With the recent relaxation of quotas on non-local students at both publicly funded universities and self-financed institutions, the demand for student accommodation in Hong Kong has surged, leading to an increasingly severe supply shortage. In response, many hotels have converted entire floors or rooms into student dormitories to address the growing housing needs of students.
The potential for growth in the student housing market has caught the eye of numerous investors. Since August of this year, at least 10 transactions involving hotels and entire residential buildings have been recorded, with a total transaction value exceeding HK$2.5 billion. But what exactly is driving this wave of investor interest?
The answer lies in the government’s efforts to promote the Study in Hong Kong initiative. On July 21, the Development Bureau and the Education Bureau jointly launched the Hostels in the City Scheme, a program designed to encourage private and self-financed conversions of existing office buildings into student dormitories. This initiative aims to increase the supply of student housing by relaxing restrictions in several areas. Notably, the government imposes no limitations on the location of dormitories under this scheme, nor does it cap rental prices.
The plan primarily targets office buildings located on commercial land and licensed hotels. However, industrial buildings are excluded from eligibility due to concerns about livability. That said, industrial buildings that have already been approved for commercial use may still qualify for the scheme.
One of the key reasons the scheme has attracted investors is its simplicity. For hotels, converting to student housing is relatively straightforward, as hotels are already a common permitted use for commercial land. This means no additional planning procedures are required beforehand. For other properties with non-industrial leases, the conversion can proceed without the need for lease modifications or additional land premium payments, making the process much more efficient.
Another advantage is the retention of existing floor area. Under the scheme, student dormitories are classified as non-residential buildings, allowing the original gross floor area to be preserved without the need to demolish any “excess floor area.”
Additionally, facilities previously exempted from the gross floor area calculation, such as parking lots, can remain exempt. Developers or operators can also convert these areas into amenities for students, such as gyms or study rooms, making the dormitories more appealing to student tenants.
Previously, converting office buildings into student dormitories was a complex and costly process, making it nearly unfeasible. However, under the new measures, both technical and financial barriers have been significantly lowered. The cost of converting an office building into student housing now ranges from HK$1,500 to HK$2,000 per square foot and typically takes around 6 to 12 months, depending on the condition and facilities of the original building. For hotels or residential buildings, the conversion cost is much lower, at just HK$300 to HK$500 per square foot.
The most attractive factor for investors is the high return on investment. Monthly rents for shared double rooms typically range from HK$6,000 to HK$7,000 per bed, with some reaching as high as HK$8,000 to HK$9,000. Single rooms fetch even higher rents, averaging HK$12,000 to HK$13,000 per month, with the most expensive options going up to HK$15,000 to HK$16,000. Current student dormitory projects yield rental returns of approximately 5% to 6%, outperforming traditional rental properties.
Developers or operators interested in applying for the scheme must submit an application form along with a signed statutory declaration to the Education Bureau. Once all required documents are submitted, an initial response is expected within two to four weeks. Applications are accepted year-round.
