Microapartments are dying in one of the world's most expensive cities, and it could be part of a troubling trend for owners
- Microapartments became extraordinarily popular in Hong Kong starting in 2014, but a recent dip in housing prices could signal their decline.
- While Hong Kong remains one of the most expensive cities in the world, buyers are starting to be able to afford 600-square-foot to 700-square-foot units as opposed to miniature dwellings.
- The death of microapartments in Hong Kong could presage a larger trend in pricey US cities like New York and San Francisco.
As prospective buyers in Hong Kong, Andy Knight and Michelle Tennant were faced with a familiar trade-off: shell out massive amounts of money for a few additional square feet or make the most of a tiny, 300-square-foot apartment.
The couple chose the latter, equipping their new abode with a hideaway TV, swiveling wall, and bathtub that converts into a bedroom and living room.
"The design appeals to a niche market," Tennant told CNN. "But I'm surprised it hasn't caught on more."
According to data published in the South China Morning Post, the trend of microapartments has recently fallen out of favor in Hong Kong. The paper's analysis found that a third of the city's microapartments - those less than 200 square feet - built since 2016 remained unsold at the end of last year.
In Hong Kong and other cities, the death of microapartments could topple a phenomenon that's become increasingly popular among developers and young buyers.
But there's a simple explanation for its decline.
In 2014, average home prices in Hong Kong reached record highs - about $1,900 per square foot. Around that time, developers began recognizing the demand for tiny, cheap apartments that would allow people to continue living in the city. The trend continued to escalate over the next four years, with more and more city dwellers willing to sacrifice space in exchange for lower home prices.
Things changed in 2018 when Hong Kong put forward a proposal to tax unsold new homes. As developers scrambled to get rid of their empty properties, they began selling them at discounted rates. Suddenly, more people in Hong Kong could afford a bigger place.
"There is a huge risk in building micro flats, because once the market shows sign of turning, this type of property will be the first to be abandoned by the market," Alvin Cheung, an associate director at Prudential Brokerage, told the South China Morning Post.
While Hong Kong is still considered the most expensive city in the world for expats and one of the five most expensive cities in terms of cost of living, the need for tiny homes isn't as strong as it once was.
Real estate experts now estimate that Hong Kong buyers prefer a 600 to 700-square-foot abode. They also anticipate that the price of microapartments could fall by 30% in 2019 - a much steeper decline than the 10% to 20% expected for the city's overall market.
This decreased demand could presage a larger trend in notoriously pricey cities like New York and San Francisco, where microapartments tend to be slightly more spacious.
When it comes to housing affordability - the cost of living relative to how much people earn - Hong Kong is even less affordable than the most expensive US markets. If microapartments can't survive there, it could mean bad news for those who have invested in tiny units in other areas of the world.