Hong Kong’s higher mortgage cap deters at least one developer from building micro-flats as buyers can now afford larger homes

Micro-apartments, defined as those smaller than 200 square feet (18.6 square metres), are unsustainable as investments, and are the most prone to any declines in property prices, said Rykadan Capital

The developer reported sales of HK$390 million from 66 units of micro apartments at The Paseo in Jordan in 2015

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The Paseo in Jordan, developed by Rykadan Capital. Photo: Handout

Published: 8:00am, 20 Nov 2019Updated: 8:00am, 20 Nov 2019

The boom in Hong Kong’s micro-apartments appears to be over, as the first easing in mortgage entitlements in a decade has helped buyers to afford larger homes, causing at least one developer of shoebox-sized property to quit the market.

Micro-apartments, defined as those smaller than 200 square feet (18.6 square metres), are unsustainable as investments, and are the most prone to any declines in property prices, said Rykadan Capital, the developer that recorded HK$390 million of sales from 66 units of The Paseo, from a site no bigger than a basketball court in the Jordan neighbourhood in Kowloon.

“We did pretty well at that time [of the project’s launch in 2015], but we [are not building any more] since then because we thought it might not be sustainable,” said Rykadan’s chairman and chief executive William Chan, adding that the developer has turned instead to building offices. “There was growth in the micro [flats market], but in the [current] market condition, they will be the first to feel the impact.”

Hong Kong’s residential property market, the world’s most expensive on a per square foot basis for nine consecutive years, has lost its footing this year, weighed down by a combination of the year-long US-China trade war, unprecedented political unrest in the city and an impending flood of new homes as developers are forced by the local government’s vacancy tax to stop hoarding completed flats. A new entitlement to more mortgage financing has encouraged homebuyers to look into bigger homes.

William Chan, chairman and chief executive officer of Rykadan Capital in Kwun Tong, on 12 November 2019. Photo: Tory Ho

“This opens up more choices for first-time buyers and increases their purchasing power,” said Henry Mok, senior director of capital markets at JLL the property consultant. “Developers are likely to shift away from incorporating [micro-apartments] in their new developments. We will start to see new supply [of these flats] decrease from 2022.”