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HONG KONG: Investors are pushing the prices of new small flats in Hong Kong to fresh highs that are beyond the reach of first-time owner-occupiers.
Evidence that genuine end-users are being squeezed out was on display at two launches last month that saw the price of a 297 sq ft one-bedroom flat hit HK$5.19 million (RM2.01 million), and almost double that for a 467 sq ft flat.
"More than 90% of the buyers at i.UniQ and 18 Upper East in Shau Kei Wan were investors. They are buying real estate futures," the managing director of Centaline's residential department Louis Chan Wing-kit said.
"Why are those buyers willing to pay such prices for small flats? I think they are expecting at least 30% growth in capital value when the projects are completed in two years' time. In their view, they are buying a room at a boutique hotel."
The soaring prices for small flats is driving first-time buyers from urban areas to more remote estates and come at a time when the government says it is determined to curb speculative price pressure and ensure that flats remain affordable.
"Small flats in urban areas are now being priced out of the budget of first-time buyers. They will only be able to find their choices at new housing estates in the New Territories," the managing director at Savills Valuation and Professional Services, Charles Chan Chiu-kwok, said.
The latest concern on price trends followed the launch on Tuesday last week of Sun Hung Kai Properties's 117-flat i.UniQ Residence project.
Despite the small size of the flats — just 297 to 467 sq ft in saleable area — and the project's unfashionable location, about 100 sold on the first day. The average price was more than HK$13,300 per sq ft, the highest price posted to date in the district.
About 70% of the flats have one bedroom, the rest two. The cheapest was the 297 sq ft flat that sold for HK$5.19 million.
The conditions of sale mean that a buyer has to make a 20% payment, or about HK$1.04 million, within six months of signing a sale and purchase agreement.
Assuming an 80% mortgage is taken out to cover the balance when the flat is available for occupation in two years, the monthly loan repayment will be about HK$22,000. On top of that is the flat's management fee of HK$995.
The monthly household income of the buyer would have to be at least HK$55,000 — three times Hong Kong's median monthly household income of HK$18,000.
A flat with gross floor area of 581 square feet on the 31st floor sold for HK$9.68 million, or HK$16,661 per square foot, the highest in the project. That was equivalent to the price paid for a 911 sq ft, three-bedroom flat at Grand Promenade in the same area, or a 970 sq ft, three-bedroom flat at Island Resort in Siu Sai Wan.
"Would you live in a flat with a saleable area of just 446 square feet if you could afford to pay nearly HK$10 million? Why were those buyers willing to pay such premium prices for such small flats?" Centaline's Chan asked.
"It was the same with Emperor Investment's 18 Upper East in the same district," Chan said. Most buyers were investors and many had paid in full for the flats.
Centaline Properties' senior sales director for Hong Kong east, Danny Ho Wai-keung, agreed that i.UniQ had proved attractive to investors.
"Many were looking for long-term investment and expecting a rental yield of 3 to 4% once the project is completed," he said. And mainlanders were another source of demand. "In the meantime, Hong Kong Island lacks new housing supply. It is not easy for people to buy a new flat in the district with a budget of only about HK$5 million."
Twenty to 30% of the flats at 18 Upper East were bought by mainlanders, he estimated, many of whom would use them as alternatives to serviced apartments or hotel rooms when visiting Hong Kong. The flats were slightly larger and better equipped than standard hotel rooms.
"The buyers may be a husband who comes to Hong Kong with his wife for shopping from time to time. They can live in their own property, which is better than staying at the hotel," he said. "And it is good value for mainlanders to buy properties here for investment because of the depreciation of the Hong Kong dollar compared to the yuan."
Nearly 80% of the 108 flats at 18 Upper East have been sold at an average price of HK$12,385 per square foot so far. The cheapest was a 355 sq ft studio flat with a saleable area of 256 sq ft that cost more than HK$3.66 million.
Ricacorp Properties associate director John Fung said about 90% of the buyers of the studio flats at The Hermitage in Tai Kok Tsui were investors, half of them mainlanders.
"They bought for long-term investment. The flats would be attractive to young singletons who would want to lease them," he said.
"Monthly rents of serviced apartments in Jordan have risen to more than HK$20,000. This has made many tenants consider leasing the studio flats at The Hermitage instead, where monthly rents range from HK$14,000 to HK$16,000."
One agent said investors were also attracted by the small lump sum they must put down on a small flat. "They won't suffer a big loss even if property prices fall sharply," he said.
Single professional singles in their late twenties or early thirties were also interested in small flats, Centaline's Ho said. "They don't need a 1,000 or 2,000 square foot unit. A 400 to 500 sq ft apartment is big enough." This group had stressful working lives so they liked the hotel-like services these properties offered, such as cleaning and meal deliveries, he said. — SCMP
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