Redesignating subdivided units as “Basic Housing Units” in the Hong Kong Chief Executive’s 2024 Policy Address
The Hong Kong Chief Executive’s 2024 Policy Address introduced measures to address the issue of Subdivided Units (SDUs). A legislative proposal will be made to regulate SDUs in residential buildings, setting the standard of "Basic Housing Units” (BHUs) that meet specific criteria, including having windows, an individual toilet, and a minimum floor area of 8 sq m. A registration system will identify SDUs that satisfy these standards, with a proposed period of 12 or 18 months. Owners renting out substandard SDUs will face criminal liability, while tenants will not be held accountable. Additionally, a grace period of one or two years will be allowed for owners of existing rented SDUs to convert into BHUs upon registration.
In Hong Kong, the most under-privileged residents in the city often opt for SDUs, being the most affordable accommodation available in the market. However, the existing SDU supply does not meet the minimum standards of BHUs. The findings of the government's inter-departmental Task Force on Tackling the Issue of Subdivided Units indicate that approximately 30% of the 110,000 existing SDUs will require substantial modifications to meet the BHU standards. The balance of 70% of existing SDUs are anticipated to meet the standards through simpler remedial measures.
Positives of Regulating SDUs
The quality of SDUs in the market varies significantly. While some higher-quality SDUs do meet the needs of working individuals, small families, and university students, many others suffer from limited living space, poor hygiene, and safety hazards, leading to unsatisfactory living conditions. To address these issues, implementing a rental system and clearly defining SDUs will provide an accessible platform for tenants to identify recognized BHUs and monitor their compliance with established standards. This initiative aims to enhance living conditions, ensuring access to safer and more adequate housing, and ultimately improving residents' quality of life.For an extended period, the SDU market has faced challenges due to insufficient regulatory oversight, including arbitrary rent increases and inadequate living conditions. New legislation aimed at regulating SDUs will address these issues and help normalize the market, contributing to a more stable and equitable housing environment.
Potential Issues of Regulating SDUs
Given that a portion of the current stock of SDUs does not meet the minimum standards for BHUs, owners must invest significant financial and time resources into renovation work. This process involves extensive upgrades to ensure compliance with safety and hygiene requirements. This may require landlords to request tenants to vacate their units, resulting in a temporary shortage of SDUs. This situation raises concerns about the availability of affordable housing during the grace period and whether the government will need to provide alternatives, such as transitional housing, to accommodate displaced tenants.The financial burden on landlords to upgrade their properties is likely to result in increased rental levels once renovations are complete. This issue is particularly acute in prime locations, where landlords may see an opportunity to convert SDUs into more profitable co-living spaces. As the influx of skilled professionals and non-local students in Hong Kong continues to rise, demand for co-living spaces, multi-unit properties, and student apartments remains robust. These spaces typically cater to professionals and students who can afford higher rents, in turn marginalizing low-income individuals and exacerbating the housing affordability crisis.
While the policy aims to improve living conditions and create a more sustainable environment for low-cost households, its implementation presents significant challenges. One potential solution is to introduce designated areas where SDUs are most in need of renovation, during the initial phase of the regulation’s implementation. Such a targeted approach could help balance the necessity of upgrading housing standards with maintaining a steady supply of affordable units.
In conclusion, while the government's efforts to address this critical housing issue are commendable, the implementation must carefully balance the interests of both landlords and tenants. Successfully managing this balance will lead to improved living conditions and a more sustainable environment, ultimately achieving a higher standard of living for all.
Cushman & Wakefield’s Greater China Valuation & Advisory Services platform offers a comprehensive range of services including real estate and asset valuation, business valuation, SOE asset services, valuation and advisory of non-performing financial assets, deal due diligence advisory, financial and tax advisory services and ESG advisory. For your views or questions on this post, or to discuss your business requirements, please contact me at calvin.ch.luk@cushwake.com.
