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Author: Xie Zhaoqing

Editor: Shi Ding

Produced by: Tencent News "Periscope"

The continued rise in rent has caught many people living in Hong Kong off guard.

Xie Miao (pseudonym) felt a long-lost sense of urgency after renting a house for the past two months. She started looking for houses in early May, and after looking at about ten houses, she finally decided in early July. "The houses I liked either increased in price too much, or the houses I just liked were signed by someone else within a few hours." Xie Miao said that she obtained a high-talent visa last year and went to Hong Kong for work for the first time this summer.

Chenchen, who will be going to Hong Kong for postgraduate study at the end of August, feels the same as her. After she came to Hong Kong in mid-July to look at a house, she signed the contract quickly under the "urging" of the agent. This is because everyone is worried that the rent will be higher and the available room types will be fewer. After all, her classmates had already completed their preparations for renting houses in April and May.

Since February this year, Hong Kong residential property rents have been rising. According to Centaline Property data, at the end of July, Hong Kong's rental index was 122.21, rising for five consecutive months and hitting a new high in the past 57 months. This index has fully recovered to the level before the epidemic, close to 122.63 in October 2019.

At a time when rents for commercial properties such as office buildings and housing prices of all types continue to be sluggish, rising rents for residential properties are becoming a new highlight in Hong Kong's real estate industry.

Mainland students flock to Hong Kong: rents skyrocket, renting a house is a matter of scramble

The trend of rising rents in Hong Kong has been going on for some time. Since the epidemic was lifted in January 2023, Hong Kong rents have only been slightly adjusted in June last year and at the end of 2023, and have been rising all the way, especially in the past three months, with an average increase of more than 4%.

Yang Mingyi, senior co-director of Centaline Property Research, pointed out that the rent increase is the same as in previous years, with a seasonal increase during the summer vacation. This is because many parents are considering changing their rentals as their children go to school or transfer to other schools. She said that the most fundamental reason for the rent increase is the surge in demand, which has led to an increase in rental transactions. Since the number of available rental properties in the market has not increased too much, rents will naturally rise.

"The influx of mainlanders into Hong Kong may be one of the main reasons for the increase in rents this year," said Wu Jinji, deputy regional manager of Centaline Property in Shatin, to Tencent News' Qianwang. The mainlanders here include mainland students studying in Hong Kong and high-quality talents, the latter of which is a talent policy launched and relaxed by the Hong Kong government in October 2022 to attract talents.

Data from the Hong Kong government shows that as of the end of 2023, the number of people approved for the High Talent Program is about 51,000, of which about 36,000 have arrived in Hong Kong. At the same time, nearly 21,000 unmarried and dependent children under the age of 18 have arrived in Hong Kong under the High Talent Program. These children can study in Hong Kong. More than 98% of the people arriving in Hong Kong under the High Talent Program are from the mainland.

This means that at least 57,000 mainlanders have arrived in Hong Kong under the Gaocaitong Scheme. Wu Jinji said that many of these new arrivals choose to send their children to Hong Kong for the new school year, and September is the beginning of the new school term, which is also one of the main reasons why many mainlanders rent houses in Hong Kong.

More importantly, the Hong Kong government mentioned in its policy address last October that the quota for non-local students admitted by the eight Hong Kong government-funded universities would be increased from 20% to 40% starting from the 2024-25 academic year. Prior to this, Hong Kong universities could enroll about 3,000 non-local students each year, and this number will double to 6,000 starting in the second half of this year.

According to incomplete statistics from Tencent News "Qianwang", in the past two years, 22 non-government-funded colleges or some self-funded colleges in Hong Kong have also been expanding their enrollment, including Hong Kong Zhuhai College, Hong Kong Metropolitan University and Lingnan University, recruiting about 4,000 students from the mainland, of which more than 70% of Lingnan University's self-funded students are from the mainland. Compared with other government-funded schools, these schools have relatively low admission thresholds and do not require English scores or Chinese teaching, which are favored by some people who go to Hong Kong.

A mainlander who plans to apply to Hong Kong Metropolitan University this year told Tencent News’ Qianwang that she submitted her application with the help of an agent at the end of last year, but was not admitted. “The competition is too fierce. I have been working for more than 15 years and now have a family to support. I don’t have the energy to prepare for other schools with high entry barriers.”

She later found a way to apply for dependent status and went to Hong Kong, planning to bring her child to attend classes there.

Nearly 10,000 people are about to study in Hong Kong this year, and 57,000 approved talents and their dependants have arrived in Hong Kong one after another. They have become the main force in Hong Kong's rental market in the past period of time.

Wu Jinji said that in addition to Hong Kong locals who have suspended their home purchase plans and turned to renting due to continued high interest rates, mainlanders coming to Hong Kong have indeed pushed up the demand for residential rentals, so that rentals are in short supply. Public data shows that the number of rentals on Centaline Property, the largest local rental platform in Hong Kong, is now about 11,000, a 10% decrease from last year.

In July, public data showed that 2,900 units were sold in the Hong Kong rental market, a 20% increase from the previous month. As of the end of July, Hong Kong had sold 14,000 units this year.

Sun Weigang, managing director of Sun Hung Kai Properties' residential rental Signature Homes, told Tencent News' Qianwang that the rental rate of more than 3,000 units under Sun Hung Kai Properties exceeds 80%. Among them, "Benshe" located near the Nanchang subway station is very popular among mainland talents and students with relatively high purchasing power. The rent of this property ranges from 20,000 to 40,000 Hong Kong dollars per month. Sun Hung Kai Properties is the largest owner in the Hong Kong rental market.

After the renovation of Sun Hung Kai Properties' traditional wealthy community in Mid-Levels, Royal View Garden, the rent has now risen to HK$80,000-180,000 per month. Sun Weigang revealed to Tencent News' "Qianwang" that there are no vacancies in the community now, and people who want to rent need to queue up. More than 70% of these people in the queue are mainland talents who have come to Hong Kong in recent years. This is a rare phenomenon of queuing for renting a house in Hong Kong. At the same time, Sun Hung Kai Properties' residential property in North Point, which was only put on the market in May, has more than 70% of mainland tenants.

Wu Jinji, deputy regional manager of Sha Tin at Centaline Property Agency, told Tencent News' "Qianwang" that rents in the Sha Tin district under his jurisdiction have increased by nearly 10% in the past few months. The rent increases have been particularly high in communities where City University and the Chinese University of China are concentrated, such as Mingcheng and City One.

As far as he knows, the peak period for students to rent houses in Hong Kong is in June and July. At that time, the competition for houses in the above two communities was quite obvious. Now, most of the mainland students who come to rent houses in August sign the contract without viewing the houses directly, because the school is about to start and there are fewer houses. However, Wu Jinji believes that as students start school at the end of August, the Hong Kong rental market will start to adjust in September - this is also the normal situation of the Hong Kong rental market in previous years.

Mainland students support a 50 billion market in Hong Kong

Rents in Hong Kong generally rise in the months before the start of the new school year. This year's increase is relatively higher than in previous years. JLL Hong Kong Capital Markets Director Chen Guozhang told Tencent News "Qianwang" that in addition to the high-quality and talented people going to Hong Kong, the influx of mainland students is one of the main reasons, especially after the expansion of university enrollment in Hong Kong this year, more mainland students went to study in Hong Kong.

Unlike mainland universities that provide accommodation for students, the number of beds provided by colleges and universities in Hong Kong is very limited. According to the report "Unlocking the Growth Potential of the Private Student Accommodation Market" released by Jones Lang LaSalle, in the past year, the number of students with college degree or above in Hong Kong was 253,000, including 8 universities funded by the Hong Kong government, Hong Kong Shue Yan University, Hang Seng University of Hong Kong, etc., which only provided about 39,000 beds in total.

Chen Guozhang explained to Tencent News "Qianwang" that Hong Kong is committed to developing into an international higher education center, doubling the number of non-local students from 20% to 40%. More than 90% of these non-local students are from the mainland. He added that in the past few years, with the influence of geopolitical factors, many students who originally went to Europe and the United States to study for a master's or doctoral degree have chosen Hong Kong. Especially in the current economic environment, many mainland professionals have chosen to continue their studies, and many of them have also chosen to come to Hong Kong.

In Chen Guozhang's opinion, the current tight student accommodation situation in Hong Kong cannot be solved for the time being. Since the construction period of student dormitories is relatively long and it is not easy for schools to find suitable land to build dormitories in Hong Kong, the accommodation shortage for students in Hong Kong will continue to exist in the foreseeable future.

Students who cannot apply for school beds in Hong Kong have to enter the private rental market - like most workers in Hong Kong, they rent private houses. This leads to two situations: open-plan or single-room rooms near schools are "hard to find", or one apartment is divided into multiple rooms for group living.

Unlike the mature student apartment rental markets in Europe and the United States, there were no dedicated student apartment rentals in the Hong Kong market before the pandemic. In the early years, some operators in Hong Kong acted as agents for multiple private properties and then rented them out to students, which was equivalent to the model of sub-landlords. Most of these properties were scattered in different buildings or even different communities. Only a small number of "sub-landlords" could contract small private houses and then sublet them to students.

Chen Guozhang explained to Tencent News' "Qianwang" that there was no special "student apartment" investment category in Hong Kong before, mainly because before that, Hong Kong investors had easier and more profitable real estate assets and were unwilling to consider student apartments.

The poor return on investment was also the main reason for dissuading Ye Minghui from the project. Ye Minghui, president of Centaline Investment Group, told Tencent News’ “Qian Wang” that the main reason for not investing in Hong Kong before was that “the Hong Kong property market was relatively high before the epidemic, and there were no suitable student apartment investment targets that met our investment return requirements.” However, she also revealed to Tencent News’ “Qian Wang” that on August 7, Centaline Investment acquired a hotel in Hong Kong for HK$180 million, planning to transform it into a 100-bed student apartment. This will be Centaline’s first student apartment project in Hong Kong.

She and her team began researching student housing investments in 2017, and launched their first student housing project in the United States in 2019 (the project was successfully exited recently), followed by four student housing projects in the United Kingdom.

In her words, investing and operating school apartments is hard-earned money. As investors, she and her team need to calculate models such as daily rental income and possible exit income. At the peak, Ye Minghui and her team held at least 7 student apartment projects.

She started to move to Hong Kong last year, preparing to acquire suitable hotels and transform residential buildings into student apartments. She believes that Hong Kong universities can only provide accommodation for about 20-30% of students, and the remaining students, except for local students who go back home, need to rent houses outside.

According to the above report by JLL, there are currently about 37,200 non-local students in Hong Kong who need to rent housing, and this number is expected to rise to 59,500 in the next four years.

Even if the Hong Kong market becomes like the European and American markets in the future, if student apartments can absorb about 50% of students in addition to renting private buildings, the demand for student apartment beds will be about 30,000.

Chen Weiwen, CIO of Jingyuan Investment, which now owns four student apartments, told Tencent News "Qianwang" that the investment for a bed is about 2 million. This means that the market size of student apartments in Hong Kong in the future will be about 60 billion Hong Kong dollars.

Chen Guozhang is relatively cautious. He estimated to Tencent News "Qianwang" that there may be about 25,000 students living in student apartments on the market in the future. He is more inclined to believe that the scale of Hong Kong student apartments is about HK$50 billion.

Old money families and emerging funds are all "rushing in" to invest in student apartments

Ye Minghui is one of the few people who saw the investment opportunity of student apartments relatively early. In the past five years, her company Centaline Investment, which is affiliated to Centaline Property Group, has bought nearly 10 projects in the form of funds.

She told Tencent News "Qianwang" that the projects acquired in the United States have been successfully exited recently, with a total return rate of about 30%. In the future, she hopes to acquire properties in Hong Kong in cooperation with funds, with a return rate comparable to that in the United States. They are not considering fully acquiring properties with their own funds for the time being, and would rather be an operator of student apartments, because she thinks that Centaline's intermediary network of more than 10,000 people in Hong Kong can divert traffic to student apartments.

As for why they are returning to the Hong Kong market now, Ye Minghui told Tencent News' "Qianwang" that the continued increase in the number of mainland students going to Hong Kong will support the rental returns of student apartments. According to their model prediction, the return rate of purchasing properties at current market prices and converting them into student apartments can be comparable to previous projects in the United States.

She told Tencent News "Qianwang" that she had started looking for projects in Hong Kong more than a year ago and had looked at at least 40 projects, but had not found a suitable one so far. Ye Minghui said that she had looked at almost all the projects on the market that could be turned into student apartments, but it was not easy to find a suitable target. This is because in addition to the geographical location requirements, the properties that can be converted into student apartments are generally private residences or hotels, and the latter also require a series of approval requirements.

Crystal Garden Investment CEO Chen Weiwen also encountered a similar "dilemma". He told Tencent News "Qianwang" in his office in Causeway Bay that even hotels are not easy to transform, because the windows, room types, and area sizes of each hotel room are different, and some are not used very often, which will directly affect the return on investment and requires very careful planning. Crystal Garden Investment is a real estate development company managed by Luo Zhengda, the second son of the Crystal Garden Group, a Hong Kong old money family, and has more than 30 years of development experience in the mainland. Crystal Garden Investment started doing student apartment business in Hong Kong in 2019.

Chen Weiwen is relatively lucky. His company, Jingyuan Investment, is the first investment institution in the Hong Kong market to renovate student apartments.

In 2019, Jingyuan Investment signed a contract for an old building formerly a bank dormitory. Chen Weiwen told Tencent News "Qianwang" that the owner did not intend to sell it at the time, so he had to sign a 15-year contract. The Jingyuan team renovated the project for about a year, spending about HK$60 million. Now the building has been renamed YHill Student Apartments, which can accommodate about 300 people and has a 100% occupancy rate in the past two years.

In addition, Crystal Garden Investments, in 2022, jointly invested with the US real estate fund AEW to acquire an old building in Hung Hom for HK$1.65 billion. The building was later converted into a student apartment and named Y83 - the largest student apartment in Hong Kong so far, accommodating about 600 students. The occupancy rate of Y83 student apartment also reached 100% last year, and its average customer price ranged from HK$8,000 (double room) to HK$13,000 (single room) per month.

When designing student apartments, Crystal Garden Investment's projects followed the British and American practices, setting up public areas such as laundry rooms and kitchens, as well as community activities. Chen Weiwen revealed to Tencent News "Qianwang" that the design of this shared space has reduced Crystal Garden Investment's annual income by about 4%. However, Chen Weiwen believes that socializing is an important part of student life, and it is worth the cost to attract students with social needs to move in - this is the difference between student apartments and private serviced apartments.

In addition to these two projects, Crystal Garden Investment also has two projects, Y36 and Y18, located in Hung Hom and Jordan, which can provide about 1,000 beds in total. It is also the largest student apartment operator in the Hong Kong market. Among them, Y83 is the largest student apartment in Hong Kong, with 600 beds.

Chen Weiwen told Tencent News' "Qianwang" that Jingyuan Investment is an investor itself and hopes to use investment to leverage a relatively more stable and higher rate of return. In order to rapidly expand its business, it hopes to cooperate with funds.

On August 19, Crystal Garden Investment will complete the acquisition of another property worth HK$123 million. Chen Weiwen revealed that the building has already started to be renovated. Public information shows that the property is located at Hung Hom Station along the East Rail Line where mainland students gather, and nearby are colleges such as the Hong Kong Polytechnic University. Earlier, in May this year, Crystal Garden Investment also bought a hotel in Cheung Sha Wan from the family of Deng Chengbo, a veteran Hong Kong real estate investor, for HK$220 million, which was also prepared to be transformed into a student apartment.

In addition, Chen Weiwen revealed to Tencent News "Qianwang" that Jingyuan Investment is negotiating about 6 projects. The price of the hotels they are negotiating is about 200 million to 500 million Hong Kong dollars.

However, he also said that Crystal Garden Investment's current acquisition pace is not fast, because it is not easy to buy more private buildings or hotels in the Hong Kong market to transform them into student apartments. In addition to the difficulty in finding buildings, the requirements of cooperative funds for investment returns are also different, that is, different projects require different fund cooperation. As a new investment category, funds from large international institutions are relatively cautious about investing in Hong Kong student apartments.

He also revealed that this year, more and more emerging funds have come to him for cooperation. This is because these emerging funds believe that the future rental returns of Hong Kong's student apartments are relatively stable. Even if the external economic environment is unstable, the number of mainland students going to Hong Kong is relatively stable, and the student rental income is also stable, at least for about five years, so there will be no problem for the funds to exit.

A person in charge of an emerging fund that has already raised funds told Tencent News’ Qianwang that he and his team have currently found student apartment targets with an annualized return of about 5%. However, “this market is too small, and an investment of 5% annualized is not very replicable.”

Several investors, including the fund manager and Chen Weiwen, told Tencent News' "Qianwang" that the scale of student apartments in Hong Kong does not seem to be large enough now, but compared with the downward trend of other real estate sectors in Hong Kong, student apartments are a good investment option at present.

Tencent News' "Qianwang" learned that since the second quarter of this year, many owners have chosen to sell their properties due to cash flow pressure, which is also one of the reasons why more and more investors are pouring into this track.