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Rising rents fuel demand for alternative housing, making co-living an attractive investment opportunity
Thanks to Hong Kong's high property prices, its residential market is ranked as one of the world's least affordable. The city's 100,000 full time students and 60,000 young professionals are among the most affected. They can neither get on the housing ladder nor access public rental housing. Their choices are limited to living at home, sharing a rental unit, or living in one of Hong Kong's notorious subdivided flats.
Co-living—a modern form of shared housing—could provide an affordable alternative. Monthly rentals start from as low as HKD2,800, far less than a studio apartment, where rents can range upwards of HKD18,000 in a downtown location.
Both landlords and tenants stand to benefit from co-living schemes, as our research paper, "Bridging the Housing Gap," reveals. Residents with common interests get to live together and enjoy the use of communal amenities, while investors converting residential buildings into co-living space can improve their rental income by 20%, and potentially lift rental yields by 12%. Financial leverage and operational improvements can further boost returns.
"The growth of co-living has the potential to address the city's affordable housing issues whilst providing yield-hungry investors a new asset class," says Head of Research, Denis Ma.
Converting older buildings for co-living usually produces the highest rental uplift, but conversions of newer properties are also emerging. En-bloc properties are best as they allow investors more control over the scheme, in addition to providing the space necessary for conversion.
Residential buildings, hotels and guesthouses are more straightforward to convert than other buildings, as fewer alterations are required. Properties with high ceilings are ideal since they allow for beds to be raised, creating extra floor space. This means room sizes can be reduced, and more units can be created.
With limited student accommodation available on campus, affordable housing in easy reach of Hong Kong's universities is always in demand. Student-oriented co-living typically features rooms for two to eight individuals in either twin or bunk beds.
Co-living for young professionals is often of a higher specification. In addition to a small, private, but sparsely furnished room, amenities usually include 24-hour support services, and access to common areas and cooking facilities. At the higher end of the spectrum, shared facilities include gyms, swimming pools, laundry rooms, and car parking.
Co-living operators prefer to lease units or beds out on a monthly basis, to bypass the city's hotel/guesthouse licensing requirements. Monthly rentals, inclusive of utilities, room cleaning and Wi-Fi access, range from HKD2,800 to HKD20,000, and map back to prevailing rents in the surrounding private market.
Although co-living schemes can produce higher returns, investment in co-living properties is not without risks, including stiff competition from the growing supply of 'nano flats' on the market. However, we humans are social by nature and the benefits of having the company of like-minded individuals may prove the strongest selling point of co-living for cost-conscious millennials.
Want to know more? Download our research report, "Bridging the housing gap: Is co-living an affordable alternative for Hong Kong's millennials?"
For more Hong Kong research, visit our Research Hub or contact Denis Ma .
Head of Research, Hong Kong
+852 2846 5135
Regional Director, Hong Kong Capital Markets
+852 2846 5181
Associate Director, Valuation Advisory Services
+852 2846 5532