Developers to shift away from nano flats

The supply of nano flats will shrink starting 2022.

Hong Kong developers are likely to shift focus away from building nano flats following the boosted spending power of first-time buyers, thanks to the expanded loan-to-value (LTV) cap, according to a report by JLL. New supply of nano flats are expected to decrease starting 2022.

The government relaxed the cap for loan-to-value (LTV) ratios of up to 90%, with the maximum property value doubled to $8m from $4m previously. In addition, both first-time homebuyers and upgrades will enjoy an increased cap to $10m for a maximum cover of 80% LTV, from only $6m previously.

“With the Government relaxing the cap on LTVs, this opens up more choice for first-time buyers and increases their purchasing power. As such, we believe developers will likely shift away from incorporating nano flats in their new developments. We will start to see the new supply of nano flats decrease from 2022,” said Henry Mok, senior director of capital markets at JLL.

The move also lowers the required down payments, which will allow buyers to target larger developments and drive developers to lower the prices of their new projects.

“First-time home buyers previously had very limited options to enter the housing market, making nano flats relatively attractive. However, the lower down payment now allows these same buyers to target larger sized stock in both the primary and secondary market. With the ability to target the secondary market, we believe that the typical premium paid for new stock will be reduced, meaning that developers will have to price their new projects competitively,” noted Cathie Chung, senior director of research at JLL in Hong Kong.