Small flats defy Hong Kong’s recession, gaining in price as larger homes continue to lose value

Lam Ka-sing
·4-min read

Small apartments appear to be bucking a downward trend in Hong Kong’s property sector, gaining in price as the city struggles with a crippling recession.

The prices of bigger homes and commercial property are falling as the coronavirus pandemic, which followed months of social upheaval, has wrought havoc on the local economy, slashing household budgets and causing a spike in unemployment.

But gains in the prices of small flats in September were enough to counter those drops and push an official gauge back into positive territory for the first time since early summer.

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The overall home price index rose 0.42 per cent in September to 382.6 after two months of declines amounting to 1.5 per cent, according to data released by the government’s Rating and Valuation Department on Friday.

“The increase was unexpected, but the property market adjustment should continue,” said Thomas Lam, executive director at Knight Frank. “The current real estate market is very distorted.”

It was only the prices of homes smaller than 753 square feet that actually went up, with those measuring less than 430 sq ft rising 0.4 per cent. Much bigger flats – those larger than 1,722 sq ft – went in the other direction, falling by 1.3 per cent.

Small apartments tend to cater to small families and are “more sensitive” to an improvement in market sentiment, according to Derek Chan, head of research at Ricacorp Properties.

“Buyers entering the market are mainly [targeting] small to medium sized flats. As sentiment improves, they become more proactive in entering in market,” said Chan. “Then homeowners will have less room for price negotiation or reduction.”

Buyers of bigger homes are more concerned about the longer-term prospects of the market, which “does not [benefit from] stable user demand, so large units, luxury homes continue to be under pressure,” he added. “Buyers are not very proactive in entering the market. Some owners of luxury homes with liquidity needs may sell them at lower prices, driving the prices down.”

Based on last year’s peak, residential property prices have fallen by only 3.6 per cent.

Some 557 units in three projects will go on sale this weekend.

On Saturday, CK Asset will release 98 units at El Futuro in Kau To Shan, Sha Tin, while K Wah International will attempt to sell 211 units at K Summit in Kai Tak. On Sunday, Hong Kong Ferry (Holdings) and Empire Group will put 248 units at Starfront Royale in Tuen Mun on the market.

Rents in the city have continued to slide amid the economic downturn and rising joblessness.

The rental index declined 1 per cent in September after three months of increases. The rents and values of commercial properties and shops continue to slide, with plenty of stores being offered and sold at a loss.

Axed Cathay Pacific staff snapped up by hotels, property agents

For instance, Tai Hing Group and other investors recently sold two large shops in North Point and Mong Kok at a combined loss of HK$24.5 million (US$3.16 million). They have also listed two other shops in Central and Causeway Bay for a total loss of HK$10.29 million.

Lam said the adjusted decline in home prices this year will be about 2 to 3 per cent, which is less than many observers had feared. The important factors in the fourth quarter are how quickly the Hong Kong economy and high unemployment levels can recover.

“Unfortunately, large-scale lay-offs have occurred in large companies. Pay attention to whether it will affect other companies’ [actions] with lay-offs or leave without pay,” said Lam. “Most companies will increase salaries at a low rate next year. These factors will ultimately affect the wage earners’ purchasing power.”

Because of the huge lay-offs announced by Cathay Pacific this month, property prices in Tung Chung, where many of the airline’s staff live, will take a hit, Lam said. He predicted rents there will fall 10 per cent and property prices will slide 5 per cent in the next six months.

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