There's another sign that property is hot again in HK: this is my second entry on the topic in two days (the first was on the new bubble). Jake van der Kamp in the SCMP notes an interesting discrepency opening up in Hong Kong's property market. Prices of larger flats (those over 1700 sq feet) have seen outsized gains compared to smaller ones. The chart is in the extended entry for your perusal. In 1990 the prices of all flats moved approximately in tandem. Since then and particularly in the past year or so the gap between the bigger and smaller flats has grown - they still move up and down together, but the spread between them grows ever larger. Larger flats are now 3 times the per square foot price of the smallest ones, a massive gap. As van der Kamp points out, these are average figures. He dismisses the value of premium flats because of this, however especially in a rising market, the top end of the premium market is going to drag the average of that class higher still. Nevertheless his main point remains valid.

More interestingly is his question as to why this should be so. The second chart shows that Hong Kong has become a much wealthier place in the past 20 years; real per capita GDP has doubled in that time to US$24,000 per person. At the same time the average usable size of new private flats has actually declined slightly. Today the average size of new flats sold in HK is 370 sq feet of usable area. People with US$24,000 each of economic value do not want to live in flats no bigger than a closet.

Who is to blame? I would have thought it was the property developers whom insist on building such tiny places. But apparently not. It is the planning regulators that decide the size of units in each approved development. So civil servants, many of whom no doubt live in substantially larger units than this 370 sq foot average, determine that Hong Kongers must continue to live in tiny flats. Because that's how things have always been done. Perhaps if these civil servants were made to actually live in the apartments they approve, things would be different. In the interim the market has found its own solution: the price of bigger flats is going up faster than those of smaller ones. With the long lead times on new property developments, the planners need to start approving larger flats fast, or they'll have a middle-class riot on there hands when the price of bigger places becomes completely out of reach.