13 August 2014 - I was honored to be invited by esteemed Bloomberg journalist Angie Lau to discuss the recent “trend” of micro-apartments in Hong Kong that have received significant press attention.
Cheung Kong has recently launched the sales of Mont Vert, a new development of micro-sized apartments, which includes studios ranging from 177-196 sqft (net area). There are also larger apartments in the development, though are all extremely small by global standards, with the largest 4 bedroom unit a mere 935 sqft! (We posted a recent article on Mont Vert which you can see
here.
In my opinion, micro-apartments will likely fill a certain niche, though only in cities where rents are very high (such as Hong Kong, Tokyo, 1st tier cities in China) since low-income housing should adequately fill the need in most markets. I feel it's unlikely that markets with much more space for development (such as Singapore and Malaysia) will have enough demand to allow developers to profitably build this type of housing.
However, even in Hong Kong, I don't see this developing into a real "trend" since very specific conditions are needed to make this a profitable venture. As mentioned in the media, this was essentially a farmland site that was acquired many years ago at a very low cost, yet was zoned as residential. And the construction contract was secured at a low cost - perhaps during 2009-2010 when the economy was less strong and construction projects were not in demand.
Finally, absorption is only likely to happen in markets where people already are willing to live in very small spaces, yet have some savings or disposable income. Tokyo is another example of where it would work (and indeed micro-development is quite popular there).
What has led to this development, and who might buy these units?
Clearly the high prices in Hong Kong, lack of new land available for development, and a population of people willing to accept small spaces led to Cheung Kong's decision to build micro-apartments. There are many young people, perhaps single or newly married, that only require a small space but also want privacy and independence. They are above the low income bracket and want a better lifestyle, and although they cannot afford to buy a home that is in the $3+ million range, they are willing to pay a premium per square foot (for the New Territories) for a higher-quality development. The stated HK$8,961 and HK$11,162 per sq ft. is approximately 15-40% higher than the average of other small units sold in the New Territories in the last year.
The elderly are the other target market – those with some savings but few material belongings, who want to maintain their independence while making an investment they can pass to their families.
Although OKAY.com doesn't focus on this segment of the market, I do believe Mont Vert will sell well. However given the specific conditions needed to profitably develop micro-apartments, it will be interesting to see if other developers follow suit, and if there will be enough demand to make this more common part of the Hong Kong real estate spectrum.