Hong Kong’s Hostels in the City Scheme: prospects and risks

Growing geopolitical tensions, rising overseas education and living costs, the appeal of top Hong Kong universities, and the government’s “Study in Hong Kong” brand promotion have led to a surge in local and international students’ enrolments. This has driven up demand in the already tight student hostel market, creating significant challenges for securing student accommodation.

In July, Hong Kong's Development Bureau (DEVB) and Education Bureau (EDB) jointly launched the Hostels in the City Scheme. This ambitious programme aims to alleviate the severe shortage of student hostels in the city and revitalize underutilised commercial properties. The scheme introduces several key measures, including:

1. Plot Ratio (PR) relaxation: Student hostels converted under this scheme are treated as non-domestic buildings for PR and site coverage calculations, providing flexibility in development planning

2. Gross Floor Area (GFA): Facilities previously disregarded from GFA calculations, such as drop-off areas and back-of-house facilities in former licensed hotels, can be converted into hostel amenities while remaining exempt 

3. Streamlined development control procedures: A simplified process to speed up approvals

The scheme is a game-changer for Hong Kong’s universities, which face a critical shortage of student hostels. In 2024-25, Hong Kong had 92,000 non-local post-secondary students, but only 44,600 hostel beds were available. Due to limited university housing, many students are forced into costly private rentals.

The scheme’s relaxed planning rules, including expanded “Hotel” use definitions and exemptions from land lease modifications, facilitate partnerships between universities and private landlords for commercial property conversions into hostels. This approach clarifies hostel usage’s eligibility after conversion, boosts affordable campus housing, and aids universities in attracting top talent both locally and globally.

The scheme offers investors a lucrative opportunity in a high-demand, low-supply market. Given the projected shortfall of about 59,000 student beds if almost all non-local students opt for student hostels, conversions of hotels and commercial buildings into student hostels could offer stable returns. The streamlined approval process cuts project timelines to as short as six months, enhancing investment efficiency. However, investors must consider sales restrictions that require advance notice and buyer commitments, potentially limiting exit options.

Hong Kong's office market, with a 16.3% vacancy rate at the end of 2024, finds some hope in the scheme. Grade B and C office buildings in student-dense areas are prime candidates for conversion, thanks to their size and proximity to universities. The scheme’s relaxed PR and GFA rules lower conversion costs, enabling landlords to repurpose vacant spaces into high-demand student hostels. This addresses underutilisation and boosts rental income. Yet, retrofitting to meet domestic building standards such as natural lighting, ventilation, and toilets can pose financial challenges.

The scheme benefits hotel owners (especially those with underperforming 3-4 star properties) with no land premiums and faster approvals. Hotels convert more easily than offices, avoiding major renovations. However, managing student hostels requires strong operational experience to meet safety and eligibility standards.

The scheme is a transformative step to address the city’s student housing gap, easing pressure on universities, revitalising underused properties, and offering investors stable returns. However, regulatory compliance, technical and financial viability, market saturation, operational challenges, and policy uncertainties as a pilot scheme require careful planning. By balancing these challenges with the scheme’s incentives, stakeholders can unlock its potential, ensuring affordable, high-quality student housing while supporting Hong Kong’s ambition to become a global education hub.