Rents, prices heat up loft market in Hong Kong

HONG KONG: Rising rents and surging prices of apartments in Hong Kong are driving a trend towards conversions of older industrial and commercial buildings into lofts.

Created with or without formal government approval in old or disused industrial and office buildings, loft apartments appeal to buyers or tenants in Hong Kong, say agents, because of their big spaces, high ceilings, and more importantly, rentals or prices that are far below market prices.

"With a HK$4 million (RM1.77 million) budget you can probably afford no more than a standard 500 sq ft on Hong Kong island, but your living space will double if you pick up an old and inferior (or grade-C) commercial building turned apartment in Sheung Wan," said a property agent of Kamson Property Agency in Sheung Wan.

The agent, who asked not to be named, said he had recently arranged for an expatriate to buy an 800 sq ft commercial-turned residential unit for HK$3.2 million. The buyer will use the unit as his home and office.

"Rents of homes in Sheung Wan range from HK$20 per square foot to as much as HK$40 per sq ft, but tenants in such loft apartments are paying less than HK$15 per sq ft, he said.

But buyers and tenants would have to trade off these attractions against setting up home or office at a distinctly unfashionable address, in a rather run-down neighbourhood, and run the risk of breaching government regulations, said the Kamson agent.

Some locations, such as Tai Shing Building or Yu Hing Mansion, were converted to residential use by individual owners a long time ago.

But long-term use does not necessarily imply lawful use.

A spokeswoman for the Buildings Department said whether or not such conversions were legal would depend on whether the building was zoned for residential use, or whether structural changes had been carried out -- in which case Buildings Department approval was required.

"For example, if an owner revonates a bathroom that requires structural change but does so without our approval we will require the owner to restore it because they are illegal structures," she said.

Charles Chan Chiu-kwok, the managing director of Savills Valuation and Professional Services, added a further caution.

"The occupation permit issued when a building is completed mentions its usage. If an owner does not follow this designation, the usage will not be lawful," he said.

Tai Shing Building and Yu Hing Mansion were listed for non-domestic uses in their occupation permits, according to Buildings Department. The department said it recorded in Land Registry data that a property included an illegal structure if the owner refused to remove it.

This presented the owner with difficulties when he chose to sell the property, but if the owner had no plans to sell, the department note would not cause any big problem, agents said.

The penalties involved were not significant enough to require the owners to rectify the problem, Chan said. Some land leases, he said, would require that the property comply with all aspects of the Buildings Ordinance. The government had the rights to foreclose on land if a property want contravened the buildings ordinance.

But for tenants, there was little risk.

This was confirmed by a tenant who identified himself as Michael.

"I suspected that it was not proper," said Michael, who has leased an 820 sq ft unit at Tai Shing Building for HK$12,500 since Jan 20. "But as a tenant I feel I do not have any risk." Michael said he was attracted to the unit despite its apparent illegal nature because of the large space, high ceiling and cheaper rent.

He previously rented a 650 sq ft unit in Quarry Bay for HK$11,000 per month.

In the fourth quarter last year, Island South rents increased the most among the traditional luxury residential districts, rising 7% to an average of HK$41 per sq ft per month, while rents in Mid-Levels and Jardine's Lookout increased about 4.6% over the quarter to average HK$41 and HK$28 per sq ft per month respectively, according to CB Richard Ellis.

Simon Lo Wing-fai, director of Colliers International Hong Kong research and advisory department, said rents had continued to rise in the last two months and he now expected a double-digit rise in residential rental this year.

By comparison rentals for commercial or industrial properties-turned apartments were much lower, he said.

The Consumer Council, after noticing a proliferation of promotional materials for apartments situated in former factory buildings, issued a warning three weeks ago.

The council said that converting industrial or commercial buildings for residential use required the approval of the Town Planning Board and buyers could not live in converted units if a developer had not been granted a change of use.

But Lau Chun-kong, international director and head of Jones Lang LaSalle valuation advisory services, said: "From the outside, it is difficult to prove that units in these industrial or commercial buildings are used for residential use," he said. – South China Morning Post

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