 2000 with the introduction of Regulation 23A of the Building (Planning) Regulations (Cap. 123F) under the BO, whereby a hotel development will be treated as a non-domestic development so as to enjoy a higher plot ratio and site coverage. In addition, certain areas and facilities essential for hotel operation could be disregarded for GFA calculation39.

3. LANDLEASEThe lease conditions governing each of these lots may be different depending on when the lease concerned is executed and the prevailing considerations at the time of execution:-

For instance, some old leases do not contain user clause and the land use is virtually unrestricted. Lessee of such leases has the flexibility to determine which use to pursue in developing the land as far as lease conditions are concerned.

In other cases, the lease may contain a user clause, such as non-industrial (residential use is allowed under such a user clause), non-industrial excluding private residential and hotel purposes, to cite a few examples.

38 Development Bureau, Administration's paper on development and operation of hotels, CB(1)580/12-13(03), para. 3 39 ibid, para.12

22

In some cases, the minimum and/or maximum gross floor area (GFA) for specific uses may also be stipulated40.

Land Premium - If the lessee wishes to develop his lot differently from what is permitted under the lease, he may apply for lease modification which, if approved, would be subject to payment of additional premium as necessary, among other terms41.

Restriction on alienation - Sale of hotel developments in the market is usually on an en bloc basis. The Lands Department issued internal instructions in July 2003 requiring the imposition of restriction on alienation of hotel developments, except as a whole, in lease modification and land grant that permit development of hotel, to curb possible misuse of hotels for residential purpose. Irrespective of whether such an alienation restriction is included in the lease, the lessee must comply with the lease conditions of the site in question and the relevant legislation 42 . However, such internal instructions are not made available to the public. It is not possible to carry out assessment on its implementation and impact.

4. DEEDOFMUTUALCOVENANTSome DMCs also regulate land use of particular premises. However, the DMCs are enforceable between owners only. If the Incorporated Owners fail to take action against owners who have breached the DMCs, other owners have no remedy.

5.2POLICYONLICENSINGANDENFORCEMENTGuesthouses in Hong Kong are managed by the Government under a licensing regime.

LICENSINGREGIME1. THELAWThe Hotel and Guesthouse Accommodation Ordinance (Cap. 349, HAGAO) aims to, through a licensing regime, ensure that premises intended to be used as hotels or guesthouses, meet the building structure and fire safety standards specified in the BO and the Fire Services Ordinance (Cap. 95) to safeguard the lodgers and the public 43 . It has no ambition in controlling the Guesthouse business.

Operating an unlicensed guesthouse commits a criminal offence under the HAGAO, and such person is liable on conviction to a fine

40 ibid, para.6 41 ibid, para.7 42 ibid, para.. 8 43 Home Affairs Department, Consultation Document on Review of the Hotel and Guesthouse Accommodation Ordinance, para. 1.1

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of $200,000 and to imprisonment for 2 years, and to a fine of $20,000 for each day during which the offence continues.

2. THEENFORCEMENTAUTHORITY The Office of the Licensing Authority (OLA) under the Home Affairs Department (HAD) is delegated by the Hotel and Guesthouse Accommodation Authority (the Authority)44 for implementing the Ordinance, including issuing licences and performing relevant regulatory and enforcement duties. 45

3. ENFORCEMENTNO ONE HAS BEEN FINED OVER $20,000 IN THE PREVIOUS DECADE The figures produced by the HAD shown that the Department has strengthened its law enforcement action in recent years. Both the number of enforcement actions taken and conviction in 2013 are four times than those of five years ago.

Although the statutory penalty of potential heavy fine and the possibility of defendant being sentenced to imprisonment can be regarded as deterring, our in-depth research, which traces the actual amount of fines, reflects that these statutory measures have not been enforced in their full gear.

Most of the cases prosecuting operators of unlicensed guesthouses were handling by the Magistrates' Court, the relevant decisions, judgments and therefore details of the cases and the resulting amount of fines are not recoverable from the Judiciary website. Only pieces and bits of data can be found from the Press Release issued daily by the Governments Information Services Department. The 30S Group has reviewed the many Press Releases issued between 2011 and 2013 and noticed that across the years, the actual amounts of fine are low. The record-high fine was paid by the convicted person of the 2006 Parkview case, but he has only been fined for $20,000 in total despite the massive media coverage of the breach of Parkview and its severity46.

Table5.1:Finesofconvictedpersonsbetween2011and2013 Amount No. of cases Fined below HK$5,000 Around 170 Fined between HK$5,000 10,000 7 Fined between HK$10,000- 20,000 12 Fined above HK$20,000 0

44 In accordance with section 4(1) of the Ordinance, the Secretary for Home Affairs is the Authority of the Ordinance. 45 Home Affairs Department, Consultation Document on Review of the Hotel and Guesthouse Accommodation Ordinance, para. 1.2 462006 10 28

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*There is no official statistics on fines, the above figures come from the researchers review on press release issued by the Government. Please note that the Government press releases may not cover all the cases of conviction.

Table 5.2 Enforcement against Unlicensed Guesthouse Operation

Table 5.3 shows that only a few of the convicted were sentenced to imprisonment, and none of them were put into prison for more than 4 months.

Table 5.3 Convicted persons being sentenced to imprisonment47

2009 2010 2011 2012 2013 (30 Jun) 4 months 1 0 0 0 0 3 months 0 1 2 0 0 2 months 2 2 0 4 2 6 weeks 0 0 0 2 0

Below 1 month 0 3 1 1 1 Total 3 6 3 7 3

4. DELAY: IN2006, THEOLATOOK268DAYSTOTAKEACTIONThe latest Consultation Paper provides that when suspected unlicensed guesthouse operation is identified or such a report is received, the OLA will conduct an inspection within eight working days

However, there have been delays in previous enforcement action. The report on Licensing of hotels and guesthouses by the Audit Commission 48 in 2006 reflected that there was delay in commencing enforcement action and the time span to complete action on suspected unlicensed establishments were long. On average, it took 268 days to complete action in respect of suspected unlicensed establishments in the years 2001 to 2006 (up 47 , 10 July 2013 48 Audit Commission, Report No. 47 of the Director of Audit, 23 October 2006, Chapter 8 Licensing of hotels and guesthouses

2009 2010 2011 2012 2013 2014 Q1 Complaints 445 366 696 1418 - -

Enforcement action 2430 2678 3125 6791 9889 3217

Prosecution 39 38 53 128 171 46 Conviction 36 44 39 110 161 43

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to 30 June); in 343 cases (19% of 1,842), the time span was more than 500 days.

5. POLICYONREPORTING The Enforcement Unit of the OLA is responsible for taking enforcement action against unlicensed establishments. Operators of unlicensed guesthouses are sued under HAGAO Part II Section 5 Restriction on operating hotel or guesthouse unless exempted or licensed. For guesthouses borrowing licenses, operators or managers will be sued under HAGAO Part VII Section 21 Offences in relation to certificates of exemption and licences.

The Enforcement Unit obtains information about suspected unlicensed establishments from four sources :-

(1) complaints from the public,

(2) referrals from other government departments,

(3) referrals from the Building Safety Unit, and

(4) cases identified by the Enforcement Unit by field surveillance and from search of advertisements.

Enforcement actions are taken under the Procedural Guidelines on Conducting Policing Inspection and Particulars for Prosecution Inspection for Suspected Unlicensed Operations. A team comprising normally two Licensing Inspectors conducts one or more preliminary inspections at the premises concerned to ascertain whether there is evidence, prima facie, that an unlicensed establishment is in operation. If there is such evidence and the operator has not been warned before, a warning letter is issued; if he or she has been warned before, the Unit will proceed to conduct in-depth inspections. A team comprising normally three Licensing Inspectors will collect evidence for prosecution. Investigation report is then prepared and sent to the Department of Justice. If the evidence collected is sufficient, the Unit instigates prosecution under the HAGAO by applying for a summons.

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6)RECOMMENDATIONSThe influx of visitors continues to put Hong Kong's tourism capacity to test. Can we make a pass? What should we do?

6.1CONTROLTHEGROWTHOFTOURISMIn 2013 Hong Kong received a total of 54.3M visitors, while Inner Paris received only 29.3M. We have almost doubled Pariss volume.

Notably, Paris provides 81,000 hotel rooms, while Hong Kong provides only 79,000 rooms. Although the occupancy rate is not comparable, the shortage is obvious but incurable in short time given the necessary time lapse between planning and hotel building.

Building more hotels is the quick answer but it might not be the best answer considering Hong Kong already experiences shortage in housing land supply. Given the long queue awaiting public housing, the Governments effort in locating proper housing sites should give priority to the local needy grassroots, instead of locating accommodation for tourists.

In light of the above, the better idea would be to control the growth of accommodation demand of tourist by reducing their numbers.

6.2COMPREHENSIVESTRATEGYONHOTELLANDUSEHong Kong lacks comprehensive hotel land use planning and has exercised no systematic control on hotel land supply. Facing a drastic increase of tourist population, it is most in need that Hong Kong starts to have her comprehensive strategy on hotel land use.

It is projected that visitor arrivals in 2017 would exceed 70 million and that in 2023 would be over 100 million49. Assuming that the percentage of overnight visitor arrivals remains at 48.9% and the overnight visitor average length of stay is still 3.5, it could be estimated that 445,400 sq. m of hotel land are needed by 2017. If the land supplied falls below this figure, it is anticipated that some existing residential and commercial lands will be taken up for tourism50.

49 Commerce and Economic Development Bureau, Assessment Report on Hong Kong's Capacity to Receive Tourists, December 2013. 50 Calculation: Number of visitors*nights they stayed: 70,000,000*48.9%*(3.5+1) = 154035000 Number of double bed room needed: 154035000/365/2 = 211,007 Number of double bed room needed to be built (Assume the existing hotel rooms can accommodate 2 people on average): 211,007 - 78738 = 132269 Taking the area of one standard double bed room as 20 square meters, and excluding the the auxiliary operational facilities, the area of hotel room needed is: 132,269*20 = 2,645,380 square meters. Applying the same

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6.3COMPREHENSIVEASSESSMENTONTOURISMIMPACTThere is little evaluation on the cultural and environmental impacts of tourism development in the recent Assessment Report on Hong Kongs Capacity to Receive Tourists51 released by the Government.

In its Chapter 7 Impact on the Livelihood of the Community, only the number of criminal offences by mainland visitors was inspected. However, it is obvious that the impact of tourist on livelihood of communities does not limit to criminal offences.

Take the report Defining, Measuring and Evaluating Carrying Capacity in European Tourism Destinations 52 which was commissioned to the European Commission, Directorate-General for Environment, Nuclear Safety and Civil Protection as an example, physical ecological impacts, social-demographic impacts and political-economic impacts are examined.

The assessment was divided into areas with distinct geographical characteristics. Indicators for social-demographic impacts include: crowding-out, breakdown of host community values, tourists/residents conflicts, overcrowding and occasional irritation of local population, and adjustment of residents to tourists' life styles. Indicators for political-economic impacts included: cost of living for residents, land-use conflicts between activities, seasonality of employment and income, as well as dependence on tourism activity.

We suggest the government to carry out a complete assessment on tourism which should be done district by district, as tourist attractions and facilities are unevenly distributed. A set of comprehensive indicators which can truly reflect the livelihood of Hong Kong people and the health of economy is required. The assessment just finished only reflected the trend of tourism development, and the capacity of tourist attractions and facilities, neglecting its impact on local people. It also lacks reflection on whether it is healthy for our economy to continually depending on tourism.

6.4ENFORCEMENTANDPROSECUTION

method, the hotel land needed in 2023 is estimated at least to be 445,400 square meters. 51 Commerce and Economic Development Bureau, Assessment Report on Hong Kong's Capacity to Receive Tourists, December 2013. 52 Environmental Planning Laboratory of the University of the Aegean , Material for a Document, DEFINING, MEASURING AND EVALUATING CARRYING CAPACITY IN EUROPEAN TOURISM DESTINATIONS, 2002

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The Consultation Document on the Hotel and Guesthouse Accommodation Ordinance 53 , suggested several amendments to facilitate prosecution of unlicensed guesthouses establishment. It proposed that (1) circumstantial evidence to be regarded as sufficient to instigate a prosecution, (2) the OLA could apply to the Magistrates Court for warrants to facilitate its public officers to enter into, and break in if necessary, individual premises for inspection and enforcement actions, (3) heavier penalties and closure of premises would be implemented.

We welcome the amendment, though it is notable that the Audit Commission has already recommended the Department of Home Affairs in 2006 to consider drawing up guidelines that set out the circumstances under which the OLA would invoke HAGAO Section 20(1) of the HAGAO to make an order in writing directing that the hotel or the guesthouse shall close and shall cease to be used as a hotel or a guesthouse.

53 Home Affairs Department, Consultation Document on Review of the Hotel and Guesthouse Accommodation Ordinance

7)OPENRESEARCHMETHOD

The Group pioneers to apply the Open Data Research Method to conduct the current research with the aim to introduce open data research to the civil society as well as to nurture a more transparent and accountable research environment.

7.1WHATISOPENDATA?Quoting the World Wide Web Foundation, in few short years open data has moved from being a niche interest in a few countries, to become part of the global policy mainstream, promoted widely by civil society and multilateral institutions54. Joel Gurin, the current Senior Advisor at the Governance Lab at New York University provides a definition for open data:-

Open data is accessible public data that people, companies, and organisations can use to launch new ventures, analyse patterns and trends, make data-driven decisions, and solve complex problems. All definitions of open data include two basic features: the data must be publicly available for anyone to use, and it must be licensed in a way that allows for its reuse. Open data should also be relatively easy to use, although there are gradations of "openness". And there's general agreement that open data should be available free of charge or at minimal cost.55

7.2WHYSHOULDWEPROMOTEOPENDATA? It is agreed that open data, especially open government data, would lead to56:

More efficient and effective government both through government using its own data better, and through innovators outside of government identifying improved ways to provide public services, meeting the diverse needs of citizens through digital technologies;

Innovation and economic growth acting as a 21st Century infrastructure, and a raw material, for activity in the information economy. Start-ups and established businesses can use open data to generate new products and services, and secure efficiencies, generating a net-gain for country economies;

54 Justin Edwards, Launching Research: Exploring the Emerging Impacts of Open Data in Developing Countries, accessed on 15 July 2014 55 Joel Gurin , Big data and open data: what's what and why does it matter?, accessed on 15 July 2014 56 Tim Davies, Open Data Barometer 2013 Global Report, page 9

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Transparency and accountability allowing citizens and civil society to see, understand and monitor better what their governments and the private sector are doing, challenging corruption or unaccountable activity, and finding opportunities to influence policy and

Inclusion and empowerment enabling marginalized groups to get involved in the political process, and removing imbalances of power created through information asymmetry.

7.3WHATTHEGROUPHASDONE? ITS OPEN, ACCESSIBLE, ANDFREE! The Group has decided to make available to the public all of the raw data and material collected during the process of conducting the current research. All of the data is at your fingertips, available within seconds and absolutely free of charge. The data sets are presented in user friendly format such as Excel tables and Google diagrams, with the aim to reduce difficulty encountered in subsequent data mining and sharing.

Although it is a general understanding that the highest priority of most open data advocates is to open up the government database, the Group thinks it would be good to start from itself. When the Group decides to open up its research data, it anticipates more and more civil organizations to perform the same so that a stronger database on various social researches can be built within the civil society to improve accountability of researches conducted.

YOUCANDOTHESAME Better data collection, data analysis and data availability will help load bullets for social advocates who strive to convince the public and thus pursuant the government on a particular social subject, and the Group is here to fire the first shot. With this move, we encourage the Government and stakeholders of the civil society to reconsider the significant impact of opening data, and to bring Open Data Research to their daily practice for the building of a more democratic and transparent society.

ACKNOWLEDGEMENTWe are thankful to the kind assistance generously provided by Mr. Chan Kim Ching .

RESEARCHTEAMMRLAURENCELILUJEN Mr Laurence Li, the convenor and one of the founders of the 30S Group, is a practicing barrister focusing on financial and financial services law. He is a member of the Financial Services Development Council and convener of its research committee. He serves as a judge on the Regulatory Tribunal of the Qatar Financial Centre in Doha, Qatar, and is an Honourary Fellow of the Asian Institute of International Financial Law at the University of Hong Kong. He is also a member of the Town Planning Board and the Council of the Hong Kong Polytechnic University.

MS.FUNGWANYINKIMBERLY FUNG Wan Yin Kimberly is currently studying towards a Bachelor of Social Sciences in Urban Studies at CUHK. She is now the committee member of the Hong Kong Urban Laboratory (), which aims to develop diverse spatial practices and widen public imagination through art. Projects included "Once There Was a Factory" (2013) () and "Non-indigenous Lives - A four-part installation" (2014)( ).

She believes that if you constantly strive to give your best effort to something, you will gain insight into it (). She hopes to become as creative and competent as members of the Lunar Society of Birmingham, so that she can transform imagination into real positive changes in the society.

MS.CHANYUKFUNGMELODY Grew up in this metropolitan, the development of urban landscape and evolution of the city have always remained the interest of research of CHAN Yuk Fung Melody.

This summer she proposed to the Group to conduct the current research, and she is most happy to find the Home Affairs Department shared the same view that the situation requires immediate and urgent attention, when the latter announced the commencement of consultation on the amendment of HAGAO recently.

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AppendixINumberofRoomsinHotelandGuesthousesinthepastdecade57

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 June

HighTariff A Hotel

9,473 9,473 10,808 10,809 10,855 13,570 15,116 16,052 17,181 17,522 17,522 17,522

HighTariff B Hotel

15,786 16,073 18,616 18,478 18,951 18,468 21,638 21,432 24,315 25,258 26,999 27,067

Medium Tariff Hotel

11,465 11,038 11,475 14,435 15,496 16,735 17,432 17,591 17,072 19,566 20,048 21,234

Unclassified Hotel

1,409 2,544 2,967 3,406 6,279 6,031 5,531 5,353 4,262 5,048 5,448 5,243

Total number of

hotel

38,133 39,128 43,866 47,128 51,581 54,804 59,627 60,428 62,830 67,339 70,017 71,066

Guesthouse 4,803 5,234 5,025 5,384 5,068 5,469 5,759 5,926 6,211 6,818 7,630 8,080

57 Hong Kong Tourism Board, Hotel Room Occupancy Report, June 2014

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AppendixII

Room Rate of Hotel and Guesthouse in the past decade58

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Jan-

June HighTariff A

Hotel

1,171 1,356 1,611 1,906 2,141 2,106 1,808 1,965 2,229 2,457 2,382 2,446

HighTariff B Hotel

517 638 732 832 934 974 779 946 1,129 1,228 1,201 1,204

Medium Tariff Hotel

334 414 460 537 570 586 481 585 710 781 758 740

Average rate of hotel

674 803 934 1,091 1,215 1,222 1,023 1,165 1,356 1,489 1,447 1,463

Guesthouse 254 285 286 309 322 352 330 351 423 510 552 546

58 Hong Kong Tourism Board, Hotel Room Occupancy Report, June 2014

AppendixIIIUnlicensed Guesthouse Introduced on 179.hk59

179.hk

Guesthouse District Building Floor 18-24 5 37 10 312 3

26B G 105 3

376-380 1 12 3 4-6 - 33 - -

43 4

29-29A - 7

36-42 6 101 -

80 8 83-97 7

52-54 13 731-733 15 6-8 -

78 2

59 Retrieved and checked on 13 July 2014