Hong Kong developers look to redevelop old buildings as land crunch continues

Attention is turning to the city’s old buildings as new land for development remains scarce.

May 06, 2019

Real estate developers in Hong Kong are turning their attention to the city’s old buildings as new land for development remains scarce.

More developers have been redeveloping old residential and commercial buildings, after finding it increasingly difficult to acquire sites in the government land sales market. A total of 39 compulsory sale applications were received in 2018, a six year high and up 160 percent from the previous year, according to figures reported by the Lands Tribunal.

"A highly competitive government land sales market and large sums arising from the bigger plots on offer have effectively shut a lot of small-to-medium sized developers out," says Denis Ma, Head of Research at JLL Hong Kong.

Hong Kong is infamous for its space constraints, leading to small floor spaces and sky high rents. The vacancy rate for Grade A offices has fallen from 11.9 percent at the start of 1999 to 2.0 percent at the end of 2018, resulting in escalating rental costs for occupiers in what is already one of the world’s priciest property markets.

Compulsory sale applications allow developers to gain full control of a building after securing 80 percent ownership and were introduced to encourage the redevelopment of old and vacant buildings through the country’s Land (Compulsory Sale for Redevelopment) Ordinance (Cap. 545 of the Laws of Hong Kong) in 1999. The ordinance enables individual owners who hold a specified majority of the undivided shares in a lot to file an application to the Lands Tribunal for an order to sell it for redevelopment.

“Compulsory sales are a viable alternative source of land supply for developers to sustain their project development pipelines,” Ma says.

Government support

And the Hong Kong government is encouraging the process, announcing in the 2018 Policy Address, the re-activation of its industrial building revitalisation scheme, more commonly referred to as ‘Revitalisation 2.0’.

In addition to exempting waiver fees on changes to a building’s use, the rejigged scheme will allow for the relaxation of the gross floor area plot ratio by up to 20 percent, enabling owners to build at a higher density. The new scheme has also been expanded to allow the conversion of industrial buildings into transitional housing.

The scheme will further permit the use of buffer floors to be converted for data centres or telecommunications exchange centres so that the lower floors of industrial buildings can be used for non-industrial purposes.