Executive Summary

Proposed Solution - Capsules in Industrial Buildings

 

 

Safety and hygiene of subdivided units have been always a worry for Hong Kong. The worst living environment charges rocket-high rent equivalent to mid-levels apartments. Under Policy Address 2018, qualified industrial buildings are thus eligible to be converted into transitional housings with granting of lease modification or exemption of ordinances as an incentive. (HKSAR, 2018) However, making reference to previous industrial revitalisation scheme, the current proposal by the government has limited financial viability and incentives for landlords. (Hong Kong Economic Times, 2018) It is thus critical to develop a business model that achieves financial sustainability while maintaining rents to be affordable.

 

To substitute inhumane sub-divided units, a co-living community constituting capsules and cooperative management is proposed to be transitional housings in the converted industrial buildings. The proposal targets the single, especially blue collar and elderly in current subdivided units, which constitutes a population of around 70,000 people. It aims at semi-detached and detached industrial buildings with sole ownership, providing around 5.5 million sq. feet of floor area, as derived from the report of The Society for Community Organization (2018). Locating in Cheung Sha Wan, Kwun Tong, Tai Kok Tsui, etc., they match with the locations of subdivided units. There are at least 124 suitable sites now according to SoCO.

 

By merely charging a monthly rent of $1835 (equivalent to Rent Allowance provided under CSSA), the hybrid capsule model with a co-operative concept is able to reach an NPV premium of HKD 12 million and break-even in 8 years. (Social Welfare Department, 2017) It provides competitive financial incentives for developers to invest and leverage the scale of the conversion scheme significantly. The capsule model is able to make profits out of a non-profit making price, reaching a win-win situation for both residents and developers. The monthly rent of a capsule can be set according to the desired business plan and breakeven point. Business plans may be different for different investors like a non-profit making organisation or a real estate developer.

 

A unique tenancy agreement is tailored to cater to subdivided units residents with mobility. No deposit nor initial payment is needed. An incentive scheme is set up to regulate and monitor the tenants, where a point system will be adopted to track records of tenants. Tenants also enjoy a more flexible lease period as daily rates are available. Meanwhile, a co-operative living concept is introduced, where residents could be hired as the operations staff including janitors for cleaning services, security guards and administrative officers. (Demchuk, 2014) Residents are encouraged to contribute to the community in different ways. Regular events like rooftop gardening and fitness sessions shall be organised and held by residents on a rotation basis. Ultimately, capsule homes are asipired to develop a self-sustainable ecosystem.

 

It is foreseen that as sub-divided unit residents gradually move into capsule housings, the occupancy rate of sub-divided units would be significantly lowered, inducing landlords of sub-divided units to improve the condition of their premises or might invest in capsules to go in line with the market. If all the suitable stock is converted into capsule housing, it is estimated to drive the rent level of subdivided units down by 30% while increasing living area per capita by 50%. In a long run, substandard sub-divided units would be eliminated from the market, revamping the bad living condition for a large population and providing them with a better living alternative.