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Expert Insights | It’s time for resi-dustrial solutions

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How rezoning of Hong Kong’s industrial sites for residential use could provide the city with much-needed housing supply, writes Bill Chan, Head of Industrial Services

Investors have not lost their appetite for land in Hong Kong, and the government’s bid to rezone industrial sites and buildings as residential will undoubtedly be a welcome amuse-bouche.

After the Second World War, manufacturing blossomed in Hong Kong and became the city’s main economic driver. By 1950, manufacturing powered the city’s growth financially and spurred the development of industrial areas for factories and residential areas with housing estates to accommodate the growing workforce. When the PRC began its reforms and opened up its policy in the 1980s, they began to drift northwards in search of lower overheads, leaving Hong Kong with numerous unused industrial buildings and sites.

One sterling example of this renovation is Sun Hung Kai Properties’ APM mall in Kwun Tong

Over the years, these industrial areas have suffered urban decay, but there has been a steady effort to reinvigorate them with office, retail and residential developments. One sterling example of this renovation is Sun Hung Kai Properties’ APM mall in Kwun Tong. Incidentally, Kwun Tong was one of Hong Kong’s first industrial estates. The process has been long and slow, and now the government wants to expedite it, to provide desperately needed homes.

Previously, it would be on the developer to, among other things, apply to change the site’s permitted uses from industrial to commercial or residential. But that hurdle at least might fade if the government’s plan of upgrading industrial sites, even though there is no current application to do so, is passed. At the moment, however, the plan only covers specific industrial sites, which have the combined potential to provide around 13,000 homes. 

The areas covered are:

In Tsuen Wan, SHK kicked off proceedings with their rezoning application. That development and nearby industrial sites, with a potential combined gross floor average of about 700,000 sq. ft. could provide 1,330 homes. Tsuen Wan went from being a satellite town in the 1950s to a bustling city on reclaimed land that includes SHK’s massive 20-tower private estate, Tsuen Wan Centre.

In Siu Lek Yuen in Sha Tin, which would release 7.48 ha. of land to be turned into roughly 6,100 homes. Siu Lek Yuen was reclaimed for industrial purposes in Sha Tin New Town, which was developed in the 1970s. As part of the New Town, Siu Lek Yuen underwent profound changes over the years to add public and private housing estates and factories. This is the most extensive area under consideration.

In Fo Tan, Sha Tin, which used to be a light industrial area. Artists have formed a community here, and it is home to several private and public residences. Conversions here are likely to offer a GFA of approximately 2.6 million sq. ft. which can add roughly 4,700 homes. The area is accessible from the Fo Tan MTR station and by public buses and taxis.

In Tung Tau Industrial Area, in northern Yuen Long, where a rough GFA of 570,000 sq. ft. could add around 1,160 homes. Yuen Long is strategically situated near the administrative boundary of Shenzhen. 

Industrial properties have gained much attention from investors wary of pandemic-induced market volatility. Data centres, cold storage and basic warehousing have been the main focus of recent industrial conversions because of the increased online demand created by the pandemic, the rise of 5G and e-commerce. The need for industrial space will not dwindle. However, converting industrial land into residential land will more than double its value, according to the Standard Rates arrangement in New Territories South under Lands Administration Office Practice Note No. 1/2021. 

Previously, individual sites were not large enough for development, and consensus among the owners of neighbouring sites was near impossible. But with the new permitted uses, cooperation seems on the cards. Building and site owners naturally see doubling the value of their land as a windfall, and now many are motivated to sell. Skilled negotiators will have their hands full working out the finer details of any transactions, especially when strata-title buildings are involved.

Developers, too, are pleased about the idea of more affordable land already zoned for residential use. They will still have to apply for lease modification with a premium chargeable by the government. And yes, that premium will be twice what they usually would pay for industrial land. However, if it happens, this change will still return handsome profits, especially since it will be years before any development is ready for sale. But, once again, opacity regarding the premium process does not allow them to budget or plan with any confidence. 

If this plan comes to pass, it will be an affordable way for investors to enter Hong Kong’s property market, but we can’t expect it to solve Hong Kong’s housing crisis any time soon. Even if the buyer intends to construct housing immediately, the government’s rezoning application could take years. The government is working to shorten the process for these sites in particular. However, there is much to be considered before the plan can be signed off, not least of which is the environmental and health effects of building homes in working industrial areas. 

Traffic flow would have to change, as industrial traffic is not the same as residential traffic, and adequate parking would need to be provided for residents, along with all the other accoutrements of residential life. Once these matters have been taken care of, the plan will still be public consultations.

Savvy investors will be eyeing sites closest to MTR stations for commuter convenience. This is the area that will be developed earlier and have the highest potential ROI. We have seen time and again that when a new MTR station is announced, land prices in the vicinity rise. Being right next to Kwun Tong’s MTR station definitely contributed to apm’s success. The mall also stands to gain from the development in Kai Tak too.

The article was published on South China Morning Post on 14 June 2022.

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Bill Chan

Senior Director | Head of Industrial Services

Industrial Services

Hong Kong

Bill is a Senior Director in the Industrial Services business in Hong Kong. He is an industry-leading real estate expert with leasing and investment expertise spanning 28 years in industrial brokerage and manufacturing. He has an extensive track record of major leasing, disposition, and acquisition deals across a range of assets in multiple global markets.

Not only that, he has specific experience with cold and self-storage assets, and advised GDS Holdings Ltd on setting up their first data centre space in Hong Kong, which complements the focus areas of multiple Colliers’ business lines.

He recently re-joined Colliers after leaving in 2019 to work in Canada for DHF Capitals, a real estate development and property management company, and he now looks forward to accelerating the success of our clients and people.

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