Hong Kong buyers give nano flats a wide berth as buyers armed with larger mortgage amounts eye bigger homes
- Only 92 small flats, or those under 280 sq ft in size, were transacted on the secondary market in March, 24 per cent lower than February
- Average price fell 0.7 per cent month on month to HK$4.03 million in March
Only 92 small flats, under 280 square feet, were transacted on the secondary market between March 1 and 28, some 24 per cent lower than February, according to Ricacorp Properties. The average price eased 0.7 per cent to HK$4.03 million, bringing the decline from its May 2021 peak to 4.8 per cent.
The decline in sales and prices of tiny flats mirrors the overall downturn the local property market is experiencing because of the ongoing coronavirus outbreak and the government’s recent higher mortgage amounts for homebuyers, said Joseph Tsang, chairman of JLL Hong Kong.
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“The reason people were interested [earlier] in nano flats was that they did not have sufficient funds but still wanted to buy their own homes, but now the [the new mortgage rules] allow buyers to buy larger flats with larger loans,” he said.
Financial Secretary Paul Chan Mo-po, in his annual budget presented in late February, raised the mortgage amount on homes with a loan-to-value ratio of 80 per cent to HK$12 million from HK$10 million, making larger abodes more affordable to first-time buyers.
Last week, a 193 sq ft studio flat at One Prestige in North Point sold for HK$4.18 million, 14 per cent lower than the HK$4.86 million the owner paid in May 2017, according to agents.
In response to criticism of shrinking homes, the government announced in late February that all private homes to be built in Hong Kong will have to be at least 280 sq ft, unless in rare cases where developers face site constraints or dated leases that may not be subject to the new rule.
Some developers have blamed the government for tight land supply and high prices, arguing that they have no choice but to build smaller, more affordable flats.
Before the announcement on the minimum size, JLL had predicted that over 2,000 flats measuring less than 215 sq ft will be built this year, more than double the 960 in 2021.
The government’s restriction supports the view that nano flats are “uninhabitable”, according to Vincent Cheung, managing director of Vincorn Consulting and Appraisal.
“Homebuyers’ impression of nano flats has become more negative, which affects market sentiment,” he said.
Nano flats are popular among first-time homebuyers and investors with tight budgets, but they may now consider bigger alternatives given the changing landscape, he added.
Martin Wong, director of research and consultancy for Greater China at Knight Frank, suggested that the new mortgage policies would mainly affect high-income individuals. Demand for nano flats would continue to remain strong among low-income, first-time buyers, he said.
“The relaxed mortgage policy would shift the property ambitions of high-income families away from nano flats to larger homes,” Wong added.
“There will be no new nano flat [projects], but the current market still has around 20,000 units,” he said, adding that with the fall in supply and existing demand, their prospects were not entirely gloomy.
Wong expects prices to remain stable, especially as nano flats’ rental yields are higher than larger flats, while noting that the pandemic has had a greater impact on the overall market.
