Lam’s policy address offers buyer options which could ease tiny flat fever
‘Starter Homes’ scheme, for instance, is aimed specifically at first-time buyers, allowing them to buy flats at below-market rate. Single people earning less than HK$34,000/m and households bringing in less than HK$68,000/m will be eligible
Hong Kong’s love affair with so-called tiny flats may start to ease off under new housing scheme plans revealed by Chief Executive Carrie Lam Cheng Yuet-ngor last week in her maiden policy address, according to market observers.
Over the last year or so, developers have been investing heavily in flats barely bigger than a car parking space, in projects such as Edition 178 and COO Residence with more on the pipeline, to cater to growing demand for smaller units – known locally as “nano flats” – as sky-high prices prevent many potential buyers, especially young people, from owning anything bigger.
Some 30 per cent of new flats approved for construction in Hong Kong in the first five months of this year were less than 200 square feet in size, according to government figures.
Aimed specifically at first-time buyers, the chief executive announced a new “Starter Homes” scheme, for instance, selling flats to them below market rate.
Single people earning less than HK$34,000 per month and households bringing in less than HK$68,000 monthly will be eligible.
The scheme, which potentially overlaps with existing housing markets, will have greater impact long term than short term, said Sammy Po, chief executive of Midland Realty’s residential department.
“The first batch only comprises 1,000 units. It may also take time to see that first batch of starter home units coming onto the market,” Po said.
“But if supply under the scheme increases in future, coupled with the generally increasing supply in public and private housing markets, the impact on the tiny flats market will be significant, particularly if the pace of interest rate rises accelerates, or when the global economy has problems in future,” Po added.
The privately owned tiny flat segment could be further hit as more than 4,000 new public flats become available under the “Green Form Subsidised Home Ownership Pilot Scheme” (GSH) by the end of 2018.
And the chief executive also proposed allowing more tenants of private premises increased opportunity to become homeowners under the “Interim Scheme to Extend the Home Ownership Scheme Secondary Market to White Form Buyers” (the interim scheme).
Both the GSH and the Interim Scheme pose greater short term threats to tiny flats, said Louis Chan Wing-kit, Centaline Property Agency’s managing director for residential.
“Existing user demand from financially struggling first-time buyers who may otherwise opt for tiny flats and high loan-to-value ratio mortgages from developers, may turn to the green form scheme and the interim scheme instead,” Chan said.
“Because of these three housing policies, transaction volume for tiny flats may drop by 20 per cent, but housing price growth should ease.”
The popularity of small units is, however, likely to remain healthy because many cost less than HK$4 million, even though in terms of price per square foot, they are comparable to luxury residential flats in traditional residential areas.
The Hong Kong Mortgage Corporation is also providing incentives such as 85 to 90 per cent mortgages. making first-time buyers eligible for the buys.
Thomas Lam, head of valuation and consultancy at Knight Frank, said if supply under the starter homes scheme is high in future, that too may affect the availability of tiny flats for first-time home buyers.
“As many tiny flat projects have been launched by small to medium-sized developers, that scheme will pose a greater threat to them, than to larger developers,” Lam said.
Meanwhile, Vincent Cheung Kiu-cho, Colliers International’s deputy managing director of valuation and advisory services says that by helping people at the middle or lower ends of the market buy flats, via the interim scheme, market demand for tiny flats could be reduced.
Statistics from the Rating and Valuation Department showed home prices reached a record high in August, after 17 consecutive months of increases.