Hong Kong property: developers mourn demise of ‘coffin homes’ boom

Dwellings the size of parking spaces have proliferated in overcrowded Hong Kong since the 1950s. These are referred to politely as “nano apartments” while subdivided flats have the grim nickname “coffin homes”. Despite this, they have been popular with cash-strapped Hong Kongers. A rare downturn here is a warning for local developers.

Buyers are shunning the dwellings for the first time since a surge in construction in 2014. The slump reflects the waning fortunes of Hong Kong as the gateway to a China wracked by coronavirus.

Last year, the city’s largest developer had thousands of units under construction. It has been a profitable business for Sun Hung Kai Properties, which runs on operating margins of more than 40 per cent

This year, developers have sold less than half of the studio apartments they have built. Nano flats are making losses for owners too. Vendors have typically taken hits of more than a fifth on sales this month.

That is in line with the broader trend. Home prices in the city have dropped by more than 14 per cent this year. Sales volume is at a decade low.

This week, CK Asset, the flagship developer of tycoon Li Ka-shing, won the auction for former airport land for HK$8.7bn ($1.1bn). This was more than 40 per cent less than the previous valuation and the lowest price per square foot since 2014.

Sun Hung Kai did not bid. Its debt to equity ratio has deteriorated. Analysts, including Goldman Sachs, expect Hong Kong home prices to drop by 30 per cent by the end of next year.

Shares of CK Asset and Henderson Land have fallen about a tenth in the past six months. The latter trades at 10 times forward earnings, which is more than 40 per cent lower than even 2014 levels — during the last property market decline — reflecting the dire outlook.

Local developers went on buying land at record prices up until late last year. Now construction costs have soared, finance is costlier and well-off expats are fleeing the city. A prolonged slump lies ahead.

The Lex team is interested in hearing more from readers. Please tell us what you think of Hong Kong real estate in the comments section below.


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