Investors recognise that demand for housing in Hong Kong can drive urban regeneration, but high costs mean that more incentives and simplified processes are needed from government if they are to take on such projects. Hong Kong is home to a host of glittering skyscrapers, but its modern skyline conceals thousands of older buildings, many no longer fit for purpose. An expert panel at the ULI 2024 Hong Kong Housing conference discussed how older buildings can be regenerated to provide the densely populated city with much-needed affordable and high-quality housing.

A visit to a subdivided apartment block in To Kwa Wan, Kowloon, arranged as part of the conference, brought home to many delegates the urgent need to regenerate Hong Kong’s older buildings and to provide cheaper, better housing for the city’s population.

A panel of industry experts, held under Chatham House rules, discussed the challenge of regeneration in a city where urban redevelopment projects are not facing up to the speed of deteriorating buildings. Despite the efforts of government and the Urban Renewal Authority (URA), the condition of Hong Kong’s old buildings remains unsatisfactory.

Hong Kong has 9,600 buildings which are more than 50 years old, with 500-600 added to that total every year. However, only 100-200 buildings are regenerated each year, so the city is behind the pace of urban decay. Furthermore, 4-5% of older buildings are unfit to be re-used and will need to be demolished.

The situation is complicated because so many buildings, both commercial and residential, are strata-titled, with apartments or office floors in multiple ownership, which makes site assembly a long and often expensive process. Developers have been lukewarm to taking on regeneration projects because it is cheaper to buy from a government land auction than to assemble a site.

Regenerating strata-titled blocks is not impossible, the audience heard, however it is a challenge, especially with today’s higher cost of capital. Investor do not want to wait 10 years for site assembly. The key is to be hands-on and understand the needs of vendors, who tend to be amenable to sale if they are given a higher than existing value price, where they get to share the redevelopment potential.

Nonetheless, the lack of regeneration of Hong Kong’s older buildings suggests that more can be done. The demand for housing is strong, which underpins the investment case for Hong Kong, delegates heard. However, the biggest challenge to urban regeneration is making sure that there is sufficient return to entice the private sector to provide housing. In other markets where government is trying to push urban regeneration, tax incentives or land assembly schemes are used to allow sufficient margin for the private sector to participate.

There are some measures underway to make regeneration in Hong Kong easier and simpler, however there is more which could be done to both speed up the process and make regeneration more attractive. For example, there could be reduced profits tax for project companies which regenerate buildings more than 60 years old, or lower stamp duty. It was suggested that the process whereby additional plot ratio is granted to a redevelopment site could be made quicker. Some companies refuse to touch investment opportunities which involve land premium payments, because the process is too uncertain, so this process could be improved.

An example from Australia, the Macquarie Park regeneration in Sydney, was cited. There, the government declared that, within a certain distance of a station, land could be converted to residential without premium. This created a big opportunity for developers. In these cases, government policy just provides a framework for regeneration to happen, delegates heard.

However, it should be noted that the government has a responsibility – in the case of strata-titled redevelopments – to both the minority owners of the building and the developer. Regeneration projects are easier to get underway when in a rising market, but that everything is more difficult in a downcycle.

The difficulties for tenants of regenerated buildings was noted, especially with a four year wait for public housing. However, it is clear that regeneration remains the quickest way to provide additional housing supply, which benefits tenants.

The question of whether regeneration was changing the atmosphere of the city was also raised. Some fear gentrification would damage the city’s identity. It was agreed that just building new is not enough, there is a need to regenerate sensitively and to maintain then identity of a neighbourhood.