In recession squeeze, rents are converging for Hong Kong's micro flats and subdivided lots

By Lam Ka-sing kasing.lam@scmp.com / https://www.scmp.com/business/article/3087164/recession-squeeze-rents-are-converging-hong-kongs-micro-flat-and?utm_medium=partner&utm_campaign=contentexchange&utm_source=EdgeProp&utm_content=3087164 | June 9, 2020 10:49 AM SGT
Rents on tiny flats in some of Hong Kong's chic property developments are sliding towards the rates on the city's notorious subdivided flats as landlords concede more ground in a recession-hit economy, according to property agents.
At least 10 such projects completed in recent few years have had flats leased out at or below HK$10,000 (US$1,290) a month since the beginning of this year, as rising unemployment and campus closures hurt demand for housing from young professionals and foreign students.
With heavy clouds over the economy, rents have slipped by 10 per cent on average across the broader market since they peaked in August last year, according to data published by the Rating and Valuation Department. The rates for units smaller than 430 square feet declined by 11.8 per cent, more than the 9.2 per cent retreat for units measuring 431 to 752 sq ft.
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"Some landlords said their tenants might be laid off and discussed terms with them, including requests for a 10 per cent rent reduction and delaying them by one to two months," said Jeffrey Lam, chief area director at Hong Kong Property Services (Agency).
Last week, a 167 sq ft flat at One Prestige, a two-year-old development in North Point catering for young people, was rented out for HK$10,000, according to Lam. That represented a 16.7 per cent cut from the landlord's asking price.
This was recorded a month after a 166-sq ft unit at AVA 55 development in Kowloon City was contracted at HK$8,000. In February, a 131-sq ft flat in TPlus in Tuen Mun was leased out at HK$6,300.
Rents declined faster at the lower end of the market because of less demand as many junior-level employees have lost their jobs, said Victoria Allan, founder and managing director of agency Habitat Property. Besides, supply has also increased with several new developments coming on to the market, she said.
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There are currently 201 subdivided flats in ageing buildings on Hong Kong Island asking for rents below HK$10,000 a month, with sizes ranging from 70 sq ft and 250 sq ft, according to online agency 28hse.com. One such unit, measuring 170 sq ft at the 56-year-old Island Building in Causeway Bay, was recently leased at HK$10,000, the owner told the Post.
Some owners of larger flats in older buildings would partition them into smaller units to extract more income from the floor space. These ramshackle units proliferated over the years due to demand from lowly-paid blue-collar workers, while the city became entrenched as the least affordable market in the world.
Some studio flats even experienced 15 to 20 per cent drop, according to Allan of Habitat Property, who expects continued pressure on rents over the rest of the year on concern anti-government protests will hamper economic activity.
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The numbers are backing up her concerns.
Leases at a monthly rate of HK$10,000 and below amounted to 5.2 per cent of all contracts signed in April through Centaline Property Agency. That is the highest level since it started tracking them in the first quarter last year.
The number of online listings pegging monthly rents at or below HK$10,000 at Centaline also has jumped to 267 this week, from 120 in August last year.
The possibility of foreign companies reducing leasing demand cannot be ruled out, said Derek Chan, head of research at Ricacorp Properties. "Expatriates who come now may find it difficult" to overcome the travel restrictions related to the pandemic, he said.
Leasing demand also starts to improve in June, historically, before overseas students enrol into Hong Kong schools and universities. They typically take care of their leases before schools begin in September. A 14-day quarantine rule, plus campus disturbances are likely to delay that pickup.
As such, the seasonal recovery in rents this summer is also likely to be delayed, Chan said, until more of the border restrictions are relaxed.
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.