Is it time for the government to set a minimum size of subdivided units to improve living conditions?

The Landlord & Tenant (Consolidation) (Amendment) Ordinance 2021 has been in effect since 22 January 2022. It regulates tenancies for subdivided units (SDUs) to protect the city’s poorest from exploitation by unscrupulous landlords. It covers about 110,000 subdivided units, but has it worked?

Under the ordinance:

-?????A regulated cycle of tenancies for an SDU comprises two consecutive tenancies, each for two years.

-?????The tenant is entitled to and has priority for a second term, allowing them to enjoy security for four years.

-??????Rent increases must not exceed the percentage change of the citywide rental index published by the Rating and Valuation Department and are capped at 10%.

-?????Rent cannot be increased during the two-year leases, only between them.

-?????Landlords face conviction and fines of at least HKD10,000 if they ask the tenant to pay any fees or charges not stipulated in the agreement.

-?????Landlords must submit a tenancy notice to the RVD within 60 days of the lease commencing.

-?????Tenancy agreements have been standardised and set out only the rent and deposit amounts, utility charges, and fees.

-?????Deposits cannot exceed two months' rent.

Subdivided flats are notoriously small, and many are in rundown buildings owned by individuals or companies. While the new rules imply the landlord will keep the SDUs in decent condition, nothing can stop them from making the units smaller. Living conditions are still cramped and unhealthy.

The 28 September 2022 was world news day. For the occasion, the South China Morning Post republished its ‘Life in Hong Kong’s worst living spaces: from cage homes to subdivided flats’ report. The report highlights the scourge of being poor in a city of millionaires.

According to a Transport and Housing Bureau report in March 2021, Hong Kong has about 110,008 subdivided flats housing 226,340 people, about 3% of the city’s 7.5 million population. They are primarily in old residential buildings in Kowloon and Hong Kong Island. Many of them are windowless and plagued by hygiene and fire hazards. Hong Kong has faced criticism for these dire living conditions. The median living area of these units is 124 sq. ft., but some are as small as 51 sq. ft. More than 60% of the units are in Kowloon, about 24% are in the New Territories, and the rest are on Hong Kong Island.

SDU occupiers’ best hope is public housing.?However, per the Hong Kong Housing Authority statistics update in June 2022, the average waiting time for public housing has fallen to six years. While this is an improvement, it is a far cry from the government’s intended three-year wait. There were about 144,200 general applications from families and single older adults with priority. Further back in the queue are about 98,400 non-elderly single applicants, many of whom have been waiting for decades.?

The Transport and Housing Bureau report shows that households in SDUs have a median monthly income of HKD15,000. An SDU with a median monthly rent of HK$4,800 is cheaper than the smallest private flats.?

RVD statistics show the average private domestic rent in September 2022 was roughly HKD430 sq. ft. – HK$41.7 on Hong Kong Island, HK$35.5 in Kowloon and HK$28.6 in the New Territories.

But the median rent for subdivided units was HK$39 per sq. ft., according to the Transport and Housing Bureau’s report in March 2021.

While The Landlord & Tenant (Consolidation) (Amendment) Ordinance can hold landlords to?“reasonable rent” for two years, it does nothing about sizes and living conditions. It is time Hong Kong considers a minimum size for SDUs or the maximum number of SDUs according to the flat’s original layout.

Landlords will strongly object to these suggestions because they will have to settle for a smaller yield on their SDUs.

I extracted 56 SDUs asking rents from agency websites and compared the rent before (based on rateable value) and after the subdivision. I found yields in Kowloon jump from 2% to 7.9% depending on size. If the SDUs are under 100 sq. ft. and the building has no lift service, the property was bought at a low price, so landlords have higher yields.

I also found two SDUs in estate-type developments – Mei Foo Sun Chuen and Taikoo Shing. Both places offer a shared bathroom and kitchen. The asking rent for the 90 sq. ft unit in Mei Foo Sun Chuen is HKD6600, and the landlord wants HKD6000 for the Taikoo Shing place.

Kowloon

Hong Kong Island

In the New Territories, an SDU in a Lohas Park development, offering 100 sq. ft. for HKD4900 in a co-living environment – tenants have private bedrooms and share common facilities. The landlord has a yield of 5.2.

?New Territories

The higher rent per square foot for subdivided spaces shows the imbalance between supply and demand in Hong Kong. The smaller the unit is, the higher its per-square-foot rent. As a result, the poorest need to pay the highest rent.

We must balance the needs of different stakeholders – landlords and occupiers to cater to the societal layers in Hong Kong.

The government should set rules to control the maximum number of SDUs per flat. SDU operators should be licensed, and to maintain their license, they should maintain a minimum hygiene standard in common areas. Without incentives, Landlords will not be persuaded to design bigger SDUs, improve common facilities and give up their current high-yield SDUs.

Under civic responsibility, the public and private sectors should corporate more for the sake of Hong Kong.?

Thank you