Industrial building conversion, an alternative to land supply

The new package of measures to facilitate redevelopment and wholesale conversion of industrial buildings as announced by Hong Kong Chief Executive Donald Tsang in his 2009-10 Policy Address will provide suitable land and buildings to meet Hong Kong's changing economic needs, according to Hong Kong Secretary for Development Carrie Lam.

Speaking at an October 15 news conference to elaborate on the measures, Mrs. Lam said the transformation of Hong Kong’s industrial areas and buildings has not kept pace with the economic restructuring and relocation of traditional manufacturing activities to the Mainland since the early 1980s. 

“As a result, many private flatted industrial buildings are left vacant or underutilized,” she said.

There are now 1,467 private industrial buildings in the metro areas and new towns in Hong Kong with a total floor area of 17.4 million square meters (187,292,041 square feet).  At end-2008, approximately 6.5% of that area, or more than 1.1 million square meters (11,840,301.5 square feet), was vacant.

“Located in urban areas with available infrastructure and good public transport, the sites currently occupied by some of these industrial buildings are very suitable for alternative uses. Indeed, all the former industrial areas in Kowloon (such as Kwun Tong, Cheung Sha Wan, Mong Kok, San Po Kong, Kowloon Bay, etc.) have been rezoned over the years into other uses (OU), notably OU (Business).  This land use zoning could accommodate the great majority of activities in the six economic areas identified by the Chief Executive’s Task Force on Economic Challenges.

“The challenge before us is how to speed up the transformation process,” Mrs. Lam said.

Explaining the four initiatives announced in the Policy Address, Mrs. Lam said they were devised to overcome current problems prohibiting or slowing down the transformation, such as multiple ownership, development intensity, land premiums and waiver fees.

The three measures to facilitate redevelopment are:

1. To help unify ownership, lower the threshold from 90% to 80% for owners of industrial buildings situated in non-industrial zones and aged 30 years or older to apply to the Lands Tribunal for compulsory sale for redevelopment.
2. Allow tailor-made lease modifications so that the land premium payable for the redevelopment of industrial buildings situated in non-industrial zones will be assessed according to the optimal use and proposed intensity of the redevelopment (i.e., “pay for what you build”).
3. To give owners seeking redevelopment through lease modification, give them the option to pay the assessed land premium in installments over five years at a fixed interest rate.

“Our industrial buildings are relatively young.  With generally large floor plates, high ceilings, strong floor loadings, wide corridors and big lifts, they are very suitable for conversion into various alternative uses,” Mrs. Lam said. “Conversion is also a more environmentally friendly option.

“The challenge in this respect is how to ensure conversion takes place in a safe, effective and economical manner in order to release the potential of these buildings to support the new economic activities,” she said.

“To achieve the maximum impact, we have taken the major step to allow owners to apply at a nil waiver fee for change of use of the entire existing industrial building for the lifetime of the building or the current lease period, whichever is earlier,” she added.   

The “nil waiver fee” concession is available to applications meeting the following criteria:

1. Industrial buildings must be 15 years or older and situated in “Industrial,” “Commercial” or “OU(B)” zones.
2. All owners of the buildings must jointly apply.
3. There should not be any increases in building height, building bulk or GFA after the conversion.
4. The building cannot revert to industrial use during the waiver period.
5. Full market premium is payable when the buildings are redeveloped in the future.

Except for the lowering of the threshold for application under the Land (Compulsory Sale for Redevelopment) Ordinance, which will be implemented via subsidiary legislation on a permanent basis, applications for the other three measures have to be made within a three-year period from April 1, 2010.

These measures can address the needs of economic development by enabling owners to revitalize and add value to their industrial buildings, thus providing new momentum for economic growth and creating jobs.

With the facilitating measures in place, the government will encourage owners to take forward their redevelopment or conversion plan.  The Lands Department will set up a dedicated team to process applications for redevelopment or wholesale conversion of industrial buildings.

To ensure understanding of these measures, the Development Bureau will meet professional institutes, chambers of commerce, business associations, relevant District Councils, etc., in the next couple of months to answer any inquiries.