Hong Kong’s bill could push some landlords out of subdivided unit market

Tighter standards may prompt some owners to withdraw rather than invest in upgrades.

Hong Kong’s Basic Housing Unit (BHU) bill, set to take effect in March 2026, may force some landlords to exit the subdivided unit market as stricter safety and living standards raise compliance costs, analysts said.

Simon Reid-Kay, principal at real estate law firm Simon Reid-Kay & Associates, said many operators could reassess whether subdivided units remain commercially viable once the ordinance is enforced.

“There will be landlords for whom that is just too much trouble and they will decide to get out of the subdivided unit market,” he told Hong Kong Business via Zoom. “It’s purely an economic decision as to whether a landlord can make it work for them.”

Hannah Jeong, head of valuation and advisory services at CBRE Hong Kong, said legal enforceability would likely prompt some owners to withdraw rather than invest in upgrades.

“We expect some landlords will exit because they do not want to invest more money to meet this requirement,” she said in a separate Zoom call. She added that combining smaller rooms to meet minimum floor-area thresholds could reduce total unit supply.

The BHU bill requires subdivided units in residential buildings to meet standards for floor area, ceiling height, fire and structural safety, separate toilets, water supply, lighting, and ventilation. Each unit must have individual water and electricity metres and secure BHU recognition before being cleared for occupancy.

Fire safety is a central concern. Jeong said independent fire detection systems for each unit and extinguishers in common areas are now compulsory after recent fatal fires. “Given the latest fire break in Tai Po, that’s the biggest concern from the government.”

Costly upgrades include fire-safety installations such as sprinkler systems and associated water piping, whilst structural works—installing individual toilets, partitions and separate metres—add further expense. Improvements to ventilation and lighting are generally less costly.

Those outlays could put upward pressure on rents over time. Jeong said landlords might try to recoup costs through rental adjustments of 10 to 20% per unit, though immediate increases might be difficult.

“At this moment, a rental increase may not be possible for those units,” she said. “It is really the landlord’s obligation, even though they may not be able to recover their investment immediately, because this is a legal requirement.”

The standards are achievable but will require capital. Reid-Kay estimated that of about 110,000 subdivided units in Hong Kong, roughly 33,000 will need major works, whilst about 77,000 will require minor upgrades.

Jeong put the share needing significant improvements at 60% to 70%, with only about 10% to 15% likely already compliant.

The bill also prescribes tenancy arrangements, including minimum lease terms and capped rent adjustments. Rent increases must reflect overall market movement as assessed by the Rating and Valuation Department, with a maximum cap of 10 percent per adjustment. “There’s a bit of protection there,” Reid-Kay said.

Analysts warned the combined effect of withdrawals and renovation timelines could tighten supply, particularly for lower-income tenants who depend on these units. “If units are withdrawn, then rents, unfortunately, could be pushed up,” Reid-Kay said.

The legislation includes transitional measures. Existing subdivided units will have a 12-month registration window once the ordinance takes effect. Registered units then get a 36-month grace period, starting 1 March 2027, to complete required works and obtain BHU recognition.

Authorities have said they would adopt a people-focused enforcement approach and consider BHU and public-housing supply when addressing illegal letting after registration closes.

Temporary rehousing assistance will be offered to households in need, whilst online portals, thematic websites, and district service teams will help landlords comply.

Criminal penalties for noncompliance include fines as much as $100,000, a jail term of up to two years, and daily fines of $20,000 for continuing offences, Reid-Kay said.

Despite the disruption, both analysts agreed that the reform shifts policy toward habitability and safety over unit quantity, aligning with broader housing and urban-renewal initiatives aimed at improving living conditions across the city.