Weekend Property

Small investment: developers build more mini-sized flats to satisfy Hong Kong market demands

Prices are still sky-high and unaffordable to many would-be buyers, prompting some flat hunters to downsize – but these tiny homes can benefit investors

PUBLISHED : Friday, 30 September, 2016, 2:46pm
UPDATED : Friday, 30 September, 2016, 2:46pm

Homes are shrinking at an incredible pace in Hong Kong, as developers race to feed the demand of budget-conscious homebuyers, especially those who are young or first-time buyers.

Residential units of less than 200 sq ft were snapped up at recent launches. And from an investment point of view, buyers can reap big benefits, according to Buggle Lau, chief analyst at Midland Realty, who says mini-sized flats are very popular and attract not only end-users but also cash-rich investors.

“Liquidity is high and we continue to see strong demand for smaller flats. They are easy to rent out and generate attractive yields for investors,” he says.

With property prices staying at near record-high levels, it is not easy to own an average home. Smaller flats mean smaller lump sum initial payments, lowering the hurdle for many buyers desperate to get on the real estate ladder. Many mini-sized flats are now selling at less than HK$4 million each and some ultra-small units are even priced below HK$2 million.

Professor Eddie Hui Chi-man, academic discipline leader of construction and real estate economics at Polytechnic University, says the trend for mini-sized flats is likely to continue as prices are sky-high.

“The lower lump sum means smaller upfront payments, making it easier for first-time buyers to enter the market,” he says. “Developers are providing flats according to the market needs. They do not mind building mini-sized units as long as their properties can sell.”

Hui says more mini-sized flats will come onto the market in the years to come as a result of high property prices and the increasing numbers of small families going for compact accommodation, while there is also an increasing number of singles living alone.

But he reckons this is not a healthy trend considering that the living space provided by such mini-sized flats is even less than that of a hotel room.

According to Jones Lang LaSalle, about 5,000 flat of less than 430 sq ft will be completed annually between 2016 and 2019, representing an 194 per cent increase over the yearly average of 1,700 small units in the past decade.

Henry Mok, regional director of capital markets at Jones Lang LaSalle, says only flats valued below HK$4 million are able to secure up to a 90 per cent mortgage under prevailing lending policies. As a result, developers are building more small-sized flats to minimise the required down-payment for buyers so as to increase the appeal of their properties.

Mok says most buyers of small-size flats are reliant on favourable mortgage deals and payment terms offered by developers. He cautions that once interest rates rise, these buyers will be hit the hardest.

Estate agents reported that a 195 sq ft flat at Mont Vert in Tai Po was recently leased at a monthly rate of HK$48 per square foot. A 316 sq ft unit at High West in Kennedy Town was rented for HK$50 per sq ft, while a 340 sq ft at The Avenue in Wan Chai leased at HK$74 per sq ft.

Developers ... do not mind building mini-sized units as long as their properties can sell
Professor Eddie Hui Chi-man, Polytechnic University

Among new projects comprising a significant portion of small-sized flats are Sun Hung Kai Properties’ (SHKP) residential development atop Nam Cheong MTR station and New World Development’s The Pavilia Bay in Tsuen Wan. Other upcoming sales include HKR’s 2GETHER project and China City Construction’s Tseng Choi Street development, both in Tuen Mun. The smallest units in 2GETHER measure about 270 sq ft, while China City is building units as tiny as about 140 sq ft.

In an earlier SCMP article, an analyst said that the latest phenomenon to hit the local real estate sector was also caused by stagnant incomes.

James Fisher, director of market analysis and analytics at Spacious Hong Kong, said it would become a long-term trend. “If your income is staying the same and the price per square foot is going up, there’s only one thing left to come down, and that’s the square footage,” he said.

Mike Wong, deputy managing director of Sun Hung Kai Properties, said in the same report that the small-flat trend stems from the fact that households are getting smaller. According to the government’s Hong Kong Domestic Household Projections, the proportion of two-person households will increase from 25.2 per cent in 2011 to 29 per cent in 2021, while five-person households will drop from 12.2 per cent to 9.8 in the same period.

Meanwhile, in the latest string of property sales, mini-sized flats that are less than 300 sq ft in saleable floor area are selling like hot cakes, while a number of ultrasmall units, less than 200 sq ft, are also sought after. Upper East, being built by Kowloon Development in Hung Hom, is a source of supply for small homes, providing 1,008 units of 194 sq ft to 375 sq ft.

Among other projects, the smallest unit at AVA 62 in Jordan is just 151 sq ft. In North Point, One Prestige, developed by Henderson Land, offers flats as tiny as 163 sq ft. Henderson is selling another new project, Seven Victory Avenue in Ho Man Tin, which provides studios measuring 161 to 181 sq ft.

The Met. Blossom, developed by Wang On Properties in Ma On Shan, offers flats of 221 sq ft to 411 sq ft. The project was almost sold out immediately after it was launched recently.

SHKP’s LIME GALA in Shau Kei Wan was also well received, with the smallest unit measuring 281 sq ft.

In Yuen Long, studio units in SHKP’s Park YOHO measure 291 sq ft, while K. Wah Properties’ The Spectra offers flats as small as 203 sq ft.

In Tseung Kwan O, Wheelock Properties’ SAVANNAH project has flats of just 288 ft and Chinachem Group’s The Papillons includes studio units of 271 sq ft.