Rents for Hong Kong’s smaller-sized flats are rising even as the city’s economy shrinks and overall home rents slide to the lowest level in 22 months. Leases on units measuring 200 sq ft and smaller are proving more resilient than for larger units, with some renters paying record rates for them, according to local property agencies.
In one case, a 203 sq ft unit in Tsing Yi, barely big enough to fit a bed and a couch, rented for HK$69 (US$8.86) per sq ft – comparable to levels fetched by flats located in luxury districts on Hong Kong Island such as Mid-Levels and The Peak. An Australian ex-pat paid HK$14,000 a month for the unit in The Met Azure, the highest rents in the district in per-square-foot terms, according to Ricacorp Properties.
The smaller initial capital outlay makes such flats more attractive to those who are choosing to rent instead of buy while they take a cautious approach amid the current market and economic environment, analysts said.
Lenders in Hong Kong last month raised their prime rates again to a 14-year high, causing many potential buyers to choose to rent and delay their home purchases. The city’s infamous “nano flats” tend to require a smaller lump sum outlay, even though they are more expensive in sq-ft terms, they said.
“The economy’s not promising, so people choose to rent a cheaper flat,” said Buggle Lau Kai-Fai, Chief Analyst at Midland Realty. “The other thing is some of the buyers are adopting a wait-and-see approach. For the short term, these potential buyers choose to stay in smaller units to save money.”
Last month, government officials cut their full-year forecast for Hong Kong’s economic growth to a 3.2 percent contraction, versus an earlike projection of between 0.5 percent growth and 0.5 percent contraction. They cited the lingering effects of the Covid-19 pandemic and a deteriorating external environment.
In the third quarter, the city’s economic output fell by 4.5 percent from a year earlier, worse than the 1.3 percent contraction in the preceding quarter. In the first three quarters, the economy shrank 3.3 percent from a year ago.
“The latest rental transactions indicate that the smaller-sized units command higher rent on a per-square-foot basis,” Lau said. “Rents for smaller units ranged from HK$45 to HK$60 per square foot, whereas rents for two-bedroom and bigger units ranged from HK$38 to HK$48.”
In Kowloon City, a 166-sq ft flat located on a lower floor of Ava 55 was leased out recently for HK$9,800, or HK$59 psf, Wong Ka Lok, Chief Senior Sales Manager of Midland Realty East Kowloon One Kai Tak Branch, said. In comparison, a 328-sq ft unit in the same development is being advertised for HK$14,500, or HK$44.20 per sq ft.
Overall prices of Hong Kong’s lived-in homes have declined by 10.5 percent this year, the latest data from the government show. On the other hand, rents have slipped by a mere 1.75 percent in the same period.
Rental units smaller than 40 sq mt (430.5 sq ft) outperformed bigger units in the first three quarters. Flats in the smaller category saw rents decline between 0.32 percent and 1.55 percent, according to data from the Rating and Valuation Department. Bigger flats experienced a 0.74 percent gain to a 21 percent drop.
Monthly rents in the secondary market fell in October to the lowest level since February 2020, according to an index tracked by Centaline Property. The preference for smaller units is also affecting the luxury rental market, according to Aradhana Khemaney- Head of Residential Services at Savills. “Most of our clients are coming with smaller budgets, and smaller budgets mean smaller flats,” she said. “So we do see them downsizing a lot.” The residential leasing market is likely to perform better than the sales market given that interest rates may continue to rise, Khemaney added.
Midland’s Lau believes that strong leasing demand for tiny flats is likely to be short-lived given that the Hong Kong government is lowering the threshold on home mortgages as a way to improve accessibility to housing in the city. The average waiting time for public rental flats in Hong Kong drops to 5.6 years
In September, the Hong Kong Monetary Authority relaxed its stress-test requirements for new mortgage borrowers by 100 basis points. The new requirement allows new borrowers to prove that they have the income to pay their mortgages even when the interest rate increases by 2 percentage points from the time that they applied for the loan, as opposed to a more stringent 3 percentage points previously.
The record for tiny flats in Hong Kong stands at HK$91.30 psf, a level reached in 2018 when a 197-sq ft flat at Artisan House in Sai Ying Pun fetched HK$18,000 a month, according to Sunny Wong, Mid-Levels West Branch Manager at Centaline.
