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Property Rules

Hong Kong’s light industry left for Guangdong three decades ago, leaving industrial neighbourhoods such as Wong Chuk Hang, Kwun Tong, Kwai Chung and Fo Tan with scores of underused or empty industrial buildings. A new set of rules went into effect in April aimed at revitalisng those spaces.

Unfortunately, the way the regulations are being adapted doesn’t favour the kind of factory conversion you’ll find in cities like New York, London or Berlin, where warehouses that once housed sweat shops now provide light and airy work spaces for creative industries, and some eminently cool converted lofts to call home.

That’s because the revamped rules designed to bring new life to Hong Kong’s industrial space play – and is anyone really surprised any more? – squarely into the hands of big developers. To take advantage of the new rules, you have to renovate or redevelop an entire industrial block or building. Only the very largest real-estate companies will be able to afford to take on that kind of cost.

What is changing? As of April 1, building owners can apply to convert industrial buildings that are more than 15 years old for “other uses,” mainly for use as commercial space, offices or hotels, without having to pay the premium to the government that would normally be necessary for the change of use. The building can stay in its exempt new status until it’s pulled down.

Hong Kong is also making it easier for private developers to buy up entire industrial buildings to redevelop them. The new policy reduces the ratio of units that one owner must control in a structure to force a sale of the remaining owners to 80 percent from 90 percent. That applies to blocks that are more than 50 years old, or more than 30 years old if they’re industrial buildings outside industrial zones. The developer can also stagger the premium payments over five years if it’s more than HK$20 million.

In each case, the whole building must be renovated or redeveloped. So that’s likely to push out all the small-time owners who have bought industrial space already and taken it on themselves to turn it into something useable. Already, pioneering artists, ad agencies, musicians and graphic designers have been reclaiming space within those buildings and turning it into something they wanted to use.

The real aim may be to drive them out. The government “would really like to collect all these illegal uses in industrial buildings,” says James Siu, the senior director of industrial development and investment at the brokerage Savills. “They don’t like mixed use.”

Though the government’s scheme is just starting, and will run for three years, it’s already having an effect. Brokers say owners of industrial units have pulled their properties off the market, waiting for higher sales prices, and are raising rents where possible. Sales prices have shot up 20 percent to 30 percent in a matter of months.

To get permission to renovate an old industrial building under the new rules, the applicant must show that they’re going to spend a considerable amount of money on the adaptation, and meet all the necessary fire codes and buildings standards. That will likely cost at least HK$600 per square foot, Siu says. So for a typical 100,000-sq-ft building, the refit would cost HK$60 million. It’s not far off the cost of constructing a new building - industrial space only costs HK$800 to HK$1,000 per square foot to build.

That’s beyond the means of anyone but listed companies and tycoons. To really revitalise Hong Kong’s industrial space, what the city really needs is to encourage more small developers, more one-off owners, more of those creative ways of converting space within an existing building. More small developers would also put more competitive pressure on Hong Kong’s cabal of real-estate developers.

But with the new rules, small-scale redevelopment is only going to happen underground – figuratively, you’d hope, but literally if this city’s creative industries get priced out altogether.