For­tune fa­vors those who dare in look­ing for real es­tate gold

China Daily (Canada) - - FRONT PAGE - By AGNES LU in Hong Kong agnes@chi­nadai­lyhk.com

tong lau. Apart­ments range in size from 960 to 1,320 square feet, in­clud­ing a pent­house with a pri­vate rooftop, and monthly rental is of­fered at HK$48,000 to HK$110,000. Each apart­ment has two bed­rooms, ex­cept the first-floor unit, which has just one. The yield is also good — 15 per­cent based on the cost of pur­chase and ren­o­va­tion com­pared to rental lev­els. That is four times more than the usual mar­ket av­er­age of 3 per­cent for mass mar­ket units.

The con­sid­er­able profit re­flects the painstak­ing ef­fort that went into ev­ery step of the nine-year project to con­vert Tung Fat Build­ing into a mod­ern-style res­i­dence while pre­serv­ing its orig­i­nal charm.

The first chal­lenge Al­lan en­coun­tered, as this was her first res­i­den­tial devel­op­ment project, was ne­go­ti­at­ing with ex­ist­ing ten­ants in or­der to ac­quire to­tal own­er­ship.

With the as­sis­tance of an in­ter­preter, the first- time de­vel­oper man­aged to talk to ev­ery ten­ant and land­lord she could lo­cate and ne­go­ti­ated ac­qui­si­tion and re­lo­ca­tion terms.

Some fam­i­lies, es­pe­cially those with el­derly mem­bers, were happy to move some­place with an el­e­va­tor. But for ten­ants who had not paid rent for a long time and whose re­spec­tive land­lords could not be lo­cated ei­ther, the team could only re­sort to the courts for help.

Of all the lengthy ne­go­ti­a­tions, ac­qui­si­tion talks for the ground floor re­quired the most pa­tience, run­ning for a long five years. The floor had a me­chan­ics’ shop and the op­er­a­tor was un­will­ing to sell, while other fam­ily mem­bers were the own­ers of the space.

Even­tu­ally a so­lu­tion was agreed upon — to find the op­er­a­tor an­other lo­ca­tion with sim­i­lar fa­cil­i­ties and neigh­bor­hood. “I think you have to un­der­stand what peo­ple want. Make sure you ad­dress their con­cerns,” said Al­lan.

Five years passed

be­fore

The third phase came when ar­chi­tects from Aus­tralian de­sign firm Kerry Phelan

In­vestors can ex­pect con­sid­er­able prof­its from tong lau re­de­vel­op­ment, but the thresh­old for in­vest­ing in such prop­erty can be fairly high, in­dus­try ex­perts warn.

Be­sides higher ac­qui­si­tion prices and con­struc­tion fees, buy­ing out at least 80 per­cent of the build­ing own­er­ship for re­de­vel­op­ment can be quite time con­sum­ing, they cau­tion.

How­ever, if ne­go­ti­a­tions are suc­cess­ful, such projects of­fer at­trac­tive re­turns.

“If you are able to ac­quire own­er­ship of the build­ing and re­de­velop it, the profit will be much higher than the mar­ket av­er­age, as rigid de­mand in Hong Kong is still strong,” said Thomas Lam, head of val­u­a­tion and con­sul­tancy at Knight Frank.

But he warned that no mat­ter whether in­vestors plan to ac­quire the tar­geted prop­erty by ap­ply­ing for com­pul­sory sale — which re­quires the ac­qui­si­tion of at least 80 per­cent of the to­tal own­er­ship with cer­tain con­di­tions —or via pri­vate agree­ments with ex­ist­ing land­lords. “Don’t be sur­prised if you have to spend at least three to five years on it.”

Ac­cord­ing to data from the Hong Kong In­sti­tute of Sur­vey­ors, as at June 2011, about 4,000 build­ings in the city were aged 50 years or older. Th­ese build­ings have reached the end of their de­signed work­ing life and usu­ally lack proper re­pairs and main­te­nance. There­fore the gov­ern­ment has been en­cour­ag­ing the Ur­ban Re­de­vel­op­ment Author­ity or pri­vate builders to re­de­velop th­ese di­lap­i­dated build­ings, mostly through com­pul­sory sale.

But re­lated projects have been rare in re­cent years as prop­erty prices are soar­ing, ac­cord­ing to Vin­cent Che­ung, Cush­man & Wake­field ex­ec­u­tive direc­tor for val­u­a­tion and ad­vi­sory ser­vices on the main­land and in Hong Kong, Ma­cao and Tai­wan.

Many re­de­vel­op­ment projects are geared to­ward ho­tel pur­poses th­ese days, Che­ung pointed out. “There used to be many res­i­den­tial-to-res­i­den­tial re­de­vel­op­ment cases be­fore, but now we’re see­ing more of com­mer­cial-to-ho­tel cases,” he said. “Com­mer­cial prop­er­ties usu­ally have higher uti­liza­tion ra­tio, which meets the needs of ho­tel de­vel­op­ers.”

At the same time, many of­fice build­ings have also been re­de­vel­oped for res­i­den­tial pur­poses, Lam added, as own­er­ships at such build­ings are less sep­a­rate.

Even Vic­to­ria Al­lan from Habi­tat Prop­erty, a small-scale de­vel­oper who con­verted the Tung Fat Build­ing tong lau into a mod­ern low-rise New York loft-style apart­ment block, ad­mit­ted that projects of this kind can be hard to spot, even

The ground-floor me­chanic’s work­shop now houses a Mex­i­can-style fu­sion restau­rant. Eight apart­ments, one on each floor, were all rented out within less than three months since be­ing launched last De­cem­ber. Only rentals are of­fered cur­rently.

Around HK$60 mil­lion in to­tal, di­vided nearly equally be­tween pur­chase and ren­o­va­tion costs, was spent on con­vert­ing the build­ing.

It took nine long years for the project to of­fi­cially hit the mar­ket, well over Al­lan’s ini­tial es­ti­mate of three to five years. How­ever, she ob­served the lack of such spe­cially de­signed build­ings nine years ago, and still thinks the same way.

“Bring­ing more unique prod­ucts and more quirky con­ver­sions to the mar­ket is what a small de­vel­oper would do to dif­fer­en­ti­ate them­selves. There was a gap for such kind of ideas and I still see it to­day,” she said. But such op­por­tu­ni­ties are dwin­dling, and it re­quires a keen nose to be able to sniff out re­de­vel­op­ment po­ten­tial. Al­lan men­tioned Chai Wan, North Point and Tin Hau as pos­si­ble des­ti­na­tions for sim­i­lar con­ver­sion projects, where old build­ings, col­or­ful neigh­bor­hoods and fine West­ern-style eater­ies co­zily co-ex­ist.

“I think cer­tain kinds of plot ra­tio bonus or tax­a­tion benefits can be im­ple­mented for more de­vel­op­ers to re­vi­tal­ize old build­ings,” said Al­lan. “But (they should re­store) them prop­erly, in­clud­ing find­ing the right in­te­rior de­sign, in­stead of just keep­ing the façade.”

Although the time spent on ac­quir­ing the build­ing and ren­o­vat­ing it was much longer than ex­pected, Al­lan will not hes­i­tate to plunge right in if a sim­i­lar project presents it­self. She said: “If I find some­where with the same charm I’ll do it again.” Con­tact the writer at agnes@chi­nadai­lyhk.com if a mar­ket with de­cent prof­its lies ahead.

“A lot of de­vel­op­ers al­ready own some units or some parts of the build­ing, which makes oth­ers re­ally hard to ac­quire now,” she said. “Pric­ing in Hong Kong has moved so much that the en­try point for de­vel­op­ers is far higher.”

Although her project in­volved con­vert­ing the ten­e­ment build­ing on the ba­sis of its old con­struc­tion in­stead of tear­ing it down, Al­lan wor­ries that de­vel­op­ers may be mis­taken on the “right” way to re­de­velop tong lau.

PRO­VIDED TO CHINA DAILY

Vic­to­ria Al­lan, founder of Habi­tat Prop­erty, re­ju­ve­nated the iconic Tung Fat Build­ing but kept its orig­i­nal black ter­razzo name­plate and gave it a New York loft-style makeover, with larger win­dows of­fer­ing panoramic sea views, and color and ma­te­rial syn­ergy cre­at­ing a sense of tran­quil har­mony in the eight apart­ments across as many sto­ries.

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