One thing that sets Hong Kong apart from other cities is that, as prosperity and home ownership have risen over the years, new living spaces have shrunk in size rather than expanded. At the same time, the real cost per square foot of living area has gone up. This is because flats are priced per square foot of gross floor area and developers have made creative and profitable use of the leeway they are allowed to include all manner of uninhabitable space in the gross floor area of the flats they build.
As a result, there is a wide discrepancy between the floor area a buyer pays for and the space he or she can actually live in. The common areas apportioned pro rata to the gross floor area of each flat include almost anything the developer chooses, from gardens, play areas and huge clubhouses to management offices, lift lobbies and staircases, air-conditioning rooms and refuse collection points. Buyers are not told precisely what they are paying for even though they have no choice in the matter. As we report today, the size of flats has shrunk by more than 20 per cent since the 1980s. In an extreme example, the living space of a new 700 sq ft flat today is equivalent to that of a 530 sq ft flat sold in the 1980s.
There is something wrong here. It seems the government's reliance on self-regulation of the industry and market discipline to safeguard the interests of consumers is not working. Flat-buyers are not blameless, though. Most are aware of the discrepancy and simply accept paying more for less space. But there remains a need for greater clarity so that buyers have a better idea of what they are getting for their money. That would balance better the market forces that are supposed to produce the most efficient outcome, to the city's benefit.
The government is aware of the problem. A rule introduced by the Lands Department last year improved the situation by tightening the definition of saleable area to include only internal space, and the balcony and utility platform where they are provided. This is intended to allow people to compare like with like, since all developers must follow the same rules. But much more can be done. Prospective buyers do not have access to the information until a deal is closed. They can be easily misled during off-plan sales of unfinished flats by developers' use of show flats without doors, and with glass partitions for walls, to create the impression of space.
Flats are priced according to gross floor area because this creates the impression they are bigger and the price per square foot lower than in reality. Developers need to be more transparent to help buyers make more informed decisions. Establishing a clear definition of gross floor area would help, but requiring sellers to price properties according to the saleable area instead of the gross floor area would be a bigger help. This would take buyers a little time to get used to and would mean prices per square foot would increase. But it has two benefits. The first is that the saleable area is already clearly defined. The second is that it would give buyers a much better idea of what they get for their money. This is the way in which flats are sold in other parts of the world.
The space in which a flat buyer can actually live should not continue to decline as a proportion of the gross floor area touted by developers. The trend needs to be checked if an expensive, crowded city starved of open space is to be an attractive place in which to live and to raise families.