Bubble builds as HK tiny apartment prices shoot up

December 11, 2014 16:24
As large apartments became more unaffordable, tiny units have seen demand shoot up in Hong Kong, leading to a price spike in the segment. Photo: wikipedia.org

Small apartments in Hong Kong have seen their prices skyrocket recently due to rising demand from investors and younger homeseekers. Now, a bubble is building up in that segment.

Tiny flats are the so-called class A private units with saleable area smaller than 430 square feet or those that cost below HK$4 million, according to a definition given by the government's Rating and Valuation Department.

The crazy price surge has more or less reflected the market demand for these small-ticket housing units, Eric Lui, chief economist & strategist of the Hong Kong Economic Journal, wrote in a commentary on Thursday, citing official data. 

The price spike of smaller flats can be linked to the government’s counter-cycle cooling measures, such as tighter mortgage supply, that have curbed market demand for buying and investing in bigger apartments.

As most of the market liquidity has been drained, the remaining purchasing power is being focused on the small-sized flats.

Major local developers have tapped into the lucrative market segment in the wake of a slide in big-ticket transactions.

Market demand for these tiny flats has been very resilient, and the relatively low transaction cost and entry threshold have made the buy/sell transactions for such flats "extremely active", Lu wrote.

Hong Kong's property prices have bottomed out since the 2008 financial crisis, and most flats have seen their prices move in synchrony initially. The price ratio of the class A, B, C flats (below 100 sq m) with those of bigger flats (above 100 sq m) has moved within a range before 2010.

However, the ratio has shown a remarkable slide since 2011, which means small-ticket flats have outperformed bigger units. And the situation has become more obvious since second half of 2012, when the government rolled out a set of counter-cycle property curbing measures that mainly targeted luxury and large apartments.

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Freelance journalist