Jake's View

Industrial buildings rethink runs into home truths

Carrie Lam could have checked with developers first about conversion of 'vacant' properties to residential use, as the charade is fine by them

PUBLISHED : Thursday, 18 July, 2013, 12:00am
UPDATED : Thursday, 18 July, 2013, 4:54am

A proposal to convert industrial buildings into "transitional accommodation" is not a sound option to help people who are queuing for public housing, development officials have concluded.

SCMP, July 17

Here is one of those does-not-compute equations that can leave you scratching your head. This one involves our stock of industrial property and bureaucrats who have been compelled by a legal decision to bury their heads in the sand.

The first chart shows you the long-term record of electricity use by industrial consumers. It is a good proxy for overall industrial production, and it says industrial activity is running at only about 44 per cent of the level of 20 years ago. Electricity sales have otherwise more than doubled over this period. Yet, as the second chart shows, prices of industrial property have risen almost tenfold over the last 10 years, far more than prices in the booming residential market. What is more, the vacancy rate of our 184 million square feet of industrial space has dropped to 5 per cent over this period, effectively full occupancy.

Question: Just how does it happen that an industrial property market booms while industrial production crumbles?

Answer: It happens when industrial property is not used for industrial production alone but for all forms of commercial activity, including sales, back-office processing and even some residential conversions.

No one can officially say so, however, because of a landmark legal case, Raider vs The Secretary for Justice, in which the Court of Final Appeal ruled in 2000 that a manufacturer of pagers could not use part of its factory premises to operate a paging service.

This would be a commercial activity, not an industrial one, and industrial property can only be put to industrial uses, our very learned judges ruled.

It made no difference in reality. All it did was alert our big developers to the opportunity. They reckoned the Lands Department would not take issue with them as it would with a small paging company, and they were right.

First came the furniture marts, and now you will find almost any non-industrial activity you care to imagine in industrial buildings.

But our civil servants must operate by the book and cannot formally recognise this without being in defiance of the Court of Final Appeal. They must pretend that it is all still empty space and could potentially be used for residential purposes.

This is all very well until someone proposes that it actually be done. Then they have to cite all the reasons, and there are plenty of good ones, why industrial property is not suitable for homes.

They know, unofficially, that the space is already in full use and that kicking the illegal users out would just create trouble with developers and a sudden shortage of commercial property.

It's all a charade, and one that, unfortunately, we have no option but to play in light of a flawed legal decision and our flawed system of land tenure.

But what I cannot understand is why Chief Secretary Carrie Lam Cheng Yuet-ngor seems to think there truly is a big opportunity here for residential conversion. Doesn't she know?