Hong Kong’s tiny flats pile up as property market dangers grow

HONG KONG: Tiny flats are flooding Hong Kong as developers rush to target first-time buyers struggling to get into the world’s priciest market.

Inventories of new flats smaller than 431 square feet (40 square meters) rose to about 1,400 at the end of June, according to Centaline Property Agency. 

Wong Leung-Sing, an associate director of research, said the number may rise to about 2,000 by year end, the highest in data that started in 2014. The figures include dwellings yet to be completed.

The wave of smaller flats is testimony to the price surge that has put bigger homes beyond the reach of many buyers and triggered warnings from analysts and officials that the city is at risk of a property crash. Financial Secretary Paul Chan has cautioned of a “dangerous situation” after repeated efforts to cool the market.

Developers built 2,346 pint-sized flats in the first five months of 2017, or 60 percent of last year’s total. Annual construction of small apartments surged more than 500% from 2011 to 2016, according to government data.

A 150 square foot home -- slightly bigger than a car park -- can cost HK$2.8mil ($358,000) at the AVA 61 project in one of Hong Kong’s poorest districts, Sham Shui Po, according to the Apple Daily newspaper. 

At that development, 82 of 95 units had sold as of Thursday after sales began in June, and the agent for the project, Midland Realty, says Hong Kong’s record prices will continue to support demand for small units.

While developers can cut prices to clear inventory as needed, some analysts are concerned that buyers could end up with units they can’t resell.

“It could be dangerous when these small flats are unleashed onto the second-hand market after the demand is filled up in the next three to five years,” Bocom International Holdings Co. analyst Alfred Lau said. - Bloomberg