Property Supply from Old Industrial?

HK: New Property Supply Idea

Old Industrial Space renovated to Offices, Residential


How to bring new supply to the Residential market,

so that sub-divided flats can be eliminated without forcing up rents

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There are 170,000 Sub-divided flats in HK. How can they be returned to a safe condition, without forcing Rentals way up?


On another board, a suggestion was made:


"Change the use of land in some empty industrial estates to be rezoned as residential."


Here's my counter-suggestion:


I basically agree with that, but but I think there's a smarter way:


+ Issue a license to live in an Industrial Building

+ But the license would only be issued after certain "improvements" (such as fire related protections) have been put in place,

+ Issue the license for a limited period, such as 5 years or 7 years.


If the market is low in 5 years time, they can withdraw the license, or renew it only for a year or two. And this way there would be an easy and automatic way to withdraw supply in a weak market. If prices are still high, the govt can renew it (and collect another license fee.)


This would be a quick way to get meaningful amounts of new supply into the market at a time when they want to force people OUT OF SUB-DIVIDED FLATS.


Can anyone see any problems with this, that are not easily remedied?

I don't know why in the world you want to give the government the right to revoke a license to habitat. Why, god why, do we want more government influence and control over the supply of land?


Your plan would be far superior if they permanently re-zoned the land to be residential and allowed it to be owned freehold.


Better yet would be to simply turn all land into freehold and let people live where they like.

??

There's no such right (to live in Industrial property) to give up.

Anyone who does it now is doing it illegally, and they can be thrown out at any time, and the landlord may be forced to change the use back to industrial.


If you have been in an industrial building, you will see that there are genuine issue in residing inside, such as:


+ Inadequate fire fighting,

+ Industrial smells

+ Noise

+ Some possible issues about quality of construction


To put these things right, money may need to be spent (by someone) and the resulting condition checked. Is it wrong to have a license for this?


Also, if you ADD NEW SUPPLY from this source, it could imbalance the market. And no doubt developers and property owners might complain if this drives price lower. Perhaps that is why this very logical step has not been taken.


My idea is to CONTROL the addition of new supply in a way so that it will not permanently imbalance the market, and leave the government with the headache of many old industrial buildings filled with people in 10 or 20 years

OTP,


I did not intend to say that there currently is a right to live there, I was instead operating under your hypothetical situation in which the government grants a temporary right to reside there (to which I retort that I would not want the government to give temporary rights but rather permanent ones that cannot be revoked).


You are an intelligent free market guy so I don't need to re-state the million reasons why economies and societies are best off without government in the markets. That some will gain and some will lose by new supply is irrelevant. If, for example (a ludicrous example), there were legacy government controls on clothing, both imports and local production, would we say that supply should not be increased because the factory owners and those with big wardrobes would lose out? Or would we worry that new supply would destabilize the market? Or would we give out new coats to temporarily increase supply then take them all back 5 years later? Of course not.


Increasing supply, as long as it is profitable, is always the best solution.


What Hong Kong should do for property is what it did with the rest of its economy - let the free market bring prosperity to all. High prices are the opposite of prosperity, they are signals that there are not enough goods to satisfy the needs of the people. Real prosperity is low prices across the board - that signals that goods and services are in such abundant supply that everyone can afford copious quantities.

The SUPPLY is there, but cannot be used legally because it lacks the permit for residential use.


Most of the objections against delivering it to the residential market could be removed if the properties are inspected, and delivered for only temporary use of 3, to 5, to 7 years.


This is such a good an obvious fix, it amazes me that it has not been done. But people come up with objections to even good ideas like this. So perhaps the government faces the some problem that I do in conveying (what seems to me) to be an obvious and good idea.


We need government regulations for some things. I don't think we should be having people and their families living next door to all sorts of industrial activities. Would you want to raise a family next to a chemical plant?

It would be very easy to reclassify some particular buildings from industrial to residential. The factories (very few, mostly storage places) which operate there would have to close and move somewhere else. The silly excuses by the government to not do that are just that: silly excuses. The government simply doesn't want to reclassify industrial buildings because 1) developers wouldn't make a fortune, and 2) government income is from the sale of land.


The second is the same reason why the government doesn't want to release N.T. land: most land either 1) belongs to developers already (about 20% or so), or 2) belongs to villagers, so no income to the government if it releases the land.


It's really all that simple. The problem is created by the government, because the government doesn't want to solve it.

"The problem is created by the government, because the government doesn't want to solve it."


Jessie is on the right track now it seems - next is to slowly and logically analyze other economic issues and come to the realization that the government again is at the heart of all of them.


"I don't think we should be having people and their families living next door to all sorts of industrial activities. Would you want to raise a family next to a chemical plant?"


I do not want to live next to an industrial plant, but I also do not care what anyone else wants to do, and neither should you. If a person decides that their best option for living given the resources they have is to live next to a factory, then who are we to ride in on our intellectual high horses and deny them the right to do as they wish? If we deny them that option then they are logically forced to choose an option that they value as being not as good as the first. I vote for personal responsibility - let those who bear the costs and reap the benefits make their own decisions, and not people like us who philosophize from ivory towers and carry no risk.


We all agree that the government is the primary cause of the highly priced small-sized housing in Hong Kong. Your solution would indeed provide some relief, but I'm just taking it to the ultimate final free market solution which is to fully remove government from the market and let people build property as they wish.


At any moment property prices could plummet to what they "should" be which is some function of replacement costs, supply and demand, and location exclusivity. Of course I do not actually think this will happen anytime soon, if ever, so I'm not holding my breath. The whole property market is totally politicized and monopolized by minority interest groups who reap massive economic benefits from it - villagers, developers and bureaucrats playing Sim City. Unfortunately I don't see the incentive for things to change in a positive way.

"I don't think we should be having people and their families living next door to all sorts of industrial activities. Would you want to raise a family next to a chemical plant?"


I lived next to an incinerator when I was unemployed (many years ago). What is the problem? They have such things as filters. I would rather raise a family next to a chemical plant than in a 120sq. ft. room, where all have to sleep in the same bed, and share the toilet with another 25 people.


Anyway there are many industrial buildings in HK, the government can just chose those that are in better location, without chemical/industrial hazards, etc. to transform to housing. There are no reasons not to, except the government doesn't WANT to.

Have you guys ever visited Industrial Buildings and considered investing in them.


I have visited many. In fact, I have a fried who bought a property of about 3,000 sf in Kwai Hing. He asked me for my suggestions about what to do with it, and I eventually found him a tenant who was setting up a new manufacturing business, and he is now happily renting the space.


At one stage the owner of the space was fantasizing about moving his young family there. It is more space than they have now, and is far, far cheaper, and he figured he could design it in exactly the way he wanted. There remained two main problems:


+ It was illegal to live there - though some just ignore this, and

+ There was a strong smell of paint from one or two floors below. I found it very noticeable and it almost made me dizzy when I visited the place.


He eventually coped with the paint smell by installing a powerful air conditioning system to keep the smell out, and it works. The tenant who is there now is happy with the space and how it has been renovated. This is a very different matter than moving small children into the space, who may be more bothered by smell or put in danger by the industrial activities in the building.


My LICENSING IDEA solves the two objections mentioned above:


1 / Developers wouldn't make a fortune:

A temporary use of industrial space could help balance the market for a few years, without bringing prices down by flooding the market with new land and newly built supply - That's the "mistake" that CH Tung made when he was CEO. The developers should be more supportive of the less permanent release of new supply. Moreover, the supply can be approved for residential use (on a building-by-building, or floor-by-floor basis) almost immediately. This is better than waiting the 5 years or longer that is required to go from raw land to a newly completed new building.


2 / Government income is from the sale of land :

The government can still go on selling land. But here they would receive an additional source of revenue from the sale of licenses.

"Have you guys ever visited Industrial Buildings and considered investing in them." I think the prices have gone up even more than those of flats?


I can see some drawbacks of your idea of issuing TEMPORARY licences. What if I invest to make an area (I would change use for whole buildings) suitable for habitation and after 5 years I have to bring it back to industrial? What don't you want to make the transformation permanent?

Medium incomes in HK grew a fraction over 10% in the decade to 2011. This is less than the rate of inflation during that period.


While medium income is obviously not the best data to use for these purposes and the reference period started at close to the 2003 market bottom, it does suggest that in general, private sector housing has become less affordable for many parts of our society.


That said, once you get past the medium number, there are many groups that continue to do well - including professionals, mid-level and senior managers,many business owners and civil servants - and it is (I believe) largely these groups and, before the cooling measures, non-PR buyers who make up the sections of society that are buying in the private sector. (There is another category of property acquirors who are doing well at the expense of HK generally and that is the NT males who have bullied the HK govt into giving them land which should be set aside either for low cost housing for all HKers or extending our country parks for a fictitious ancestoral right but that is another story.)


Personally, I would be happy to see more affordable property made available in the private sector - both through low cost developments and lower prices generally. That said, as others have pointed out it is largely the HK government that sets the prices through its land supply policies and they have an appalling record of getting it wrong and producing dramatic fluctuations in prices and I am concerned that they will repeat past mistakes and cause prices to fall too far with the usual consequences for HK's economy.


On converting industrial buildings to residential use, I see no problem with this in general, Building owners can pay a higher land premium to the HK government if they think is it worth it. However, given the use to which these buildings have been put, some very tight safety standards would be needed to ensure that all hazardous substances have been removed.

(For the Record here ... about Repurposing Industrial areas)


KWAI CHUNG BUILDING WILL BECOME A MALL (near KCC)


SHKP to take advantage of HK revitalization scheme to turn a 40-year-old industrial facility

into a 10-storey shopping outlet


+ Luen Tai Industrial Building (Kwai Chung Rd, Kwai Chung) will be converted

+ Adjacent to Kowloon Commerce Centre (KCC)

+ The Mall is expected to open in the middle of 2015

+ Govt's revitalisation plan was announced in 2009, for old industrial buildings

+ Owners can avoid paying land premiums

+ This is the first conversion into a mall :

.. a Ginza-style vertical mall (different themes, on each floor)

.. a curtain wall, and decent size: 100,000 sf

.. linked by walk-way to KCC and to Kwai Hing MTR

.. target market : shoppers of 25 to 49 years: Retail, F&B

.. leasing to start: this month


Previously, Millennium City in Kwun Tong was opened in 2005, and spurred a change in the area.

It took seven years to convert the area into a new commercial area.

MC : offers 330 mn sf, office + 900,000 sf, retail


Area is changing:

+ The Open University opened new campus: Li Ka Shing Institute (at KCC)

+ The university will help generate traffic at the new mall

+ Kwai Hing is a populous area, but lacks a mall

Life@KCC is the New name: Leasing has started

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RENTAL Levels estimated


+ Luen Tai Industrial Building (Kwai Chung Rd, Kwai Chung) will be converted

+ Adjacent to Kowloon Commerce Centre (KCC)

+ The Mall is expected to open in the middle of 2015

+ ..a curtain wall, and decent size: 100,000 sf

=== ===


The Standard today reported that SHKP estimates it will:


+ Receive rents of HK $36 million pa from 60 shops

... $36,000k / 100,000 ... = $360 pa/ 12 = $30 psf

... 100,000 sf / 60 shops = 1,666 sf/ Shop


Map:

http://www.ouhk.edu.hk/LIPACE/JS/frontpage/FTP/KCC-MAP.jpg


Photos:

Walkway from Kwai Hing MTR > KCC:

http://listings.cbre.com.hk/Resources/Images/Property-Image/KCC-2_2.jpg


Interior of KCC:

http://pic.pimg.tw/steph56/4b079a6086d2d.jpg

Duplicate (For the record here):


Industrial Property - Too hot to handle


Some folks may remember some discussions here about buying industrial property, going back 3-5 years. Personally, I made two half-hearted offers, but never bought anything. The idea was the discount to Residential prices was too big.


This week, we got some interesting info:


+ Vacancies on Industrial are down to 1%, and users of space are complaining they cannot find the space they need


+ Jake Van der Kamp's column has a chart which shows Res. and Ind. prices since 2000, and it is enlightening.


From what I can read from the chart: the Low was 2003


Res. : 100 Low > 400 recently : + 300%

Ind. : 100 Low > 900 recently : + 800%


"Supply of flatted factory and storage space has remained static throughout. It currently stands at 223 million sq ft. - down by barely half of 1 percent over the 10 years."


With industrial production down, you would have expected prices to collapse, not rise. Reason: "Industrial space is no longer being used for industrial purposes only - Most of it is in use for retail operations, offices, and other non-approved uses."


JVDK thinks it is time to get Honest, and rethink zoning.


At these prices, I certainly would not be buying Industrial space