Pakistan Property & Real Estate News

Developers looking outside Dubai to wider Middle East as they start to look at a positive places

Signs that the property industry in the gulf and Middle East is healing from its bruised and battered downturn are beginning to emerge with developers looking to the future but the focus is very much away from hard hit Dubai.

New developments are largely outside Dubai which saw prices slump up to 50% last year and those that are operating in the emirate don’t see any recovery for at least another 12 months, if not longer.

Developers are very much concentrating on other locations. Oman’s Ominvest revealed that it is planning a $1 billion integrated tourism resort in the southern port city of Salalah that will include four hotels and housing units which will be offered for sale to both local and international investors.

‘The construction of the resort will start in late 2010 or early next year and it will be built in three phases. We are building a complete town that caters to both local and international visitors,’ said chairman Hani Al Zubair.

Meanwhile UAE’s Majid Al Futtaim (MAF) Properties is planning an $817 million shopping mall and office project in Syria, as it seeks new markets in the Middle East and North Africa outside an already packed Dubai.

The firm, famous for building an indoor ski slope in Dubai, and which typically enters markets with French retailer Carrefour as anchor tenant of its malls, will fund the project with its own financing and with banks in Syria. It will have a mall, hotels and office buildings.

The company has ten operating malls in the Middle East and North Africa and plans to more than double its portfolio by 2015 with 14 new projects in the UAE, Oman, Egypt, Lebanon, Syria, Qatar, Saudi Arabia and Yemen. Chief executive Peter Walichnowski said the company’s malls have shown resilience to the global economic crisis and did not see a significant drop in sales in 2009.

But there are tentative signs that confidence is slowing creeping upwards in the beleaguered Dubai market. Emerald Palace Group said that none of its customers had defaulted on payments for units at its Kempinski Hotel Residences Palm Jumeirah project in Dubai. Company chiefs said the zero defaults were a ‘reflection of our customers’ confidence in the project, in Palm Jumeirah and in the long term potential of Dubai’.

Dubai’s property market will not recover before next year and most likely towards the end of 2011 as mortgages become easier to obtain and more people move to the city, according to the developer of a $4 billion hotel and residential project.

Banks can’t stay away for long. They have to lend and historically most of this region’s lending goes into property,’ said Santhosh Joseph, founder and chief executive officer of Dubai Pearl.

‘We’re not expecting to sell substantially in 2010 and 2011. We are a zero debt company but we may look into leveraging at a later date,’ he added.

Real estate markets in Abu Dhabi and Dubai becoming entwined as prices even out, research shows

Property prices and rents in Abu Dhabi are likely to decrease in coming months, putting the emirate more on par with neighbouring Dubai, it is claimed. The property markets in both emirates are entwined and this is likely to have a stabilising effect with price differences between the two narrowing, according to an analysis from property advisors Tasweek Real Estate Marketing and Development.

‘The rent differential between the two has resulted in a significant proportion of cross emirate migration. If this trend continues then it will exert further downward pressure on prices and rents in Abu Dhabi, at least narrowing the difference between the two in the medium term,’ its latest report says.

The key drivers for apartment, office and retail prices in the UAE for the future will be location, quality of construction, community facilities, completed infrastructure, and availability of competitive financing solutions. Critical elements for more transactional activity, on the other hand, include affordability, return on investment, and trust worthy exchange partners,’ analysts explain.

‘Prices seem to be stabilizing and even increasing in selected areas where lifestyle communities are offered along with easy access to retail, leisure, education and entertainment. All in all, 2010 is expected to play out as a crucial period for determining the real estate industry’s direction as the world pursues post crisis recovery,’ the report adds.

Abu Dhabi has a greater availability of mortgage financing and a short to medium term supply demand mismatch but needs progressive transparency and regulation in the property market. ‘Tasweek believes investments in real estate should be made in Abu Dhabi for the longer term as it offers very low risk and steady returns for the future,’ the report points out.

There is an undersupply in housing in Abu Dhabi which Tasweek estimates at between 22,000 and 32,000 units. There is also a discrepancy as to how many units will be delivered over the next two years, estimated at between 15,500 and 23,000 units.

At the same time transactional activity remained very weak in 2009 and there is very low demand for off-plan properties. ‘It is extremely clear that substantial activity in the future will be made via private equity groups and large institutional investors looking for conservative but higher than usual yields,’ the report says.

Average apartment price fell by 40% to 50% from their peak in Abu Dhabi and average rents for new leases have lost an estimated 20% from their highs in 2008 to the end of 2009, the research shows.

Growth in the Dubai property market is being hampered by lack of mortgage financing. ‘Tasweek believes real estate investments should be made in Dubai for the few who clearly understand the market and are in a position to carry out rigorous due diligence and securitize their capital and future income. This provides a platform for reaping great rewards three to five years down the line when transparency returns to the market,’ the report says.

‘The economic recovery does paint a cautious picture for Dubai’s residential market in the near to medium term when rising supply, if uncontrolled, may hamper price recovery,’ it adds.

Rising demand for rental properties set to boost the private landlord sector in the UK

Property landlords in the UK are likely to see rental expectations increase as the supply of new properties coming onto the market falls for the second quarter in a row.

The latest residential lettings survey from the Royal Institution of Chartered Surveyors shows that the rise as new instructions fall brings an end to the downward trend in rents that has been around since the autumn of 2008.

The net balance of chartered surveyors reporting rising rather than falling rents in the three months to January 2010 was zero. This follows five quarters of negative readings and is in marked contrast to April last year when 58% more chartered surveyors were reporting falling rents, an all-time low for the survey.

In addition, expectations as to the outlook for rents continues to strengthen with a net balance of 33% of respondents believing rents will to rise over the coming quarter, up from 22%.

The more positive picture for rents can be attributed to the continued decline in supply of both flats and houses in the marketplace, the survey says. Some 23% more chartered surveyors reported a fall rather than a rise in the number of new landlord instructions for this period, up from 18% in the previous quarter.

Although the weather may have been a factor in this, it is more likely that the upturn in the housing market has tempted many of the accidental landlords away from the lettings market, the report points out.

Demand remains strong with 16% more respondents still seeing it rise than fall. Would be first time buyers, unable to get a foot on the property ladder, are still a major source of increasing demand for good rental properties. Houses remain more popular than flats and it is the supply/demand imbalance in this market that is also helping to push rents higher.

‘It is becoming clear that movements in the housing market are affecting lettings. The RICS housing survey has seen a steady increase in the number of new instructions coming on to the market over the past few months, whilst simultaneously we see with this survey that the number of properties available to rent has decreased,’ explained RICS spokesperson Jeremy Leaf.

‘This is a clear sign that the accidental landlords are returning to the sales market. If demand remains strong, which it is likely to as many first time buyers are still finding themselves priced out of the housing market, then rents should continue to rise as would be tenants compete for fewer properties,’ he added.

The quarterly RICS Residential Lettings Survey began in 1998 and provides a comprehensive picture of the lettings market across England, Wales and Scotland as well as a regional breakdown.

The survey includes trends in tenant demand, gross yields, rent expectations and average monthly rents broken down by region and property type.

UK landlords more upbeat about the private rented property sector but say lending is too tight

Private property landlords in the UK are upbeat about the rental sector and more confident than they were a month ago about the outlook for 2010 Some 61% feel good about the buy to let sector, up from 57% in February, according to the latest monthly rental confidence index from Upad, the national landlord advertising portal.

Survey respondents leaving comments stressed the increased positivity with the private rental sector, but continued to highlight issues such as student accommodation and Government funding.

They said there are positive signs lending is returning to the market, which has been the biggest block in the past two years but are concerned that plans by universities to build more Halls of Residence accommodation could result in less demand for private rental accommodation. They also want to see more lending.

The 39% who said they are feeling less confident about the market put their pessimism down to lack of lending. Finance that is available is too expensive and there are still too many bad debts and regulations in the sector. They are also worried about future interest rate rises.

‘For the fourth consecutive month since we launched the Index, landlords have highlighted their growing confidence in the market. In the months to come, it will be interesting to monitor the lending capacity of the UK’s banks, and the impact this will have on the sector,’ said James Davis, founder and CEO of Upad.

‘Overall though, I feel that this month’s survey indicates the market is continuing to go from strength to strength, he added.

Landlords keen to expand their portfolios can now consult a new online mortgages comparison site launched by the Association of Residential Lettings Agents (ARLA).

The free service is aimed specifically at buy to let borrowers and is flanked by sister sites, NAEA Mortgages for residential purchases and ICBA Mortgages for the commercial property sector.

‘We’ve had a wealth of requests from our members to offer this comparison service. This should have the benefit of assisting the landlord and, at the same time, providing tenants with a better choice in the marketplace,’ said ARLA operations manager, Ian Potter.

NZ sees surge of property on market as buyers become more cagey, reports show

The number of new properties on the market in New Zealand surged in February but buyers are becoming more cagey, according to the latest monthly real estate reports to be published.

The number of unsold houses across the country is rising with listings up 47% from January to February, their highest level since April 2008, the monthly report from listings website realestate.co.nz shows.

But with sales volumes static, the number of unsold properties across the country has ballooned and at current sales levels the backlog would take 48 weeks to clear.

Realestate.co.nz chief executive Alistair Helm said February traditionally saw a jump in new listings, but the rise last month was the largest monthly increase since the online property portal was launched more than three years ago.

More significantly, the expectation of sellers was not matched by sluggish sales volumes which remained static. As a result, the inventory level of unsold houses, as measured by the number of weeks of sales necessary to clear properties on the market, had jumped further to 48.2 weeks, said Helm. This compares with an inventory level of 34.3 weeks % in December, an increase of 40% in just two months.

‘Even those regions which had been a seller’s market for much of last year, defying the national average, are now experiencing a change. Wellington, in particular, which continues to lead the country with the smallest stock of unsold houses, is experiencing an inventory level of 29.2 weeks, a 94% increase in the last two months when inventory stood at only 16.5 weeks in December,’ Helm said.

According to the report, the stock of unsold houses in Auckland and Canterbury had inventory levels of 36 weeks. The regions with the highest inventory levels were Coromandel at 226 weeks, Northland at 163 weeks, and West Coast at 162 weeks.

A separate monthly survey from First National Group found that in its 70 offices staff have found that 44% of vendors had become more reasonable in their price expectations since Christmas with 20% reductions becoming more common

Areas where sellers were becoming more realistic about asking prices include Wellington, Invercargill, South Auckland, the central North Island, Northland, Alexandra and coastal holiday destinations.

But places where prices were still at pre-Christmas levels included Taranaki, Blenheim, central and northern Auckland, and parts of Christchurch.

‘With buyers so cagey at the moment, it is in a vendor’s best interest to price realistically or risk waiting many months to sell. Right now absolute lack of confidence is holding things back,’ said First National general manager John Stewart.

Investment opportunities in Costa Rica

The country, which is often deemed the USA's version of Spain, has the longest life expectancy in the western hemisphere, with the tourist industry growing rapidly over recent years.

Costa Rica Invest says the low cost of living and low property taxes have attracted retirees to the country, with 60 per cent of tourism arriving from the US. Invest says new opportunities to buy in the country could attract UK buyers looking for a second home.

The company is currently offering potential buyers the opportunity to harvest teak on the land, the profits of which can be used towards purchasing a home in the country or as an investment.

James Cahill, managing director of Costa Rica Invest, said: "Investors with a medium to long term investment view will see the benefits of an investment in development land with the added benefit of teak growing on it. Our premier project Finca Di Pacifico Dos offers a unique opportunity to invest in Costa Rica.

"The teak growing on your land will provide a good return but better than that as the world economy recovers and more baby boomers seek out their little piece of paradise the value of your land will increase rapidly giving you a spectacular return."

The country's slogan, La Pura Vida, meaning the pure life, is fitting given its current status as one of Dan Buettner's, 'Blue Zones'; with the country's Nicoya Peninsula deemed as one of the few places in the world where people live to a 100 in great numbers.

Invest have also discovered a US and Central America trade deal, the Central American Free Trade Agreement (CAFTA) brought in at the beginning of the year, should help buyers by encouraging competition in Costa Rica.

Judy Ferguson, spokesperson for Costa Rica Invest added: "Some of our purchasers are planning to break ground on their development land this summer. Perhaps they already know about the health and longevity benefits of life in Costa Rica.

"As word spreads further about longevity in Costa Rica, demand for 'La Pura Vida' will further rise, benefiting our pure investors who plan to sell their land."

Property price falls 'not caused by supply and demand'

Prices fall because people cannot afford to buy, not because there are not enough properties on the market or buyers are not interested, explained Paul Holmes, chief executive officer of first-time buyer advice firm Firstrung.

"The reason they can't buy a property is because the speculative mortgage product has completely disappeared," he commented.

"They can't afford to buy because there is no more cheap money available."

Figures from Nationwide show that house prices fell by one per cent month-on-month in February.

The average price last month was £161,320, compared to £163,481 in January.

It suggested the recent fall is due to the winter weather and expiry of the stamp duty holiday, rather than being the start of a new trend.

More of those who obtained a mortgage last year opted for a variable rate product, hoping to make the most of low interest rates.

Banks must lend to aid mortgage market, expert says

There is pressure on banks to lend and they must do so, said Catherine Hearnden, director of financial advice firm MyMortgageDirect.

She pointed out that increased loan-to-value mortgages are being offered, but buyers still require a deposit and face higher interest rates.

Homebuyers must continue to be sensible with their finances and assess mortgage options carefully, the expert continued.

Figures from the British Bankers' Association show that mortgage lending in January was relatively weak, with the winter weather blamed for the drop.

Some 35,000 new mortgages were taken out, compared to 46,000 in December.

The figure could also have been a reflection of the changes to stamp duty that came into effect at the beginning of 2010, meaning buyers made the most of the relief at the end of 2009.

Self-build market "more favourable"

Increased land availability, falling prices and cheaper materials and labour mean there is a real demand from homeowners who are frustrated by the current property market, explained Raymond Connor, chief executive of construction supplier BuildStore.

"With a low supply of quality homes and such good savings to be made right now, in terms of land, labour rates and materials prices, there has never been a better time or more affordable time, to build your own house," he commented.

Mr Connor called on the government and local authorities to recognise this trend and aid self-build projects.

It has also been suggested that VAT should be cut on home improvements to further boost the property sector. Alex Hawkes, news editor at Construction News, suggested the move would boost the construction sector.

Influential institution calls for more transparency in the UK property industry

There are significant gaps in transparency of professional fees in the UK property industry and consistent and comprehensive regulation of the real estate sector is needed, it is claimed.

A Royal Institution of Chartered Surveyors working group has found numerous examples of unwelcome practice and inconsistencies in the level of transparency provided for professional fees charged. This leaves consumers unaware of what they are paying for when purchasing services, it says.

RICS is calling on the government to review and improve regulation in the sector after its research found that consumers want a breakdown of professional fee including any commission earned, clearer and more accurate information, and the relevant information they need to enable them to make an informed choice.

‘Whilst we have been working on this consultation we have witnessed a change in the banking world. The focus is now on sensible lending, transparency and proper management of risk. This consultation has highlighted both good and bad practice in how the property market operates. However the current market solutions are piecemeal at best,’ said Max Crofts, RICS President and Chairman of the Transparency Working Group.

‘We have a great opportunity to take the initiative and work with others to build upon the good practice that already exists. We need to put a stop to the unwelcome practices and enhance regulation and its coverage across the sector in order to improve standards and raise consumer protection. The industry will do what it can, but to obtain consistency in transparency of fees and commissions across the entire industry action and legislation is needed from government,’ he added.

The key recommendations are that landlords, letting agents and managing agents should be subject to appropriate regulation in order to achieve consumer protection, efficient markets and consistency across the sector.

Regulation of the industry should involve an independent body, for example, the Property Standards Board (PSB), and that body should approve and hold the agreed code(s) of practice that the industry follows. The Government should legislate to provide the PSB with the authority and backing to ensure that all landlords, letting agents and managing agents comply with appropriate regulatory requirements, RICS says, and the government needs to undertake a review of existing legislation in the residential sector.

RICS believes it can work with the relevant authorities to ensure that there is greater transparency and clarity in the description of mortgage and valuation fees for mortgage applicants.

And it adds that the industry needs to put greater emphasis on making sure clients, especially consumer clients, are made aware of the relevant remuneration, commission and any other payments paid on the purchase of insurance. Regulators should also impose requirements to improve transparency in relation to insurance.

Tentative signs of Vietnam real estate recovery as developers seek to tempt back foreign investors

After a bleak past two years during the global economic downturn the Vietnam real estate market needs foreign investment to recover, it is claimed. The industry is hoping that tentative signs of increasing interest will lead to more robust interest from overseas buyers.

‘Since the global financial crisis, many foreigners have left the country and foreign demand has dried up. Although fundamentally there is still demand for property, it is not as strong as it used to be since the foreigners left,’ said ECM Libra analyst Bernard Ching.

Ching believes that the real estate market in Vietnam is v very much a long term investment and is very much dependent on the entry cost.

However, optimists believe that the closure of all gold trading floors in the country by the end of March will lead to a re-channelling of capital flows from gold exchanges to the stock and property markets.

‘Several trillion dong could flow into stocks by the end of March. Investors will then park their money in real estate, analysts claim. They also point out that another positive factor will be in public infrastructure investment such as the Thu Thiem bridge and the East-West highway in Ho Chi Minh City which will improve the accessibility of more districts.

And Setia Bhd, president and chief executive officer of Tan Sri Liew Kee Sin, believes that Vietnam offers good opportunities for developers. ‘Vietnam’s favourable demographics with a population of 87 million people living mainly in the countryside presents opportunities for development. Demand for property, including suburban and modern housing, has picked up quite strongly due to a rapidly expanding urban middle class,’ he explained.

‘Even second home vacation properties are seeing good take-up and this shows the kind of appetite that still prevails in Vietnam,’ he added.

View also believes that Vietnamese investors are beginning to pull out of conservative asset classes like gold. Limited launches by developers during the global crisis has also resulted in a more favourable supply-demand scenario.

Vietnam is also experiencing a sub-urbanisation trend with cities like Ho Chi Minh City getting over populated and the infrastructure unable to accommodate the rapid population growth and associated demands as far as housing is concerned, he added.

‘As their lifestyle changes, the Vietnamese are looking to purchase second homes away from the city. This has caused a higher demand to create better homes and more choices for the Vietnamese,’ said a recent report from international property consultants CB Richard Ellis.

‘The market is still relatively untapped with demand higher than supply. This segment of the new money population that are seeking better quality products such as second homes and luxury homes is growing exponentially as the people’s purchasing power rises,’ it added.

Savills Vietnam, in its latest market update, said demand for housing is expected to remain high in the medium term.

Egyptian developers turn to middle priced projects in the short term, report indicates

The current shortfall in mid-priced residential real estate in Egypt will continue until 2012 and could push prices higher, it is claimed. According to a new report from Markaz, property developers have focused more on the market sector as housing prices and demand for luxury properties fell in the country as a result of the global economic downturn.

Despite this the mid priced real estate sector remains undersupplied but the report predicts that as the economic recovery quickens developers will return to high end projects within the next two years although not to the extent that was seen in the past.

‘After going through the moderate impact of the economic slowdown, Egypt’s real estate sector is expected to provide healthy long-term prospects in all of its sub-segments,’ the report says.

The report studies the economic cycles in Egypt back to 1986 and argues that the average real GDP growth rate has been on the rise from 3 to 4% during the 1990s to 4 to 5% in the past decade. It forecasts that the cycle will last until 2014/15 with an average growth rate of 6%. But the possibility of a double dip in global economic growth trends could create a temporary glitch in this expected growth pattern.

Egypt’s population is expected to grow at its natural growth rate of 2% per annum and income growth is the key driver for real estate demand, it suggests. As more people get better paid jobs then a growth in demand for middle prices real estate is expected.

The report also suggests that take up levels are poised to return to the vibrancy of 2006/08 in 2012 when the average real GDP growth rate is expected to reach 6 to 7% again.

Due to the low mortgage penetration, which stands at 0.4% of nominal GDP, the source of funds to purchase a house has essentially been savings and sale of existing assets. Savings got leveraged by the growth in mortgage financing during the recent boom. However, the growth in lending has slowed down of late and the report expects mortgage financing by banks to recover during 2010/11 aided by an 8% average growth in deposits.

The report shows that in the residential sector sales levels contracted due to the economic slowdown which manifested itself in a fall in reservations and rise in cancellations of property offerings by major developers. But the downtrend turned around during the third quarter of 2009.

Meanwhile separately Blair Hagkull, head of the Middle East office of the property consultancy Jones Lang LaSalle, said that Egypt had been shielded from the worst effects of the financial crisis as it was less exposed to other global markets than other Gulf states.

UK property lending hits ten year low, latest figures show

Property lending in the UK was more than fifth lower in January than a year ago, with loans plunging to a ten year low, the latest figures show. Gross lending fell to £9.1 billion in January, a 32% fall from December levels and 21% lower than in January 2009, according to the Council of Mortgage Lenders.

While the council said it is normal for lending levels to fall between December and January, lending fell back to its lowest level since February 2000.

Separately, the Bank of England said lenders also reported that the severe weather around the year end had depressed mortgage approvals in January.

‘The larger than average drop between December and January this year confirms our view that house purchase activity was boosted in December by a number of borrowers trying to complete their purchase before the end of the year to take advantage of the stamp duty holiday,’ the CML said.

Its figures also show that there was a 56% jump in the number of mortgage advances for properties affected by stamp duty changes back in December, much higher than the 11% rise across the rest of the market.

Paul Samter economist at the CML predicted that the early part of 2010 will see a fall in activity as more deals were done in the last part of the year than is usual and the upcoming general election will also create uncertainty over the Spring months.

‘It will be difficult to gauge the true underlying state of the market for some time and the next few months are unlikely to add much to our reading of developments,’ he said.

But he added that the lacklustre recovery and uncertainty in the sovereign debt markets mean he expects only a gradual recovery in the housing market.

As banks will need to refinance £300 billion of wholesale funding provided under the Bank of England’s Special Liquidity Scheme next year, he believes funding costs will rise and that could keep a lid on lending to households and businesses.

Royal Institution of Chartered Surveyors senior economist Oliver Gilmartin described the figures as disappointing and said they underline the continuing difficulties facing the construction industry.

‘Housing completions in 2009 were the lowest since 1947 in England and the latest quarterly decline in housing starts offers little near term comfort. Furthermore, housing starts are running at more than 50% below what is needed to satisfy projected household growth according to the government’s own estimates,’ he said.

‘An urgent re-assessment of the procurement route for bringing housing to market is critical as market mechanisms have clearly not worked over the last two decades. Annual housing completions have averaged a paltry 148,000 dwellings since 1989, less than 20% of mortgages approved during a typical year,’ he pointed out.

‘With sharp cuts in public spending in the coming years, available public money for housing will have to be used more intelligently and there will need to be additional effort to ensure that private investment is brought into the market,’ Gilmartin added.

Gulf developers urged to negotiate with investors who default on payments

Real estate developers in the Gulf region are going to have to negotiate creatively with investors during 2010 to avoid a rise in defaults, it is claimed. Anecdotally there is evidence that real estate investors have defaulted because they are concerned that the projects they have invested in will never get built.

But instead of chasing them for payments developers should enter into a dialogue and come up with options that will entice them back on track, according to Craig Plumb, head of research for the Middle East and North Africa with consultants Jones Lang LaSalle.

‘Clearly, there will be more investors who have decided not to pay for things that are never going to get delivered and if I was in that boat I would probably default as well,’ he said. ‘What’s happening is that owners and developers are going back to those investors and coming up with different options,’ he added.

Plumb explained that that due to a lack of established regulations and the sheer expense of the legal option, negotiation is often the only course of action. He confirmed that Union Properties, Nakheel and Emaar are all pursuing this route.

‘Developers can offer a unit in a finished building instead of one in a building that will never be built. So if a developer has ten projects and only 10% of them are sold, they can put all of that10% of payments into one project and leave the other nine until demand returns,’ he said.

His colleague, regional managing director Blair Hagkull said that he expected that prices would remain flat during 2010, with a margin of 5% either way. However, he added that outlying areas that don’t have the amenities or proximity to services of locations like Sheikh Zayed Road and Downtown Dubai could see prices drop by between 15 and 20%.

Trendy spacious lofts in Hong Kong creating an underground market

Rising rents and surging prices of apartments in Hong Kong are driving a trend towards converting older industrial and commercial buildings into lofts for residential living. Lofts are the latest big thing and are often created without formal approval in old or disused industrial and office buildings, according to real estate agents. But they appeal because they tend to have high ceilings and prices well below market rates.

While a standard $500 square foot apartment in Hong Kong might set you back HK$4 million you could get double that in the unofficial loft market, it is claimed.

One agent said he recently helped an expat buy an 800 square foot commercial turned residential unit for HK$32 million which the buyer intends to uses as his office and home.

‘Rents of homes in Sheung Wan range from HK$20 per square foot to as much as HK$40 per square foot, but tenants in such loft apartments are paying less than HK$15 per square foot,’ he said.

But although these kinds of properties might be seen as bargains by buyers and tenants they end up with a distinctly unfashionable address in a rather run down neighbourhoods and run the risk of breaching government regulations. Long term use, for example, does not necessarily lead to lawful use.

A spokeswoman for the Buildings Department said whether or not such conversions were legal would depend on whether the building was zoned for residential use or whether structural changes had been carried out in which case Buildings Department approval was required.

‘For example, if an owner renovates a bathroom that requires structural change but does so without our approval we will require the owner to restore it because they are illegal structures,’ she explained.

Charles Chan Chiu-kwok, the managing director of Savills Valuation and Professional Services said that the occupation permit issued when a building is completed mentions its usage. If an owner does not follow this designation, the usage will not be lawful.

But the changes to the building only usually come to light if the owner decides to sell. So a converted building could be rented for years for residential use without the authorities knowing about the situation.

But the situation does not seem to bother those seeking to rent larger properties at a time when rents are rising. According to Simon Lo Wing-fai, director of Colliers International Hong Kong research and advisory department, rents have continued to rise in the last two months and he predicts a double digit rise in residential rental this year.

By comparison rentals for commercial or industrial properties turned apartments were much lower, he added.

The Consumer Council said there has been a proliferation of promotional materials for apartments situated in former factory buildings and warned that converting industrial or commercial buildings for residential use requires the approval of the Town Planning Board and buyers could not live in converted units if a developer had not been granted a change of use.

But others point out that from the outside it is difficult to prove that units in these industrial or commercial buildings are used for residential use.