Prices and rents of Hong Kong's tiny flats to fall this year as coronavirus-driven uncertainty hits demand amid oversupply

By Kathleen Magramo / | April 13, 2020 10:05 AM SGT
The prices and rents of Hong Kong's tiny flats " those measuring less than 215 sq ft " are expected to fall this year as the coronavirus pandemic continues to weigh on the city's property sector, affecting demand amid a surfeit of supply, analysts said.
Last year, 982 such flats were completed in the city, according to data from the Transport and Housing Bureau. That shows a 72 per cent increase from the 571 flats completed in 2018 and a more than tenfold increase over 2015, when only 79 were made.
Meanwhile, average rent for units smaller than 40 square metres (about 430.6 sq ft) fell by 13.5 per cent to HK$461 (US$59.5) per square metre a month in February from a peak in August last year, according to the Rating and Valuation Department. Home prices in the segment fell 5 per cent over the same period.
And the rental yield for such flats " just 2.6 per cent in February, according to Rating and Valuation Department data " could fall below 1 per cent, as first-time homebuyers struggle to cover interest on their investments, said Vincent Cheung, managing director of Vincorn Consulting and Appraisal.
"Landlords of tiny flats are not looking for reasonable market returns right now. They are just looking for some income to cover their expenses [and interest] at the moment," he said, adding that such flats could command about HK$8,000 to HK$10,000 a month in rent. Hong Kong's worsening economic situation, which has already caused an exodus of expats from the city, might keep young couples from buying their first flats, a key buyer segment, he added.
The city faces rising unemployment as its tourism, retail and catering sectors have been hit hard by coronavirus containment measures, including restrictions on travel, a ban on gatherings of more than four people and a two-week closure of pubs and bars. The city's unemployment rate rose to 3.7 per cent in February compared with 2.8 per cent a year ago, and its economy has also fallen into a technical recession, official figures show.
And rents are likely to fall as more people lose their jobs, despite low interest rates and increased money supply, said Henry Mok, senior director of capital markets at international consultancy JLL.
"Since the total housing supply has not come down, when income goes down, rents will be dragged down for sure," he said.
Rents will have to fall to cater to a wider group of potential tenants, while landlords will be forced to cut rents, especially if supply of new homes increases, added Nelson Wong, head of research for Greater China at JLL.
Sign up now and get a 10% discount (original price US$400) off the China AI Report 2020 by SCMP Research. Learn about the AI ambitions of Alibaba, Baidu & through our in-depth case studies, and explore new applications of AI across industries. The report also includes exclusive access to webinars to interact with C-level executives from leading China AI companies (via live Q&A sessions). Offer valid until 31 May 2020.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2020 South China Morning Post Publishers Ltd. All rights reserved.
Copyright (c) 2020. South China Morning Post Publishers Ltd. All rights reserved.