Middle-class pleas for more living space are falling on deaf ears

MID-LEVELS SALE pushes prices over 1997 peak, said the headline on the top story of our front page yesterday. Well, not quite but there is indeed an interesting story to be told here.

Let us ignore for the moment what a few isolated mainlanders (are they really mainlanders?) are willing to pay for prestigious mailing addresses in Hong Kong. There are plenty of willing sellers at a price of HK$28,000 per square foot, you very likely, but only a handful at best of willing buyers. This price does not represent the overall market.

Nonetheless, it is obvious that prices of large flats have been doing very well recently and, if not quite at 1997 levels, certainly seem to be heading there. The difficulty is that large flats represent at most only about 1 per cent of the total stock of residential flats in Hong Kong and the rest of the market is nowhere near as buoyant.

The first chart reveals what has happened. Back in 1990, prices per square foot for all sizes of flats on Hong Kong Island (we shall not bother here with overseas districts across the harbour) were roughly in line. Then they began to diverge, all going up and down at roughly the same time but with the spread between them widening.

This has been particularly notable since the economic recovery that began after Sars last year. The latest available figures (July) show prices for large flats rising strongly and already up by more than 50 per cent since the middle of last year. Prices for small flats have risen by about 20 per cent over the same period and since March have weakened again.

But, most of all, take note that prices for large flats are now more than three times as high on a per-square-foot basis as prices for small flats. Let me emphasise this. These are prices per square foot, not prices for entire flats.

This has to be highly unusual. You may argue that prices for truly superb apartments should command a premium but we are talking here of large flats as an entire class, not just trophy flats, and a 200 per cent premium per square foot over small flats is gargantuan. I cannot imagine that there are many places in the world where this could be true.