Thursday, June 04, 2015

In Hong Kong, the Apartments Are Fit for a Mosquito

In Hong Kong, the Apartments Are Fit for a Mosquito

Much like London and New York, demand from investors is pushing up prices of even tiny apartments

By Isabella Steger in the Wall Street Journal

HONG KONG—In showing an apartment of 180 square feet, a real-estate agent explained that all furniture essentially has to be made to order and described the window sill as a potential area for “entertainment.”
The apartment, in a development called High Place, isn’t much bigger than the standard U.S. parking space. It went into contract in May for almost four million Hong Kong dollars (US$516,000.)
Even by Hong Kong’s cramped standards, apartments here are getting tinier and tinier.
So small are some of the new developments in Hong Kong that they have been given the moniker “mosquito-sized units.”
The incredible shrinking apartments in Hong Kong are part of a broader trend of rising values of residential real estate in major cities around the world, as investors see property as a better investment than low-yielding bonds.
Hong Kong, much like London and New York, also is seeing strong demand from wealthy investors from other countries looking for safe places to park their money, with much of that investment coming from mainland Chinese buyers. While these investors go after higher-end Hong Kong property, they are helping boost prices in general, making it tougher for people simply looking for a place to live.
Hong Kong property prices have continued to rise despite repeated attempts by the government to keep them in check. The average price of private residential property, according to government data, has been on an upward trend since 2009, save for dips during three quarters in 2011 and a very mild correction during 2013 after the government stepped up measures to cool property prices.

Such price increases have put strains on buyers in many major cities, but nowhere is the squeeze greater than in Hong Kong. Demographia, a U.S. think tank, in a recent study comparing median incomes with median housing prices, ranked Hong Kong property as the least affordable in the world, with home prices on average 17 times annual income, well above the 10.6 for second-place Vancouver. New York ranked seventh, with a 6.1 ratio.
Since 2007, incomes have risen about 42%, but home prices have soared 154%, according to a calculation of data provided by the Hong Kong government.
“People have to sacrifice and crowd into smaller apartments,” said Joanne Lee, of real-estate broker and consultancy Colliers International in Hong Kong.
Frustration over the increasing unaffordability of property in Hong Kong was one of the factors that drew tens of thousands of young people into the streets when students staged months of pro-democracy protests last year in the so-called Umbrella Movement.
 “Consumers have no bargaining power,” said Barbara Leung, who teaches real-estate economics at Hong Kong Polytechnic University. “Today if people want to buy property, like a couple who want to build a family, they don’t ask what the square footage is. They just ask about the price.”
In a development called Mont Vert by Cheung Kong (Holdings) Ltd. , controlled by the city’s richest man, Li Ka-shing, apartments even smaller than 180 square feet last year prompted a flood of YouTube videos showing people using arm spans to measure the living area.
The apartments were priced from about HK$2 million, about the cheapest way to get on the Hong Kong property ladder, though Cheung Kong only allows buyers who have already bought a larger unit in the development to buy a studio.
At a development targeting first-time buyers, called My Place, China Overseas Land & Investment Ltd. and the Urban Renewal Authority offer 229-square-foot studios priced around HK$4 million. Studios smaller than 200 square feet at Baker Residences, a joint development by Sino Land Co. and the URA, now fetch close to HK$3 million, despite the building’s location across from two funeral parlors.
At a complex called Axis by the same developer as High Place, Henderson Land Development Co., 242-square-foot apartments are on offer from HK$5.5 million to HK$6 million.
For investors, the rising values have paid off. Since the start of 2009, the Hang Seng Properties Index, which tracks nine property stocks, has risen more than 100%, while the benchmark Hang Seng Index has increased 94% in the same period.
‘People have to sacrifice and crowd into smaller apartments.’
—Joanne Lee, of real-estate broker and consultancy Colliers International
But young Hong Kongers have to downsize their dreams of home ownership.
Jai Shum, a 23-year-old interior-design draftsman, is looking for a place to rent with his girlfriend while they save money to buy an apartment. They considered renting a studio in Mont Vert, but decided it was too expensive. By his calculations, if they save between HK$8,000 and HK$10,000 a month, it would be more than a decade before they can afford a down payment on a HK$4 million apartment. That is because the Hong Kong Monetary Authority dictates that banks can now lend first-time buyers only 60% of the value of smaller apartments.
In the meantime, Mr. Shum said he will try his luck in the lottery for housing subsidized by the government. About 46% of Hong Kong’s population live in such housing, which is highly competitive and open only to those below a set level of income.
In a subsidized-housing lottery in March, 135,000 people applied for 2,160 apartments, the highest number since the launch of the program in 1978, according to the Housing Authority.
Few other low-cost options exist for young Hong Kongers looking for their own place. Traditionally, young people have lived at home until they get married, but Buggle Lau, chief analyst at property agent Midland Realty, said the demand for tiny apartments is also being driven by an increasing number of young people who want to move out while they are still single.
“It’s still better than living in a subdivided flat,” said Mr. Lau, referring to a legally gray area: apartments divided into multiple units for rental, each one often smaller than 100 square feet. Tiny studios are often jokingly called “high-end subdivided flats.”

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