“Real estate in Hong Kong defies logic. The city is one of the most expensive places in the world to live and it has smashed one real estate record after another for years. As property costs continue to soar, even once improbable living spaces are now getting snapped up at astronomical prices…

…Since a low point of Hong Kong’s property market in 2003, average house prices have increased by more than 300 percent, according to data from the Centa-City Index, which is compiled by the real estate agency Centaline and the City University of Hong Kong. Helping propel this rise has been Hong Kong’s thriving economy, which significantly expanded over the last 10 years after the rapid growth of China. Strong demand from wealthy mainland Chinese and limited land supply have also helped to prop up prices…. First-time buyers now dominate the market, spurred on by the ultracheap interest rates. “The mortgage rate is below 2 percent, so it is very attractive for the buyers,” said Patrick Wong, a property analyst at BNP Paribas. At Le Riviera, only one buyer so far did not need a mortgage, according to Hip Shing Hong, the project’s developer.”, Alexandra Stevenson, “In Hong Kong, One-Bedroom Apartments That Could Fit in a Bedroom”, New York Times

“Another housing bubble…this one in Hong Kong….driven by strong economic growth, limited supply relative to demand, and abnormally low interest rates kept low by our own Fed’s monetary policies (as Hong Kong’s currency and rates are pegged to the U.S.)….where are those evil mortgage lenders?”, Mike Perry, former Chairman and CEO, IndyMac Bank

Commercial Real Estate  

In Hong Kong, One-Bedroom Apartments That Could Fit in a Bedroom

A 434-square-foot show apartment in Le Riviera, overlooking Hong Kong’s Victoria Harbor. Credit Lam Yik Fei for The New York Times

By ALEXANDRA STEVENSON

HONG KONG — There are breathtaking views of Victoria Harbor from a 23rd-floor apartment that recently sold for $722,000 in the new Le Riviera building. The high-end German appliances and marble countertops evoke European luxury. In the entrance of the building, colorful wire mesh sculptures by Spanish artists hang from the ceiling.

There is just one catch. The apartment is only 275 square feet, with a bedroom just large enough to accommodate a double bed.

“If we don’t buy now, we might not be able to afford it later,” said Frank Wu, 60, the new owner of this so-called microflat in Shau Kei Wan, a former fishing village on the northeastern edge of Hong Kong Island.

Real estate in Hong Kong defies logic. The city is one of the most expensive places in the world to live and it has smashed one real estate record after another for years. As property costs continue to soar, even once improbable living spaces are now getting snapped up at astronomical prices.

At Le Riviera, three-quarters of the units sold so far have been microflats like the one Mr. Wu purchased. And Hong Kong developers are putting smaller and smaller units on the market — one recently built 165-square-foot apartments.

Inside a 275-square-foot Hong Kong apartment. The selling price: $722,000. Credit Lam Yik Fei for The New York Times

But the housing boom, and the inequality it has exposed, has been taking a toll. The high property costs faced by young people added to simmering discontent that prompted tens of thousands to take to the streets in pro-democracy protests this autumn.

For many young adults who live packed and stacked in with their parents, it is becoming harder to imagine having a place to call their own. Rents have skyrocketed. And some here now worry that the real estate market could stumble, particularly if the United States Federal Reserve starts to raise interest rates next year. Lending in Hong Kong is tied to the American rates.

Speaking in her office down the street from the Le Riviera, To Pui-lui, a real estate agent who has sold two units of similar size in the building, hints at looming trouble ahead. She recently advised her daughter, a doctor, against buying right now.

“It’d be disastrous if the price falls from such a high point,” Ms. To said.

Since a low point of Hong Kong’s property market in 2003, average house prices have increased by more than 300 percent, according to data from the Centa-City Index, which is compiled by the real estate agency Centaline and the City University of Hong Kong.

Helping propel this rise has been Hong Kong’s thriving economy, which significantly expanded over the last 10 years after the rapid growth of China. Strong demand from wealthy mainland Chinese and limited land supply have also helped to prop up prices, although this effect has slowed since the government put into effect a series of cooling measures, like additional taxes paid on property purchases.

Three-quarters of the units sold in Le Riviera have been microflats, but some worry that the market could stumble. Credit Lam Yik Fei for The New York Times

First-time buyers now dominate the market, spurred on by the ultracheap interest rates.

“The mortgage rate is below 2 percent, so it is very attractive for the buyers,” said Patrick Wong, a property analyst at BNP Paribas. At Le Riviera, only one buyer so far did not need a mortgage, according to Hip Shing Hong, the project’s developer.

Mr. Wu, a retired structural engineer who lives in the Mid-Levels, a more expensive part of Hong Kong Island, bought his microapartment as an investment. He already has a potential tenant, a Canadian woman whose family lives in the neighborhood, and said he planned to charge about 16,000 Hong Kong dollars, or more than $2,000 per month.

Many middle-income families now populate areas away from Hong Kong’s center, in neighborhoods like Kowloon East, where the commute is longer but prices are cheaper. In Tseung Kwan O, a neighborhood to the northeast in the New Territories, new properties have recently sold for as little as 10,000 Hong Kong dollars, or $1,290, per square foot, about half that of the units at Le Riviera. Even in these neighborhoods, though, prices have been lifted by the overall market.

But the frenzy in Hong Kong’s property market may soon fade. The Hong Kong dollar is pegged to the United States dollar, so the interest rate policies are linked. When rates go up, those who have borrowed money to finance new homes will feel the effects as their mortgage payments rise. This concern is more pronounced in Hong Kong, where mortgages are not set at a fixed rate.

“They are making themselves slaves to the property market,” said Nicole Wong, a property analyst at CLSA.

A view from the Le Riviera development, in Shau Kei Wan, Hong Kong. Three-quarters of the units sold so far have been microflats. Credit Lam Yik Fei for The New York Times

Many Hong Kong residents still remember the last property bust, which was set off by the Asian financial crisis in the late 1990s. As Hong Kong’s economy took a hit, unemployment rose and deflation set in, chilling prices. The outbreak of SARS in late 2002 exacerbated the descent in prices. By mid-2003, property prices had hit rock bottom.

Ms. Wong remembered visiting a foreclosed apartment in 2003 where the family’s belongings had been left behind. Childrens’ backpacks were still on the table, their homework half finished, she recalled. In another room, she spotted gambling tickets.

“It was a shocking, shocking experience,” she said. “You could see all that struggle of a family right before they were taken away.”

Developers seem undeterred for now. They continue to build new properties, increasingly with incentives like tax waivers, which can amount to as much as a 10 percent discount. Microapartments are a small part of the offerings, but they are growing, with a handful of developers jumping in. This is partly because the overall price tag looks cheaper than bigger units — especially farther afield from Hong Kong Island — making them more affordable to a wider swath of buyers.

Even by Hong Kong standards, the latest apartments offered by Li Ka-shing, Asia’s richest tycoon, are remarkably small. At Mont Vert, developed by Mr. Li’s company Cheung Kong Properties, some units range from 165 square feet to 196 square feet.

Prospective buyers interested in a recent batch of similar units were not even able to see them before they agreed to buy, a common occurrence in Hong Kong.

Mr. Wu, who acknowledged the risks of buying the Le Riviera flat when prices were so high, does not seem too concerned. He said that he and his wife could always move in.

Surveying the empty bedroom, he added, “It’s all right for me.”

A version of this article appears in print on November 19, 2014, on page B1 of the New York edition with the headline: A One-Bedroom Apartment That Could Fit in a Bedroom

Posted on November 19, 2014, in Postings. Bookmark the permalink. Leave a comment.

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