Will Hong Kong’s proposed subdivided housing shake-up put landlords out of business?

Looking for a regular source of income in retirement, she split the space into two subdivided flats of 100 sq ft and 130 sq ft to rent. She figured if the building was acquired for redevelopment, the compensation would be a windfall.

Ng, aged around 60, said she spent HK$200,000 (US$25,607) on the renovations. Unlike other subdivided flats Notorious for hygiene and fire hazards, she said hers had fire-resistant walls, separate toilets and kitchens.

She added that she got along well with her tenants, who were single occupants or couples. She lowered the rent by about a fifth to HK$3,000 and HK$5,000 through the hard times of the Covid-19 pandemic.

“I don’t want to be a profiteer. “I just want a reasonable income,” she said.

With the Hong Kong government considering proposals to regulate the design of subdivided homes and eliminate “improper” ones, Ng and other landlords like her are anxious about the new rules, and the time and cost of meeting them.

Some people living in subdivided flats are worried too. Those not eligible for temporary housing are concerned about where to go, if they must move out.

Secretary for Housing Winnie Ho Wing-yin told the Post earlier that the proposed standards, to be reviewed by the city’s leader this month, are likely to include a minimum size of between 75 sq ft and 108 sq ft, a minimum ceiling height allowing an adults to stand upright, and rules for fire and structural safety, ventilation and hygiene.

She said the regulations would be implemented in phases and there would be sufficiently deterrent penalties for landlords who did not meet the new standards within a specified period.

All this has left Ng unsure about the future.

“It depends on the exact requirements and how much I need to spend to fulfill them,” she said. “If I have to spend another HK$100,000, I will not consider it.”

Engaging professionals to prove her flats met the standards could also be costly.

“I’ll just leave my property vacant and wait for developers to acquire it. “It’s not worth it,” she said.

Landlords: if it’s too hard or expensive, we’ll quit

Carlos Chan* has made a business of renting out subdivided flats for more than a decade.

He has about 100 flats, ranging from 50 sq ft to 200 sq ft, in old single-block buildings in Yau Ma Tei, Sham Shui Po and Cheung Sha Wan. He owns some of the flats and rents others to sublet.

In his 40s, he was worried less about the new design rules than having enough time to fix his flats in the time given.

He said to stay competitive in the market, he had made the effort to ensure his tenants had a living environment that was safe and of good quality.

Among other things, he said, he engaged management companies to deal with tenants’ issues, including maintenance, and equipped the flats with furniture, fire extinguishers and separate electricity meters to ensure fair utility charges.

“As a long-term operator, I want to keep my business stable. Operators of bed spaces and tiny flats need lower costs, but flat owners often take back their properties if they discover problems,” he said.

Chan said 90 per cent of his subdivided flats were larger than the possible new minimum size of 108 sq ft, but hoped the government would reveal all the requirements clearly.

“The standards should not be too complicated,” he said.

He said he charged his tenants between HK$3,000 and HK$9,000 per month, and that it cost him about HK$20,000 to refurbish a place after the occupants moved out.

Chan questioned how the new regulations would sit with other existing rules for subdivided flats.

Under the Landlord and Tenant (Consolidation) Ordinance, which took effect in January 2022, subdivided flat landlords must sign a two-year tenancy contract, during which they cannot terminate the agreement or increase the rent.

Tenants are entitled to extend their tenancy for two years, with any increase in rent capped at 10 per cent of what they had been paying.

Chan pointed out the apparent contradiction between those rules and the proposed new ones which would demand that landlords fix any shortcomings within a specified period.

“We can only refurbish the homes when the tenants move out, but we cannot ask them to leave or increase the rent within the tenancy period,” he said.

He hoped the government would clarify the situation, as tenants could complain to authorities if landlords asked them to leave to carry out repairs or refurbishment.

Landlords who evict tenants illegally may be fined up to HK$500,000 and jailed for up to 12 months. Those found guilty a second time may be fined up to HK$1 million and be jailed for three years.

Expecting that only a small number of his flats might be declared substandard under the proposed rules, Chan said he would not bother to rectify them and might just rent them out as small storage places.

He has also decided not to expand his subdivided flat business for now.

“I do not want to spend HK$80,000 to HK$100,000 renovating one flat. “It is not worth it as the investment and financial returns are disproportionate,” he said.

Tenants ask: what’s happening to us?

While the landlord contemplates the impact of the proposed rules on their pockets, some of those living in subdivided flats have expressed anxiety over the possibility of having to move out of spaces found to be unfit.

Minister Ho said tenants in need could be resettled in government-built temporary accommodation such as transitional homes and “light public housing”.

Introduced in 2022, the latter is meant for families who have waited for public rental housing for three years. The waiting time has not dropped below five years since March 2018.

By 2026-27, 30,000 light public flats will be built, and another 19,000 transitional homes are expected to be available by 2027, with occupants allowed to stay for about three years.

Retired clerk April Wong*, 65, is worried she might fall between the cracks as she is neither considered poor nor waiting for public housing.

She lives alone in a subdivided flat in Kwai Tsing district, paying about HK$7,000 a month for a 170 sq ft space. Her flat is illegal because it is in an industrial building.

Wong said she would have to pay HK$3,000 more for a similar sized flat in the private residential market. Relying on her pension and savings, she said the money saved could go towards paying her utility bills instead.

“I know it breaks the rules, but industrial buildings offer a better living environment,” she said.

She said the place was maintained by a property management company even though industrial buildings cannot be used for residential purposes.

Wong has prepared herself for eviction at any time, especially with the government expected to increase enforcement against substandard housing.

“Not everyone has the privilege of choosing an ideal living environment,” she said. “I hope the government can resettle all affected subdivided flat residents. “I worry that I will have to sleep on the streets.”

Currently, the Buildings Department acts against flats in industrial buildings, illegal rooftop units and subdivided spaces that are structurally unsafe.

Upon referral, affected residents with temporary housing needs are resettled into two government-operated transit centers for three months in general. But there were only about 420 beds at the temporary shelter in Tuen Mun in the New Territories and Tai O on Lantau Island, the bureau said in reply to the Post.

After their three-month stay, only those confirmed homeless and eligible for public rental housing are sent to 4,600 interim flats in the New Territories.

The bureau added that people living in inadequate housing or with urgent needs, such as those facing a sudden change in the family situation, may also apply for transitional housing

Social workers: Residents need support

Charles Ho Chun-kit, from the Hong Kong Council of Social Service, said the government must set aside time and manpower to prepare affected residents for the big changes ahead and this included providing them with emotional support.

This would mean having a team of social workers who will work with residents who have to move.

“Otherwise, residents will be reluctant to move,” said Ho, who is chief officer of policy research and advocacy at the council and has dealt with people being resettled.

In 2022, the council had to relocate 94 low-income households from the city’s first transitional housing project at Sham Shui Po, when the site was returned to the landowner.

Transitional housing was introduced in 2018 for poor families who had been waiting for public housing for three years or were living in substandard accommodation.

Under the ongoing scheme, NGOs and builders construct and operate container homes on temporary sites offered by government departments and developers. As of July over 15,000 flats have been put to use.

Although the Sham Shui Po residents knew from the start that they would have to move out, the council still offered help six months before they had to go.

Social workers first organized financial and decluttering workshops to show tenants how to save and pack their belongings for their next homes.

They focused next on understanding each family’s circumstances and tackling their difficulties.

They looked for other available transitional flats for some and applied for emergency funds for those with money problems.

In some cases, the council allowed tenants to stay for two to three weeks past the deadline for moving out.

In the end, 24 were allocated a public rental flat, 59 moved to other transitional housing sites and the rest turned to the private market.

The Concerning Subdivided Units Alliance, a group helping tenants of poor-quality housing, said the government could consider providing a one-off cash subsidy to people such as Wong and those who wished to find their own accommodation.

It also called for orderly enforcement of the new rules to avoid displacing a large number simultaneously. It suggested starting with subdivided flats of the worst quality, such as those that were structurally unsafe and in immediate danger.

Issac Lin Wai-hin, a member of the group, said temporary accommodation should be offered across the city so that affected residents would not have to adapt to living in an unfamiliar new area.

It was best for residents to stay in temporary housing until they got their public rental flat, he added.

The alliance said it was also important to protect those who would continue to live in subdivided flats.

Expecting the supply of subdivided homes to shrink once the proposed rules took effect, Lin warned that landlords might raise rents to reap a quick profit and cover the cost of rectification work.

The current tenancy rules and 10 per cent cap on rental increases when residents extended their tenancy did not go far enough, he said.

“The government should take a step further and set the initial rent to prevent further rental increases in the subdivided flat market,” he said.

He suggested an initial rent that was 1.5 times the property’s rental valuation to balance the interest between tenants and landlords.

But housing minister Ho is of the view that capping the initial rent could discourage landlords from offering subdivided flats and that may aggravate urban decay.

She told the Post earlier that authorities had to strike a balance between different factors before submitting the proposals on subdivided flats to Chief Executive John Lee Ka-chiu.

The government has not confirmed when it will reveal the new regulations, but the details could come in October when Lee delivers the third policy address of his five-year term.

*Names changed at the request of interviewees.