Consultation on the Review of Private Recreational Leases, 2018

2.            Addressing the Consultation Document

2.1          The introduction above provides the basic outline for this response to the consultation document.  This submission is structured in the following way:-

Section 1            Comments on the Policy Review

Section 2              Specific Responses to Recommendations

​

2.2          The Differentiation of Community Organisations and Sports Organisations

​

The Review Document does not spend much time on discussing the PRL sites held by Community Organisations which provide a different role and purpose in society than the provision of sports facilities.  In this submission the differentiation between Community Organisations is referred to for comparison as the means of defining Community Organisations also relates to organsiations who provide sports facilities and services.  While the focus of this submission is on the provision of sports facilities it  does not only cover sports clubs on PRLs, but also addresses the role of the National Sports Associations (NSAs), District Sports Associations (DSAs), and other sports-related organisations.  It also briefly relates the provision of sports facilities by these organisations to the provision of sports facilities by government through the Hong Kong Sports Institute (HKSI) and the Leisure and Cultural Services Department (LCSD).

​

2.3          Sports Organisations on PRLs

​

The Review Document is generally a thorough, fact-based assessment of the functioning of the sports organisations on PRLs.  To a certain extent, the importance of the sports organisations in providing a range of specialist sports facilities and activities is recognised.  However, the extent of this support to sport is under-reported; mainly because the information is not specifically collated by the organisations in a manner that could be used in a review of this nature.  This seems to be particularly relevant to the amount of use of the facilities at present and the degree of availability of time and space for outside usage.

​

Section 1       The Policy Review

​

3.            This section provides observations and comments on Chapters 2 and 3 of the Review Document. 

3.1          Background

​

3.1.1      Chapter 2 provides a brief summary of the background to the PRLs and the changes in government policy based on major reviews in 1979 and 2011.  In 2011 the policy was adopted that lease conditions should be amended to require the leasees to open up their facilities to Eligible Outside Bodies (EOBs) for at least 50 hours per month.  It also outlines the monitoring system put in place by HAB, including quarterly reports on the usage of the sports facilities on the site.

​

                Significant Opening Up of Facilities Already

3.1.2      The significant point arising from the establishment of the system of obligations and monitoring is that the PRL holders have actually exceeded the 50 hours requirement and are shown to provide between 161 and 3,320 hours per month for outside users (paragraph 3.3.14).  The existing situation in Table 8 also indicates that for some facilities the opening up hours are relatively low and there would appear to be scope for these to be opened up.  Table 8 has a number of Notes to qualify the data involved and the exclusion of figures for the 6 watersports sites under-reports the amount of outside usage that actually occurs.

​

3.2          Interdepartmental Working Group

3.2.1      In section 3.1 of the Review Document, the establishment of the Working Group was explained, including the policy review aspects that were covered.  While the general areas covered in the review are appropriate, there has been no apparent analysis of the current amount of use that is made of the PRL sites by members of the clubs.

                Significant Current Use of PRL Club Facilities

3.2.2      One apparent assumption is that the PRL sites are underutilised and that there is significant spare time and capacity available to be “further opened up so as to alleviate the strong demand for public sports facilities” In paragraph 3.3.16 of the Review Document there is an indication that the average utilization rate of these club facilities is around 40%. There is no data to support this assumption and it would appear to over-estimate the available surplus capacity.

​

3.2.3      In relation to this, two points are relevant:-

(a)          As with all sports facilities, there are peak usage periods at private clubs at weekends, and outside school and work hours. The off peak periods may have some spare capacity, but these period do not generally match the demand from the general public, as they are also not able to use these times because of commitments to work and school. There is effectively no surplus capacity available in private sports clubs to make a significant additional contribution to meeting ‘public’ demand beyond the usage already made available;

(b)          The LCSD Annual Report of 2017 indicates that existing public sports facilities are generally underprovided and heavily used.  The significant shortage of public sports facilities in Hong Kong cannot be satisfied by opening up of private sports clubs, as they do not have surplus capacity at peak times. The demand for public sports facilities can only be met by government investing significantly in additional facilities, or by government making available sites for other bodies to invest in provision of sports facilities to meet the needs of various sectors of the public.  The figures in the LCSD report indicate that there is a great shortage of water sports facilities.[1]

[1]  https://www.lcsd.gov.hk/dept/annualrpt/2016-17/images/pdf/8_Usage-of-Recreational-and-Sports-Facilities_en.pdf

​

             Government Funding for Sport Needs to be Increased

3.2.4      Because of the lack of government funding for sports development many sites zoned for open space have not been used for that purpose.  Many of these sites have been rezoned in recent years for commercial development and housing, often against strong community objection.  Lack of government investment in sport is not a reason for these sites to be lost.  Total reliance on government providing ‘permanent” sports facilities does not meet community needs and this must be addressed.  The NSA’s could take on this role with government support.  The Review Document proposes that no new sites be granted for PRL’s.  It does provide for ‘community organisations’ to be granted leases for 21 years with subsequent renewal of 15 years.  This type of lease should be offered to NSA’s to develop and manage their own facilities, meet the drastic community need and help raise the quality of competitive sport.

​

3.3          PRL Sites held by Community Organisations

3.3.1      The focus of this submission is on the PRL sites which are used for sports facilities.  It is noted that the Working Group has separated the PRL holders into two groups and in paragraph 3.2 of the Review Report, the 39 sites granted to “Community Organisations” are discussed. 

3.3.2      On the list of “community organisations” are also sports bodies, which somewhat confuses the distinction made and the policies that need to be applied.  For example the South China Athletic Association, Hong Kong Softball Association, Hong Kong China Rowing Association, the various YMCAs and the various District Sports Associations, are all primarily sports related organisations. 

​

                Special Purpose Leases Need to be More Widely Used

3.3.3      The proposal to grant all of the community organisations (para. 3.2.3) a new special purpose lease instead of a PRL is considered a very good way to provide for additional investment in community building and in sports.  The proposed initial term of 21 years plus renewal for 15 years thereafter provides a high degree of certainty for investment in sport and is supported.

3.3.4      However, it is considered appropriate that in addition to the existing community organisation sites, broad based, formally recognized sports organisations, such as NSAs, should be offered new special purpose leases to make long term investment in their sports.

​

3.4          PRL Sites held by Private Sports Clubs

3.4.1      There are 24 private sports clubs holding 27 PRL sites. It is noted in the Review Document that the background, history, establishment, membership and type of facilities offered, vary considerably between the various clubs and sites.  The fact that they all operate on a non-profit making basis and their income has to be ploughed back into their daily operating expenditure and for developing and operating their facilities is noted.  This is a very significant point which may not be fully understood by the general public, who may confuse these clubs with other ‘clubs’ which are operated on a commercial basis or with ‘clubs’ in residential estates.

3.4.2      The strict limitations that are placed on the use of PRL sites, the inability for the members to sell the site or to distribute any profits for individual gain, means that the clubs have a strong obligation and commitment to providing special sports services which are additional to the public sports facilities provided by government.  The Working Group has recognised the important contribution that the clubs can, should and do make toward sports provision, and correctly proposes that the 27 sites should continue to be dealt with under the PRL policy, but proposes changes to the criteria for extension of the current leases.

3.5          Assessing whether a PRL site should be retained

3.5.1      In Section B of the Review Document the Working Group (paragraph 3.3.4) has proposed important factors that should be taken into account when deciding if policy support should be given to the continuation of existing PRL sites. These factors are stated below and commented on:-

(a)          Provision of sport facilities that are rare or not currently provided by the Government

​

                The PRL clubs have a definite role in being able to supplement the types and size of sports facilities which are provided by the Government.  Often these facilities are related to specific requirements of sports at a high level of training and competition and therefore meet a specific public requirement for sports competition aspects as opposed to general recreational facilities provided by LCSD. The clubs also provide the management and coaching expertise to properly use these facilities at no cost to government.

​

(b)          Opening up of sports facilities to eligible outside bodies thus alleviating pressure on pubic sports facilities

​

                This is an acceptable requirement provided that it is optimizing the use of the sports facilities provided by the members.  The members of the clubs are also members of the public.  The opening up process should not be so significant as to prevent the members fully using the facilities that they have paid for. Having said that, there is are significant opportunities for PRL clubs to develop relationships with eligible organisations so that both benefit.

(c)           Provision of essential training basis for NSA’s and promotion sport in the community

​

                The Review Document recognises an important role that the PRL clubs play in supporting NSA’s.  While the HKSI looks after the eligible sports that compete internationally, access is limited by the performance criteria that stipulate eligibility.  To become eligible to be an HKSI sport there needs to be a proven level of performance.  NSA’s need to have structured programs and access to suitable facilities for those sports which are not yet eligible for the HKSI.  Past experience has shown that the clubs supporting NSA’s for sailing, rowing, cricket and rugby for example, have been able to help get the sports for these NSA’ into the HKSI.

(d)          Providing essential facilities for hosting local and major international sports competitions

​

               Many of the government facilities are not suitable for international and local events as they are designed for community use and don’t meet standards for international events.  This includes the whole range of necessary support facilities such as competitor’s rooms, function rooms, specialist rooms for drug testing, suitable space for VIPs and event management.   As mentioned in the Review Document Table 5, many of the PRL clubs already provide this service.

​

3.5.2      These 4 factors are very helpful in assessing the contribution that a club is making to achieve the Governments sports objectives.  A structured basis for considering the contribution of the club is important so as to obtain an objective view in what is often an emotional discussion.

3.5.3      Any PRL club must be managed to achieve the purposes in the lease and the sports policy objectives. The over-riding objective should be to ensure that any PRL site is being used properly and making a significant contribution to meeting stated sports policy goals.  The club should be encouraged and advised how to meet these purposes rather than being considered in a punitive way if there is failure.

​

3.6          Continuation of Charging a Nil or Nominal Land Premium

3.6.1      In Section (C) of the Review Document a discussion is held relating to the continuation of the payment of a nominal land premium or changing to a more commercially based premium.  The conclusion is a proposal that land premium be charged at one-third of the full market value (FMV) of the site. 

3.6.2      However there is also recognition that the PRL clubs have a value for Hong Kong and the following four factors are listed in paragraph 3.3.7.

 (a)          Sports Policy Considerations

​

 This is of prime importance, as the PRL clubs need to complement the Government’s policies regarding sports.  They have a special role that they can play and this is covered in 3.5.1 above.

(b)          Financial Considerations

There is recognition that the provision of sports facilities by PRL clubs relieves the burden on government, particularly those not offered by LCSD and the HKSI.  This is important, as it is not necessary for the government to be the only provider of sports facilities in Hong Kong.  There should be scope for other bodies to invest in specific levels of sports facilities and to be independent of government for both project financing and for operational expenses, including training schemes. The Review Document has not really developed this concept significantly.

(c)           Social Stability Considerations

​

The PRL clubs provide a focus for positive community and personal involvement through individual and family engagement in a structured social context.  They are formally constituted organisations and their structure is usually based on a number of committees with responsibilities for particular aspects of the clubs activities.  This structured process is an important opportunity for young people to be involved and to experience community building and

organizational responsibility.  While the Review Document notes that these clubs employ about 2,400 staff there is no figure for the number of members of these clubs.  It is our estimate that there would tens of thousands of members.  To close any of these clubs would result in the unnecessary removal of a social structure which is contributing positively to Hong Kong, and would result in a group of members with serious social discontent.

(d)          Economic Considerations

Mention is made in paragraph 3.3.7(d) of the “Mercer Quality of Living Survey” and how Hong Kong obtained the second highest ranking in terms of good quality of leisure and sports facilities. It is noted that many multi-national companies (MNCs) in Hong Kong offer club membership to private sports clubs as part of their remuneration package. This is important as the provision of high quality sports facilities in this manner helps make Hong Kong competitive with other cities in the region as a base for their regional offices. It also provides an opportunity for MNC’s to contribute towards development of Hong Kong sporting facilities and for their staff to take part with local residents in sports events and competitions. The economic contributions of private sports clubs should not be underestimated as part of Hong Kong’s branding as “Asia’s World City”.  The events that they organize are also important in ensuring that Hong Kong is recognised as an international sporting event centre. These activities have an economic contribution in the form of sports tourism.

​

Premium based on Full Market Value Unnecessarily Punitive

​

3.6.3      The Review Document proposes that the PRL clubs should pay one third of the full market value (FMV) of the site.  However the lease conditions are very restrictive.  They do not permit any commercial operations which means that there is no alternative commercial usage allowed in the site, hence no commercial value to justify a Land Premium. Also it requires any funds to be reinvested into the sport and the lease prohibits the sale of the site.  It is therefore contrary to land policy to charge a FMV based land premium for the site.  Also the proposed requirements for increased access to approved groups which is effectively a subsidy and an increased charge on the club for public use.  It is a bit contradictory to be asking for increased access on one hand and then charging a land premium on the other.  The payment of a premium would also be a financial challenge for some clubs and the measures proposed in the Review Document do not really assist as they effectively make the clubs even more financially inaccessible.  The further opening up of facilities to recognised groups is the most effective way of obtaining a public benefit from the PRL sites. Only a nominal premium should be applied.

​

3.7          Further Opening up of Sports and Recreational Facilities

                The proposals for the further opening up of facilities, where spare capacity exists, as explained in Section D of the Review Document are generally acceptable.  This is a real positive public benefit while a land premium, other than at nominal value, is an unnecessary punitive measure.

​

3.8          Sports and Directly Supporting Facilities and Ancillary Facilities

3.8.1      The proposed list of recreational facilities listed in Annex 5 of the Review Document is reasonable and would appear to meet the general needs of the sports involved on each PRL site.  It should be noted that food and beverage facilities provided for use by members and their guests are not only ancillary to the sports activities, but they often help contribute to the financial viability of the club and the ability to finance sports activities on the site.

3.8.2      It is also necessary to note that the provision of facilities to promote major sports events need to be of a high standard to meet the requirements of the international bodies that sanction such events.  Hospitality facilities and a variety of rooms may be necessary to meet these requirements and they are additional to those that may be provided at government facilities.  The proposal to consider these facilities on a case by case basis is supported.

3.9          Enhanced Monitoring of PRL sites and Governance of Lessees

                The proposals for enhanced monitoring and governance are considered appropriate.

3.10        Assessing Applications for new sites for Sports and Recreational use

3.10.1    There will be continuous demand for new and additional sports facilities beyond the general public facilities that are provided by government.  The types of facilities provided in some of the existing PRLs contribute significantly towards the achievement of the Government’s sports policy objectives.  There should be acceptance of the need to provide additional suitable sites under new special purpose leases which meet all of the requirements of this review.  Their implementation and operation would be independent of government funding.

                Expansion of Definition of Community Organisations

3.10.2    There is no clear definition of “community organisations” and it would seem appropriate for all NSAs to be included in this category.  Also, there is no clear reason why “community organisations” could not include other forms of sports clubs, many of which serve a focus for community activity.

                New Basis for Provision of Sports Sites

3.10.3    If no PRLs are to be granted in future, then consideration should be given to granting suitable special purpose leases for new sites with specific requirements to provide sports and recreational facilities.

                Expansion of Existing PRL sites

3.10.4    Some of the existing PRL sites are being used to capacity.  We have been involved in trying to obtain additional sites, or expansion of sites, and this has been difficult.  Where there are good reasons for permitting the expansion of current PRL sites then this should be considered positively.

                Replacing Short Term Tenancy Sites with Special Purpose Leases

3.10.5    There are a large number of sites which have been granted for sports purposes under Short Term Tenancies (STT), usually for periods of 3 to 5 years and then continued on the basis of 3 months’ notice being given to vacate the site.  We have been involved in obtaining several of these STT sites and the process is unnecessarily problematic.  It is proposed that these should be reviewed and where the use is likely to be ‘permanent’ then the STTs be replaced by new special purpose leases with an initial term of 21 years and a subsequent renewal of 15 years.  This length of tenure would provide certainty for investment in high quality facilities which would make best use of the site.

Section2         Invitation of Views: Specific Responses to Recommendations

4.            The following provide specific responses to the recommendations, using the numbering from Chapter 4 of the Review Document.

(a)          Different handling of leases held by “Community Organisations” and “Private Sports Clubs and granting new special purpose leases (instead of PRLs) to sports and recreational sites held by “community organisations”.

4.1          It is considered desirable to have a separate lease system for those organisations which are broadly community based and provide community building activities.  These activities could include provision of sports activities in a different manner to the PRL sports club sites. Community Organisations should include the NSAs.

4.2          It is also equally important to distinguish between the community sport and recreational activities provided by DSAs and LCSD, as compared with those provided by private sports clubs, NSAs and the HKSI, which provide for sports training and competition.  Catering for competitive sports requires significant investment in facilities, equipment, professional management and coaching and community building.  Certainty of land tenure is important in ensuring that long term investment is made to achieve sporting objectives. 

4.3          While it is accepted that a constant flow of talent into sports training is essential for sports development, this need not only be through the “community organisations”. There is a wide range of sports clubs which currently have no sites or facilities but provide significantly towards development of sport, such as in Triathlon.  The definition of “community organisations” could be quite wide and should include NSAs and sports clubs who may be holding sites on STT’s.  There is a great need for investment in sport at a higher level outside the LCSD system and below the HKSI system.  Special purpose leases with strict controls on how the sites are to be used should be considered to be granted more widely than the review suggests.

(b)          Continuing to have private sports clubs under PRLs with significantly modified conditions to better meet dual needs of supporting sports development and optimising land use.

4.4          This proposal is supported.  The prime purpose for the land being granted is to support sports development.  If the site is not being used in an optimal way to meet this purpose, then the continued grant of the land to the lease holder should be terminated.

4.5          Should however the site not be used in accordance with the lease requirements, then the site should be made available to an alternative organisation to provide the specific sports facilities and operations.  Just because the current lease holder does not meet the lease requirements does not mean that the site should be lost to sport.  Sports facilities are in such short supply that it is incumbent on government as the landlord, to ensure that the sports use is provided for and optimized by a suitable operator.

(c)           Taking account of the contribution of private sports clubs in promoting sports development when considering renewal of leases on expiry.

4.6          This is considered to be an essential requirement and is supported.  Continuous monitoring by government should ensure that the sports club is aware of any deficiency in performance well before the lease expires.

(d)          Requiring private sports clubs suitable for lease renewal to pay a premium to be set at one-third of FMV.

4.7          There is no justification in valuation practice for a premium to be assessed for PRLs on sports clubs.  The lease conditions are very restrictive and there is no ability to generate a commercial income or to sell the site.  The main source of income is from members fees.  Based on normal valuation principles these sites have no market value.  On this basis alone the proposal should be dropped.

4.8          The following general points are also relevant:-

(a)          The lease conditions are very restrictive and do not permit any commercial operations to justify a Land Premium;

(b)          The proposals to require additional opening up of the facilities for use by members of the public will reduce available usage to members of the Club and is effectively a subsidy for public use by the members, further increasing the cost to members and reducing the value of the site.  Further opening up is more useful to the community than the payment of a premium;

(c)           Professional advice is that use of normal valuation procedures would not enable the establishment of a FMV as the conditions of the lease are so restrictive that it is difficult to see how that there could be a market value for the site.;

(d)          The rationale for the charging of a FMV premium appears to be based on a perception that some “sites take up extensive areas of land and some sites are located at prime urban areas” (paragraph 3.3.6) and that there is a “general high value to land resources and a strong demand for land supply in Hong Kong” (paragraph 3.3.7):- 

i.      However, provision of sports facilities in convenient locations to the main population concentrations is desirable in terms of accessibility, and

ii.     There is a need to have a balanced provision of various types of land uses and the location of the private clubs should not be a factor determining whether a land premium based on FMV should be paid or not. 

(e)          Provided PRL clubs operate the facility in the manner required under the lease and meets the requirements regarding opening up to public use, then there is no need to charge a premium based on FMV;

(f)           Any additional charge on members to achieve payment of a land premium based on FMV will make it difficult for some clubs to remain viable and will also make them even more restrictive and membership less accessible to the general public.

4.9          If the Community Organisation PRLs are able to pay a nominal land premium then it would also appear reasonable for the sports clubs who meet the new requirements on opening up their facilities, and the other criteria related to sports policy, to also pay a nominal land premium.

4.10        Government currently charges PRL clubs government rent and rates in a similar way to which other leaseholders are charged, including commercial properties.  This is considered to be a reasonable and adequate payment.

4.11        Sports clubs are required under the lease to reinvest any surplus into the development of sports.  If a premium is imposed it would divert finance away from this prime purpose.  In doing so it is likely to result in the increased membership fees making club membership even more unaffordable.

(e)          Requiring private sports clubs to open up their facilities to EOBs for up to 30% of their total sports capacity; partner with sports organisations with programmes open for enrolment by individual members of the public with a minimum sports programme hours of 240 per month

4.12        In principle this is considered acceptable. Most sports clubs are already opening their facilities for programmes and organisations for similar periods.  There is a need to clarify that the 30% of capacity also includes the 240 programme hours per month.

4.13        Like most sports facilities in Hong Kong, those provided in the sports clubs are already heavily used and there is limited additional capacity that can be used for this purpose, particularly at peak times.  Members of sports clubs are also members of the public, and by providing for their own facilities they are effectively removing an element of public demand away from LCSD’s facilities.  If the percentage is set at a reasonable level and a suitable balance can be reached between members use and outside use, then a workable situation could be achieved.

(f)           Providing a list of allowable sports support facilities and ancillary facilities for PRL.

4.14        The proposed list is a useful guideline.  However, sports are constantly changing and the types of supporting facilities to be provided need to be progressively changed and up-graded.  The overriding principle should be stated in the list as being “facilities supporting sports activities”.

(g)          Enhancing monitoring of PRLs and governance of the lessees.

4.15        This is acceptable in principle, including the provisions regarding debentures, and is an essential part of good governance of any responsible organisation.

(h)          Defining the principles in approving applications for new sites for sports and recreational use

4.16        There is a need to provide a relatively long term basis for granting sites for sports development to suitable organisations.  In this respect the granting of special purpose leases for the development and operation of sports facilities and sports training programmes should be wider than just for community organisations. 

4.17        There is a benefit to sports policy and sport development to enable competent organisations, such as existing sports clubs and NSAs to be granted land for provision of facilities.  This will relieve the financial and operational burden from government as LCSD funding and management cannot provide all the facilities for sport in Hong Kong.  It is also an important community building process that should be encouraged. It is considered that the virtual prohibition of the granting of new PRL lots is unnecessarily restrictive and an alternative policy leg needs to be developed. 

4.18        As the demand for use of sports facilities is constantly growing, it should be recognised that existing PRL sites may need to be expanded. Some provision for this should be included within any new policy that is adopted.  Adequate justification for expansion would need to be provided to HAB.

5.            Conclusion

5.1          The PRL review has long been awaited.  The outcome has significant policy implications for the general provision of sites for sports use in Hong Kong and these additional implications should be taken forward. 

5.2          The PRL club sites should be retained as proposed and positive steps taken to ensure that they achieve sports policy objectives.

5.3          Further opening up of PRL Club facilities to EOB’s to optimise use of the sites is supported.

5.4          A premium based on FMV related calculations is not supported as opening up is a better and more related contribution to community sports development.

5.5          A wider definition of Community Organisations including NSA’s should be considered and eligible for special purpose leases.  STT’s should be converted to special purpose leases where appropriate.

5.6          The government should support the provision of sports facilities by organisations other than LCSD as a realistic alternative to expanding the facilities available to the general community.

Masterplan Limited

September 2018