Panic buying for Hong Kong small flats spurs debate over land supply policy

The panic buying of Hong Kong's small and medium-sized flats has sent prices to record highs, with debate intensifying over whether the government should resume offering sites earmarked for construction of these units, according to industry experts.

In March, the government suspended the release of some sites with size restrictions after the policy was introduced in December 2010.

But the market remained on the boil despite a potential supply of 25,500 units with sizes of 400 to 750 square feet from the government sale of 49 such sites in the past four years.

Samson Ng Ting-sum, a senior manager at Centaline Professionals, said 4,200 flats on such sites had been sold by the first quarter of this year.

Taking into account those offered by MTR Corp and the Urban Renewal Authority, he estimated 30,200 small flats would come on to the market.

Assuming these flats will be ready for pre-sale up to 2019, Ng believed the average supply would be just about 6,000 per year.

"This will definitely not be enough to meet the demand from first-time homebuyers," he said.

Ng's call for the resumption of the land supply policy came after prices for flats measuring less than 431 sq ft gained the most in April, according to the Rating and Valuation Department.

The department said the April price index for private mass homes rose 2.16 per cent from March to 325.7 points after advancing for 13 consecutive months to record highs. This compared with the average 1.9 per cent gain in general home prices during the period.

Mass home prices have risen about 24 per cent in the past 13 months, compared with just 13 per cent for large flats with an area of 1,075 sq ft.

"Many projects that cater to first-time buyers have drawn a strong response, which indicates demand has outstripped supply in the sector," Ng said.

Over the weekend, Paliburg Holdings sold all 134 studio flats of 243 sq ft each at Domus in Yuen Long in just four hours with more than 8,400 registered buyers. After factoring in a 9 per cent discount, a 243 sq ft unit was sold for HK$2.39 million, or HK$9,849 per square foot.

The strong response came less than a week after buyers snapped up all Cheung Kong Property Holdings' 471 two-bedroom flats, with sizes of at least 500 sq ft, at Beaumount II in Lohas Park, Tseung Kwan O. The sale registered more than 6,000 prospective buyers.

Dorothy Chow, a national director of the valuation department at JLL Hong Kong, however, said the new flats released these days were even smaller than what the government previously prescribed.

"Thus, the government's restrictions in new land grants are no longer needed," she said.

The recent focus on the supply of small flats was primarily driven by the strong market demand, Chow said.

"The prevailing government policies, including various types of stamp duties and mortgage lending arrangements, have limited people's buying ability and thus driven the demand for small flats," she said.

In light of the keen demand, she was not worried about an oversupply of such flats.

However, Midland Realty chief analyst Buggle Lau Ka-fai said the demand would not last forever.

"We may end up with an oversupply in the sector if the government continues to release land," he said.

Those who had bought small homes in the past few years would like to trade up for bigger ones to improve their living conditions, Lau said.

However, Chow believed the frenzy for small units would continue in light of the prevailing mortgage policy and stamp duty measures.