How student hostels conversion projects can qualify as social loans

Social loans are well-suited for hostel conversion projects where owners offer concessional rates to students in need.

In an era of surging higher education enrollment and a shortage of purpose-built student accommodation in Hong Kong, real estate investors/owners are applying the Hostels in the City Scheme (Scheme) converting underutilised commercial properties—like hotels or offices—into student hostels.

This approach addresses the critical need for affordable, student-friendly accommodations whilst unlocking specialised financing through social loans. Governed by the Social Loan Principles (SLP), updated in March 2025, these instruments fund projects with measurable social impact, offering investors financial and reputational benefits.

This article explores how student housing conversions qualify under the SLP, their benefits for investors, and sustainability considerations in renovation and leasing.

Understanding social loans and the SLP
Social loans are sustainable finance tools where proceeds fund projects delivering positive social outcomes, such as access to education or affordable housing.

They must align with the SLP, a voluntary framework by the Loan Market Association (LMA), Asia Pacific Loan Market Association (APLMA), and Loan Syndications and Trading Association (LSTA). Introduced in 2021 and refined in 2025, the SLP ensures transparency with mandatory reporting and clearer eligibility criteria.

Social loans are well-suited for hostel conversion projects where owners offer concessional rates to students in need or reserve quotas for students from diverse socio-economic backgrounds or with diverse physical needs.

As the Scheme requires an annual report to the Education Bureau—including financial statements, tenancy profiles, access control measures, operational performance, and initiatives to ensure a safe and pleasant living environment—these social benefits can be clearly demonstrated and qualify the project for social loan eligibility.

Converting a vacant hotel into student housing enables students’ access to affordable housing options, aligning with UN Sustainable Development Goals (SDGs), including SDG 4 (Quality Education) and SDG 11 (Sustainable Cities and Communities).

How student housing conversions qualify under the SLP
Student housing conversions qualify as social loans by providing affordable accommodations that enable educational access. The SLP outline four core components:

Use of proceeds 
All funds must support eligible social projects, such as “affordable housing” (rents 30% to 40% below average student stipends) or “access to essential services” (reducing barriers like high commuting costs or substandard living conditions).

Proceeds can cover renovations or operating costs, provided they benefit university students, with capacity reserved for first-generation students, low-income students, or students with disabilities. Investors must document fund allocation, e.g., creating 300 beds for underserved students.

Project evaluation and selection 
Investors need a transparent process to assess social impact, identifying beneficiaries (e.g., students below an income threshold), quantifying benefits (e.g., units created), and mitigating risks like displacement. Whilst not mandatory, alignment with local frameworks, like Hong Kong’s Taxonomy for Sustainable Finance, is recommended.

Management of Proceeds
Funds should be tracked via segregated accounts, with quarterly or annual lender attestations and audits to ensure integrity.

Reporting
Mandatory annual reports must detail proceeds allocation, project progress, and impact metrics (e.g., 80% occupancy by target groups). Quantified impacts are preferred; qualitative descriptions suffice for broader projects.

External verification, like receiving a second-party opinion, confirms SLP alignment. Projects must avoid negative social effects, prioritising inclusivity.

Real-world examples
Although social loans explicitly labelled under the SLP for student housing are emerging but not widely publicised in Hong Kong, several Asia-Pacific projects demonstrate their potential.

Australia: Scape’s sustainability-linked loan
Australia's student housing market includes conversions, such as Scape Australia's CBD hotel-to-student housing facilities across Sydney, Melbourne, Brisbane, and Adelaide, funded by a $7b (A$1.4b) sustainability-linked loan tied to ESG targets. 
It offers affordable rents and net-zero features, such as procuring 100% renewable electricity and rating 3 buildings using Green Star Performance.

India: ADB-funded affordable housing loans
India’s 1.5 million-bed student housing shortfall drives conversions of commercial buildings into hostels in Delhi and Bangalore.

The Asian Development Bank’s (ADB) 2017 $971m (US$125m) loan to Dewan Housing Finance Corporation, extended by $544m (US$70m) in 2024 with Vastu Housing Finance, supports over 50,000 affordable units, including student accommodations with rents capped at 30% of stipends.

Thailand: NHA thematic bonds
Thailand’s National Housing Authority (NHA) issued $1.6b (THB6.8b) in 2021 thematic bonds, for green and affordable housing targeting low-income residents, including energy-efficient retrofits.

This ADB-backed programme has facilitated conversions of underutilised government buildings into sustainable housing in urban areas like Bangkok and Chiang Mai, benefiting over 2,000 low-income and rural-origin households annually, with potential expansions in 2025.

Benefits for investors
Social loan qualification offers investors diverse capital pools, providing access to ESG-focused lenders like major banks in Hong Kong and development banks, enabling larger loans.

Cost efficiency and financing advantage also play a key role. In light of the current property market downturn and tightened bank lending in Hong Kong, securing real estate loans has become increasingly difficult.

However, student hostel conversion projects structured as social loans may offer lower interest margins based on affordability KPIs. More importantly, these projects can enhance loan approval success, as banks are more receptive to socially impactful lending compared to traditional property financing.

Reputational gains further strengthen the appeal, as SLP alignment enhances the ESG profile of the asset, helps with meeting the investor’s green financing KPIs, and attracts stakeholders and incentives.

Conclusion
Student hostel conversions offer a prime opportunity for social loans under the SLP. Precedents of green loans funding PBSA for universities suggest potential for positioning similar debt products as social loans. 

Both project types share intrinsic value in addressing student housing shortage, with hostel conversions further benefiting from policy support through the Hostels in the City Scheme.

Banks should capitalise on the growing demand for student hostel conversions by packaging conversion financing as a social loan product. This offers a competitive advantage, enabling real estate clients to meet their sustainable financing KPIs whilst simultaneously supporting impactful projects.

By adhering to its four components and ensuring affordability and access, investors can secure financing that amplifies their social impact whilst also generating financial returns.