As Hong Kong plans crackdown on tiny flats, operators are reluctant to maintain supply whilst tenants feel the squeeze
Hong Kong Free Press
Hayson Chan, business development director of rental company Rent to Rent Innovation, expects about a quarter of his subdivided flats to be deemed illegal under an unprecedented crackdown on unliveable dwellings in Hong Kong.
Under a “rent-to-rent” arrangement, Chan’s company rents apartments from landlords, splits up the flats into subdivided units, and leases the individual dwellings to renters at a premium. By operating more than 600 subdivided units across the city, the company rakes in more than HK$1 million in profit each month.
But he expects his business to take a hit due to the Hong Kong government’s bid to phase out homes it deems “substandard.”
See also: The infamous ‘coffin homes’ that Hong Kong’s new housing reforms won’t touch
In his 2024 Policy Address last October, Chief Executive John Lee announced that Hong Kong would pass a law requiring subdivided units – to be named Basic Housing Units – to have at least 8 square metres (86 square feet) in floor space and a ceiling height of 2.3 metres, as well as windows and an individual toilet.
Owners or sub-landlords who lease subdivided units that are later found not to meet regulations will face a penalty of up to HK$300,000 or up to three years in prison, according to the proposed legislation.
Submissions collected under a stakeholder consultation will be introduced to the Legislative Council “as soon as possible,” the Housing Bureau said on Monday, when the two-month consultation period came to a close.
Hong Kong currently has about 110,000 “shoebox” flats, known as subdivided units, according to official data. About a third of those units are estimated to be substandard under the upcoming legislation.
The new regulations would mean an overall drop in the supply of subdivided units, Chan said. Secretary for Housing Winnie Ho has said that about 80,000 compliant units are expected to remain in the market once the substandard ones are phased out.
They will be subject to a registration and inspection regime before they can be redesignated as government-approved Basic Housing Units.
The 30 per cent supply dip is expected to price low-income renters out of their homes. However, the government is optimistic there will be enough supply of public rental housing units or short-term flats to rehome those displaced by the new regulations once they come into force.
Although he has the money to bring some flats up to the legal standard, Chan said, it is not worth risking criminal prosecution nor legal uncertainty, despite the profitability of the subdivided housing business.
“Yes, there’s money to be made, but there are risks,” Chan told HKFP. “It’s just not worth it.”
At the lower end of the industry food chain are subdivided unit operators like Jack, an agent who is paid by landlords part of the profits to manage tenancies and collect rent.
Jack, who was using a pseudonym, began working for landlords more than 20 years ago, when he was still working as a cook in Tsim Sha Tsui.
But his current livelihood has already taken a hit, after one landlord he previously worked for decided to pull out of the market once the government announced the new policy.
Jack does not bear the renovation costs, but the landlord he currently works for is also hesitant to shell out the extra construction costs to remodel each substandard unit.
“The public thinks that the [subdivided units] business makes huge profits, but that’s not always the case,” Jack said, adding that missing rent payments and the expenditure required to maintain the six flats sometimes put a dent in the landlord’s profits.
Costs and profits
Data on the subdivided housing market is notoriously opaque. While the government says that the subdivided housing market yields “strong economic incentives,” its consultation document for the proposed law does not include figures on how profitable the business actually is.
The Society for Community Organization (SoCO) has been trying to get a better grasp of the market sentiment, but to no avail, said its deputy director, Sze Lai-shan. So far, only one operator has filled in SoCO’s survey.
According to an October 2023 report published by the anti-poverty NGO, a landlord could earn rental income from their subdivided flats twice as much as the government’s rental value.
Chan told HKFP that he rented a 900-square-foot flat in North Point at the market rate of HK$29,000, turned it into six subdivided units and leased them for a total of HK$40,000 per month.
With his company charging around HK$6,500 monthly rent for each of over 600 units, Chan rakes in a HK$1 million profit each month after taking maintenance and administrative costs into account.
While he is unwilling to risk the legal repercussions once the new law is in effect, he also said that remodelling each subdivided unit expected to be deemed illegal under the new regulation would not be economically justifiable.
Renovation companies had told him it would cost around HK$150,000 to renovate a single subdivided unit in compliance with proposed standards. Even if he has the funds for the renovations, it may take years to break even on the extra costs, he said.
He is also worried that the government may even change the law to make it more strict. “We don’t know if they will amend or tighten the legislation,” Chan added.
Moreover, renovating some of his units is technically not feasible. According to his estimates, about a fourth of his units do not meet the proposed requirement for each Basic Housing Unit to be equipped with a street-facing window.
Windows facing an enclosed four-sided yard would not be compliant under the government’s proposals.
Ho, the city’s housing minister, has suggested that there may be room to relax the window requirement depending on air quality and hygiene conditions.
In its submission during the public consultation period, the Hong Kong Basic Housing Units Operators Association urged the government to drop the floor space requirement to 70 square feet.
The association, chaired by Chan, has had around 20 to 30 members – both individual people and companies – since it was set up last month.
In contrast to “principal tenants” like him who work under a rent-to-rent model, landlords who own and manage their subdivided housing units may be more inclined to make that investment, he said.
Diamond Shea, chair of the Hong Kong Owners Club, said safety regulations were needed, pointing to a 2010 building collapse on Ma Tau Wai Road, which killed four, and the New Lucky House blaze in Jordan last April, which caused five deaths.
However, he said some landlords had given up renting their subdivided flats although they would be considered up to standard and eligible to be registered as Basic Housing Units, citing legal uncertainty.
Shea is not interested in joining the subdivided housing market after pulling out years ago, before the regulations were first floated in 2023. “I’m not going to join them in their insanity,” Shea said. “If we have to fully comply with the government’s requirements, we can’t run the business at all.”
Tenants under pressure
Ho, the housing chief, has said the increase in public rental housing supply in the coming years will reduce demand for subdivided units, leaving “little room for significant rent increases.”
According to government figures, over 40 per cent of subdivided unit households have applied for public housing, while 20 per cent are eligible but have yet to submit their applications.
But as the supply of subdivided units begins to dwindle, low-income tenants are feeling the pressure.
Take, for example, Mr and Mrs Sze, both in their 60s. The couple – who wanted to be identified only by their surname – recently moved into a larger, more expensive flat after their previous landlord shut down his subdivided units.
| 💡HKFP grants anonymity to known sources under tightly controlled, limited circumstances defined in our Ethics Code. Among the reasons senior editors may approve the use of anonymity for sources are threats to safety, job security or fears of reprisals. |
They are now spending an extra HK$2,000 in rent, up from the HK$3,500 at the old unit. But the new space still barely measures 80 square feet, and the only thing separating the toilet from the kitchen is a plastic folding door. However, for the couple, the fact that their building has a lift is a small silver lining.
See also: Beyond the stigma: A sociologist’s journey into Hong Kong’s subdivided units
Mr and Mrs Sze will soon be free from the whims of Hong Kong’s cutthroat housing market. They have just been approved for a Light Public Housing unit expected to be completed in the second quarter of 2025. The short-term housing block will be their home for a fixed term of two years.
A single mother surnamed Hang is worried that she and her son will have to be priced out of the subdivided housing market once the legislation goes into force.
She now pays about HK$5,500 a month for a windowless unit, just shy of 70 square feet, in an old Kwun Tong residential block, which she pays with a rental allowance from the government and some help from her family in mainland China.
“I hope I’ll be able to find someplace for the same price,” she said.
Market forces
Jack believes that market forces should determine whether the tiny homes should stay or go.
“Some people choose to live in smaller ones to save money. I believe the size and rent [of subdivided housing] should be controlled by the market,” he said, adding that he expected landlords would seek to recoup renovation costs from tenants by hiking rents by 20 per cent.
Jack, who is almost 70 years old, currently manages an apartment in an old tenement building without any elevators in Tsim Sha Tsui. Eight years ago, the 800-square-foot apartment was turned into six subdivided units, currently occupied by low-income individuals or couples, most of whom worked at restaurants nearby.
“We hope the government will delay [enforcing the regulations] for three to four years. During this time, we could wait for the current tenants to move out gradually, and then we do renovation, which will take almost a year,” Jack said in Cantonese.
Showing the tiny flats to HKFP, Jack said that one unit measuring 76 square feet would be considered illegal under the proposed law. That unit is rented for HK$4,500 per month, while other units, ranging from 110 to 130 square feet, cost more, upwards of HK$5,500.
The total monthly rent from the six subdivided units is HK$25,000, he said.
“It will cost around HK$900,000 to demolish and renovate everything, according to our estimates,” he said, adding that he hoped the government would provide low-interest loans for owners of subdivided units to support their renovation costs.
Shutting down the sole substandard unit or simply merging it into the adjacent unit were not attractive options, he said.
Fundamental shift
With operators retreating from the market under the proposed law, the market for shoebox flats may see a fundamental shift.
According to official figures, subdivided units with rents under HK$4,999 make up more than 42 per cent of units on the market.
Chan expects that units currently available for monthly rents of HK$4,500 will disappear from the market, and increased rents would effectively price low-income renters out of their homes.
In turn, the market would see an increased proportion of young professionals, talent visa holders from mainland China, as well as university students seeking small, affordable living spaces, said veteran economist Thomas Yuen.
He also said he expected some landlords to convert their flats back into their original layouts and rent them out under a single tenancy.
“The market is changing. Rental yields are on the rise as demand from mainland talent visa holders and students increases,” he added.
But ultimately, resettling low-income renters will depend on the city’s public housing supply.
SoCO and other concern groups have called for stronger rent controls to protect low-income tenants against rent hikes.
However, the government said it would have to be “careful” to consider such a policy, as a cap on initial rents could lead to landlords withdrawing from the market, or preferring to leave their premises unoccupied rather than renting them out.
Support HKFP | Policies & Ethics | Error/typo? | Contact Us | Newsletter | Transparency & Annual Report | Apps
Help safeguard press freedom & keep HKFP free for all readers by supporting our team
Original reporting on HKFP is backed by our monthly contributors.
Almost 1,000 monthly donors make HKFP possible. Each contributes an average of HK$200/month to support our award-winning original reporting, keeping the city’s only independent English-language outlet free-to-access for all. Three reasons to join us:
- 🔎 Transparent & efficient: As a non-profit, we are externally audited each year, publishing our income/outgoings annually, as the city’s most transparent news outlet.
- 🔒 Accurate & accountable: Our reporting is governed by a comprehensive Ethics Code. We are 100% independent, and not answerable to any tycoon, mainland owners or shareholders. Check out our latest Annual Report, and help support press freedom.
- 💰 It’s fast, secure & easy: We accept most payment methods – cancel anytime, and receive a free tote bag and pen if you contribute HK$150/month or more.
.wp-block-newspack-blocks-homepage-articles article .entry-title {
font-size: 1.2em;
}
.wp-block-newspack-blocks-homepage-articles .entry-meta {
display: flex;
flex-wrap: wrap;
align-items: center;
margin-top: 0.5em;
}
.wp-block-newspack-blocks-homepage-articles article .entry-meta {
font-size: 0.8em;
}
.wp-block-newspack-blocks-homepage-articles article .avatar {
height: 25px;
width: 25px;
}
.wp-block-newspack-blocks-homepage-articles .post-thumbnail{
margin: 0;
margin-bottom: 0.25em;
}
.wp-block-newspack-blocks-homepage-articles .post-thumbnail img {
height: auto;
width: 100%;
}
.wp-block-newspack-blocks-homepage-articles .post-thumbnail figcaption {
margin-bottom: 0.5em;
}
.wp-block-newspack-blocks-homepage-articles p {
margin: 0.5em 0;
}
font-size: 1.2em;
}
.wp-block-newspack-blocks-homepage-articles .entry-meta {
display: flex;
flex-wrap: wrap;
align-items: center;
margin-top: 0.5em;
}
.wp-block-newspack-blocks-homepage-articles article .entry-meta {
font-size: 0.8em;
}
.wp-block-newspack-blocks-homepage-articles article .avatar {
height: 25px;
width: 25px;
}
.wp-block-newspack-blocks-homepage-articles .post-thumbnail{
margin: 0;
margin-bottom: 0.25em;
}
.wp-block-newspack-blocks-homepage-articles .post-thumbnail img {
height: auto;
width: 100%;
}
.wp-block-newspack-blocks-homepage-articles .post-thumbnail figcaption {
margin-bottom: 0.5em;
}
.wp-block-newspack-blocks-homepage-articles p {
margin: 0.5em 0;
}
HKFP has an impartial stance, transparent funding, and balanced coverage guided by an Ethics Code and Corrections Policy.
Support press freedom & help us surpass 1,000 monthly Patrons: 100% independent, governed by an ethics code & not-for-profit.