Earth to Lands staff: drop factory lease conditions
with Jake van der Kamp
Is there anyone in this town who has not yet advocated an infallible way of getting prices down in the property market? Show me some proof that you live here if you say you haven't.
Developers are clearly not impressed yet, or don't believe anything will come of these ideas. Cheung Kong (Holdings) paid record high prices for two sites at an auction on Tuesday, only three days after the announcement of government measures aimed at cooling the market.
One reason that the market will stay hot is, of course, that central banks around the world do not have the courage to raise interest rates and developers know it.
But there is another and even better reason. It is that developers haven't yet heard of my most recent and infallible idea for getting prices down. It's a surefire winner.
Here is what we shall do. We shall abolish all lease limitations on industrial property. We shall change all those leases from 'I' for industrial to 'IAE' for Industrial or Anything Else.
We are talking here of 185 million square feet of flatted factory floor space and it is effectively all moribund. It does not include specialised factories in industrial estates, which fall into a different category, nor does it include storage facilities.
Officially only eight per cent of it, or 15 million square feet, is vacant but it is easy to put the lie to this statistic. Over the past 10 years, that total of flatted factory floor space has come down only a smidgen from 190 million square feet and vacancy was higher 10 years ago than it is at present.
Now look at the two charts below for the history of what has happened to industrial space users in Hong Kong.
Hah! That's what I say to the Lands Department. Hah! If you want to provide figures on industrial space use, then give us facts, not fairy tales.
I shall tell you what happened here. In an unfortunate decision 10 years ago, the Court of Final Appeal ruled that a pager manufacturer, Raider, could not offer a paging service from its factory as this constituted a commercial rather than an industrial activity and contravened the lease terms.
Ever since that time, non-industrial users of industrial space have just had to lie about what they are doing and hope that the Lands Department does not take notice.
It mostly doesn't. It is too lazy and set in its ways to bother but it also knows that big names in the property business are breaking lease conditions this way and it doesn't want the grief.
On the whole, I think it is a good thing that non-industrial use of industrial space has become widespread if the Lands Department won't wake up and face the fact that we no longer have an industrial economy.
But this does not help residential property buyers. It's one thing to be told to find another office or shop location because the one you are renting is illegal. It's quite another to lose your home without compensation for breaking lease conditions.
Some people risk it. I wouldn't. And I'm sure I'm on the side of the large majority here.
What it means, however, is that large swathes of our city, which could easily be redeveloped or even used directly as homes with some renovation, just moulder or are inefficiently used.
And the change is so easily made. 'I' becomes 'IAE' and everything follows smoothly from there. Our government would not have to do anything more. Developers would do it all. There has never been a developer yet that won't overbuild wildly if given the all-clear.
Within a few years, it will turn to oversupply, prices will tumble, even with low interest rates, and soon there will be room enough for even that town planning gadfly, Paul Zimmerman, to see his ambition of bigger flats for everyone realised.
Does anyone have a wake-up bell for those sleepers in the Lands Department?