Sky-high property prices are driving some Hong Kongers to turn to cheaper commercial or industrial property for home use.
But while loft living in converted commercial buildings is popular in cities such as New York, there’s a hitch in Hong Kong: It’s illegal. Zoning laws prohibit the conversion of commercial or industrial buildings to residential space.
For those who risk breaking the law, the payoff can be large. One chef who moved to Hong Kong from London a few years ago found his 1,300-square-foot Mid-Levels apartment got “a bit crowded” during his supper-club parties. He yearned for the large and open loft space he had had back in the U.K.
So he went searching, and after a few months found the perfect spot: a 2,500-square-foot raw expanse with 10-foot ceilings in an industrial building in Aberdeen. The monthly rent: 15,000 Hong Kong dollars (US$1,929) plus a management fee of HK$3,500—far less than the $27,000 he’d been paying for less than half that space in the Mid-Levels. He now comfortably hosts dinner parties of up to 30 people.
There are no official estimates of the number of residents living in industrial or mixed-use space in Hong Kong. But real-estate agents say popular areas for such conversions include Aberdeen, Chai Wan, Fo Tan, Kwun Tong, To Kwa Wan, Yau Tong and San Po Kong, neighborhoods that typically house warehouses and commercial buildings.
The Hong Kong government says it doesn’t intervene unprompted.
“Given the vast area of land and units involved, it is impracticable for the Government to carry out regular inspections. We normally act on complaints,” the Hong Kong Development Bureau said in a statement to The Wall Street Journal, adding that it does not keep figures on the number of complaints filed.
Tenants who are outed are first issued a warning letter, and can be evicted.
There are other downsides to loft living. The spaces often require extensive renovation to make them livable. The chef’s space in Aberdeen had no facilities—he spent HK$150,000 to install a toilet, a kitchen and some walls to create a bedroom. To save on costs, he did much of the construction himself.
Utilities are also costlier because tenants are charged higher commercial rates. For the chef’s 2,500-square-foot space, the monthly electricity bill varies from HK$700 to HK$2,000.
Then there’s the difficulty of obtaining the space to begin with. For those looking to buy, getting a mortgage can be tricky. Hong Kong banks assess property values based on previous transaction prices of comparable units within the building. The value of an unusual space like a loft could be based on a transaction years—and millions of dollars—ago, thus requiring a buyer to put down a large sum of cash up front. Later selling the converted space can be just as hard. And getting homeowner’s insurance for a commercial space is impossible.
“In general we don’t recommend [living in non-residential space], especially industrial space,” said Ruby Suen, a broker at Asia Pacific Properties. Still, she is brokering a 1,500-square-foot apartment in a mixed-use building in Central that was used as residential space by its owners, even though it is zoned for commercial use.
Tenants and owners must pay rent or mortgage payments on a commercial or industrial space rent through a business. One loft dweller, a lawyer, started a solar-power consulting firm in order to buy a 2,000-square-foot loft, with a 2,000-square-foot roof deck, in Fo Tan last year. The payoff: He paid HK$1,100 a square foot; today’s apartments in the area fetch HK$5,000 to HK$7,000 a square foot.
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Lastly, there’s the question of neighbors—or lack thereof. The tenants above may very well operate a printing press or manufacturing equipment. And weekends can be lonely.
“You need to love living in these places because there’s nothing—you’re alone, no shopping or restaurants. On Sunday you live in an abandoned city. But I personally think it’s one of the coolest things you can do,” says the chef, who is also a former consultant.
Indeed, there are signs the government may be growing more interested in converting commercial and industrial buildings. Hong Kong Chief Executive Donald Tsang, in his 2009-10 policy address, announced a package of measures to optimize the use of industrial buildings through redevelopment or wholesale conversion.
But laws require the entire structure be demolished and rebuilt. Because of this, it’s still “unlikely or impossible” to legally convert an existing industrial or commercial building into residential loft space, says Samson Chu, chartered surveyor at the professional consultancy department at Centaline Commercial, a branch of Centaline Property Agencies Ltd.
The lawyer in Fo Tan said he became interested in the New Territories neighborhood after visiting some art galleries in the area. Fo Tan is known for its art studios converted from industrial space. With that in mind, he renovated the space to have maximum flexibility so he could double it as an gallery. Folding doors in the loft can slide to the side, opening up the 2,000-square-foot space.
He also spent HK$1 million in a renovation that included energy-efficient appliances and solar panels on the roof. The solar panels, which take up about a third of the rooftop space, heat the water and take care of 10% to 20% of his energy use, he says. He converted the rest of the rooftop into lounge space with a dining table, chairs and artificial turf.
“I like the idea of reusing industrial space,” he says. “It gives you the freedom to be creative to spread out…You can play your music as loud as you want, no one will complain.”