A turning point could come for the property market in 2015 with expectations of a significant increase in new housing supply at that time.
That will no doubt be good news for first-time homebuyers but less encouraging for people aiming to move out of their existing flats into bigger properties.
It all stems from a move in 2010 when the government began to increase land supply. Then, in early 2011, the Lands Department started to impose restrictions on the size and number of flats that could be built on some of the sites it was putting up for sale. It stipulated that the usable floor area of at least half the flats on those sites could not be more than 538 square feet.
The policy was designed to provide enough small flats to meet the needs of first-time buyers. Under the policy's guidelines, the MTR Corporation and the Urban Renewal Authority (URA) have allocated at least half the units on some of their sites for the development of small flats over the last two years.
The size of the sites themselves is not a factor - the sites the government and the URA have released are quite small but the MTR Corp's land is substantial. For example, the Nam Cheong MTR station residential project awarded to Sun Hung Kai Properties could provide 2,485 flats around the 538 sq ft mark.
Over the past two years similar restrictions have been imposed on more than nine sites, which together could yield more than 6,100 flats. Those flats are expected to be released for sale in three to four years.
The government said in May it would not place the limits on their own sites as it increased construction of Home Ownership Scheme flats. But the restrictions on MTR and URA sites continue.
The doubling of stamp duty on some home purchases has increased the cost of buying flats, particularly big units. Mainland buyers, who can usually afford higher price tags, have stayed away from the market.
With housing demand curbed by the measures, developers are beginning to focus on building more small flats. Small flats have the advantage of being cheaper, allowing for more end users and greater interest from investors.
In the latest move, SHKP applied to the Town Planning Board to amend its development plan for the second phase of Yoho Midtown in Yuen Long. It cut the residential gross floor area by 61 per cent to build a hotel. The average size of the flats was also cut to 247 sq ft from the previous 640 sq ft.
At Kerry Properties, executive director Steven Ho Shut-kan said on March 14 that the company was amending its development strategy to meet the change in the market. One of the changes was to build more small flats.
Kerry Properties is part of the Kerry Group, the controlling shareholder of the SCMP Group, which publishes the South China Morning Post.
A flat with a usable area of 247 sq ft is unlikely to meet the needs of upgraders.
In the secondary market, many flat owners are reluctant to sell their properties because their mortgage expenses are low and it is difficult for them to buy a bigger flat. So if the supply of big flats does not increase significantly, prices of those properties will likely stay firm.
The housing demand of upgraders has also been curbed by the cooling measures in the property market. The Hong Kong Monetary Authority and the Hong Kong Mortgage Corporation has tightened the rules on mortgage loans.
Buyers of flats worth more than HK$6 million could only get loans of up to 80 per cent under the mortgage insurance programme.
With higher mortgage costs, higher down payments and tighter housing supply, upgraders will struggle to buy a bigger flat in the near future.