Hong Kong property

Hong Kong developers to build larger flats as tiny homes lose appeal amid increasing public housing supply

  • Hong Kong’s nano flat trend may be on the wane as developers shift focus back to larger unit sizes, experts say
PUBLISHED : Wednesday, 31 October, 2018, 9:04am
UPDATED : Wednesday, 31 October, 2018, 5:37pm

Hong Kong developers are having to rethink their approach to tiny flats, as the strategy of building low-priced homes no bigger than a car park space is being squeezed by the government’s commitment to increase the supply of public housing, according to commercial real estate service provider JLL.

During her policy address on October 10, Chief Executive Carrie Lam Cheng Yuet-ngor pledged to increase the proportion of public housing by adjusting the target public-private housing ratio for land supply to 70:30 from 60:40.

“The increase in subsidised housing may sap some of the demand out of the lower end of the private housing market. It could affect the demand for nano-flats in more remote locations. As a response, we believe developers are likely to alter their projects to incorporate larger and more liveable flats with sizes ranging between 400 and 600 square feet and two-bedrooms layouts targeting middle class buyers,” Henry Mok, senior director of capital market at JLL, said.

However, he said that demand for larger homes depends on whether the government would relax restrictions on mortgage lending to ease the down payment burden on homebuyers.

Local developers prefer to build micro flats, in layouts under 200 sq ft, partly because the Hong Kong Mortgage Corporation allows a loan-to-value mortgage of 90 per cent on homes worth HK$4 million (US$509,900) or less. For homes cost more than HK$6 million, buyers need to make at least a 40 per cent down payment.

In September, the average house price in the city was HK$13,561 per sq ft, which means a 400 to 600 sq ft flat will cost about HK$5.4 million to HK$8.2 million, according to Midland Realty.

“The location matters. There may still be a market for nano flats in Hong Kong Island and the core areas of Kowloon because the locations are good and the prices are relatively high. But that’s unlikely to happen in areas like Tuen Mun and Sheung Shui,” Patrick Chau, senior director of residential development at Savills, said.

The expected increase in public housing reflects a major change from previous years, where private home supply has outpaced government-built flats.

In the financial year ended March 2015, 61 per cent of newly-completed flats were private housing, while just 39 per cent were public housing. Meanwhile, private housing completions exceeded public housing by 4,100 units in 2017, according to government figures.

“The announcement is an initiative in the right direction in solving the persistent housing problem for the city’s lower-income households. However, it will take at least four to five years to see the change in the public to private housing ratio to be realised in completions,” said Cathie Chung, senior director of research at JLL.

“Over the medium-term, private housing completions are likely to fall, especially in the luxury segment, which is also being affected by the recently proposed vacancy tax. A lower ratio for private residential development will only lead to a shrinkage in supply, supporting capital values.”

In the policy address in October, her second since becoming chief executive, Lam also tried to boost land and housing supply with more initiatives, including a controversial land reclamation plan.

In the first three quarters this year, developers in Hong Kong sold 4,774 new homes in layouts ranging from 431 sq ft to 752 sq ft, and 4,155 flats in layouts smaller than 431 sq ft, according to Centaline Property Agency.