Hong Kong’s building boom in tiny flats fizzles out as T-Plus in Tuen Mun gets the cold shoulder

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Hong Kong’s building boom in tiny flats fizzles out as T-Plus in Tuen Mun gets the cold shoulder

Speculative demand over Hong Kong’s shoebox flats – each smaller than the size of a standard car parking space – appears to be over as quickly as it sprouted, following the decline in the city’s median home price.

Agents managed to sell only two of the 73 units on offer at the T-Plus project in Tuen Mun, each at around 130 square feet (12 square metres), with a price tag starting at HK$2.85 million (US$364,600), prompting the developer to close the sales launch early.

Today’s sales result was “the worst in recent times,” said Sammy Po Siu-ming, chief executive of the residential division at Midland Realty.

What a difference nine months make. As recently as March, micro apartments were all the rage in Hong Kong.

Known variously as nano flats, capsule homes, shoebox flats or micro apartments, these tiny abodes typically are about the size of a standard Hong Kong car parking space (134 sq ft) or a 20-foot shipping container (160 sq ft). Their prices, starting from HK$3 million and up to HK$7.86 million, make them the only size within the affordability of many first-time buyers.

A boom thus ensued, as speculators piled into the market to snap up anything smaller than a standard hotel room. Developers jumped on the opportunity and redrew their plans. Even Filipino tycoon Lucio Tan was persuaded to subdivide 18 units of his Woodland Villas on Shouson Hill Road into 270 flats, ranging between 80 and 200 square feet each. The project was halted last month for breaching land lease rules.

At least 2,100 micro apartments are expected to be completed in Hong Kong between 2017 and 2020, or 510 units every year, five times the annual pace between 2014 and 2016, according to a forecast by JLL in March.

Hong Kong’s era of low mortgage rates ended in September, as banks raised borrowing costs after key interest rates increased in lockstep with the US Federal Reserve’s tightening monetary policy. A July proposal to impose a vacancy tax also put an end to developers’ hoarding of completed property, forcing them to add to housing supply.

The result was a decline in median prices since September, which would probably drop by 15 per cent in the next 12 to 18 months, according to a projection by Moody’s Investors Service. The drop could be as severe as 25 per cent next year, if the trade war between the United States and China worsens, JLL said.

“Price cuts in the secondary market of 15 to 20 per cent could eventually inspire similar discounts in the primary market,” said Moody’s vice-president and senior analyst Stephanie Lau.

T-Plus would be the first to witness the end of the boom in micro apartments. The smallest unit at the project has a net area of 128 sq ft, costing HK$2.85 million. That was considered the cheapest, affordable new home in Hong Kong. In Yuen Long, Sun Hung Kai’s Twin Regency is selling a 299 sq ft flat for the same price.

“The pricing of T-Plus is close to the market, but consumers are not looking for homes priced below that level,” said Po, adding that a change in mentality has resulted in lacklustre sales in property market these days.

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