An estimated 5,000 small flats will be completed every year between now and 2019, a 194 per cent increase on the average over the last 10 years, according to JLL’s latest report on Hong Kong residential sales. The report shows an average of 1,700 small apartments were finished each year over the past decade. According to the Rating and Valuation Department’s private housing classification, a small, or Class A unit, is one measuring less than 431 square feet. JLL’s report said the historical ten-year average split between Class A units and Class B - ranging in size from 431 sq ft to 753 sq ft each - stood at 20:80. From now to 2019, it said the ratio would change to 35:65, with a total of 20,000 flats measuring 430 square feet or under expected to come on the market during the period. Developers have opted to build small flats to minimize the required down payment for buyers getting on the property ladder Henry Mok, regional director of capital markets, JLL Henry Mok, regional director of capital markets at JLL, said developers were building more small apartments mainly because banks had tightened their mortgage lending policies. “Under tightened mortgage rules, only flats valued below HK$ 4 million are eligible for a maximum loan-to-value (LTV) ratio of 90 per cent,” he said, “With that in mind, developers have opted to build small-sized flats to minimize the required down payment for buyers when getting on the property ladder, and have thereby increased the appeal and sales velocity of their projects.’ However, he said most buyers of small-sized flats are more reliant on favourable mortgage incentives and payment terms offered by the developers. “Once the interest rate rises, these buyers will take the biggest hit,” he said. Mok urged the government to relax the restriction on LTV, which he said could help to release demand among owners looking to upgrade their property in the secondary market. Otherwise, the residential market would skew toward first hand property only. Projects in the pipeline with a significant proportion of small, Class A, units include Sun Hung Kai Properties’ residential development above Nam Cheong Station, K&K Property’s 1 Muk Ning Street in Kai Tak, and The Pavilia Bay in Tsuen Wan, a joint-venture between New World Development and Vanke Property. In recent months, sales of small-sized flats gained significant momentum as the smaller lump sums required attract first-time homebuyers and investors. Nan Fung and Vervain Resources offloaded over 85 per cent of their 370 units, mostly studios and one-bedroom units at Ori in Tuen Mun within one week. Meanwhile, The Met Blossom in Ma On Shan, a project jointly developed by Kam Wah and Wang On Group, sold all 260 units of its first batch on the day it was launched.