New SDU policy to impact rental rates, availability in Hong Kong

Hong Kong mandates better living standards for subdivided flats.

In a major push to improve living conditions for low-income residents, Hong Kong will phase out subdivided flats (SDUs) with less than eight square metres of floor space, Chief Executive John Lee announced in the 2024 Policy Address.

These units, often criticised for their poor conditions, must now be upgraded to meet basic living standards, including the installation of windows, individual toilets, and a minimum floor space.

“The goal is to provide safer and more dignified housing for residents,” said Hannah Jeong, Head of Valuation & Advisory Services at CBRE Hong Kong, noting that SDUs frequently lack essential amenities critical to a livable space.

The need for such a policy is clear, with over 110,000 households currently residing in SDUs across Hong Kong, many of which have questionable standards. Rosanna Tang, Executive Director and Head of Research for Hong Kong at Cushman & Wakefield, explained that the policy addresses long-standing issues in Hong Kong’s affordable housing market.

However, the policy change raises questions about its impact on the rental market. “Some landlords may find it financially challenging to upgrade their units to meet the new standards, and it will potentially also lead to higher rents,” Tang warned.

Jeong also highlighted potential short-term effects on rent due to reduced supply. “Landlords need to evacuate the tenant…and do the renovation. This will make the unit less available, which means the rental possibly will go up in the short term,” she noted. In the long run, though, she suggested that higher quality standards could improve the overall rental market by establishing better baseline conditions for tenants.

To support both landlords and tenants through this transition, experts suggest financial assistance and temporary housing measures. Tang mentioned that the government has proposed a grace period to allow landlords time to meet the new standards.

“It is really important to formulate a more macro and sound resettlement policy for the household being impacted,” Tang said, emphasising the need for temporary housing and other forms of support for displaced tenants.

Jeong also recommended specific support mechanisms, such as consultancy services and financial aid for landlords, which would guide them in meeting the new requirements. “If the government can offer free consultancy service before construction happens, they will ensure the quality… and landlords can utilise that for the design work,” she added.