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Small comfort for colony's aspiring home owners: Teresa Poole on why that des res in Hong Kong is still beyond the means of most

IN THE soaraway Hong Kong property market, small is not necessarily beautiful, but very small may just be affordable. Faced with sky-high property prices, some would-be Hong Kong apartment- owners are opting for the new 'micro-flats' now on offer.

Imagine a compact bed-sitter, including a kitchen and toilet; then imagine a space as small as 80 sqare feet (8ft by 10ft). Situated deep in the New Territories, 90 minutes commuting time from downtown Hong Kong, such an apartment would still set you back nearly pounds 17,000, but at around pounds 200 per square foot, that is a bargain compared with more conventional accommodation.

One of the few points of agreement between Hong Kong and China is the urgent need to bring down residential property prices. A decade-long property boom has seen the average price for a small or medium sized flat rise six-fold, and home-ownership is now out of the question for most ordinary Hong Kong Chinese, according to a recent Hang Seng Bank report. 'There is a social problem looming. House prices for a majority of people are just unaffordable,' said Alan Dalgleish, general manager of research at the First Pacific Davies property company.

A modest 400 square foot flat (in reality a 20ft square box in a tower block) now costs on average the equivalent to 15 years of a fresh university graduate's annual salary, or pounds 170,000. The first-time buyer's pursuit of a desirable residence has turned into a desperate search for something affordable. 'There are important socio-economic implications when property prices are rising faster than household income,' a Hang Seng Bank report said. Low levels of property ownership do not help create a stable society, and escalating prices opens up a huge wealth gap between property owners and everyone else.

Concerned at the possible social consequences, the Hong Kong government last month introduced measures aimed at stamping out some of the speculation that helped to drive the market. It has been common for new flats to change hands up to five or six times just during construction. 'It is almost like trading a commodity, ' said Mr Dalgleish. Even car parking spaces are hived off and traded separately.

Under new anti-speculation rules, there is a complete ban on the re-sale of unfinished flats, and pre-sales of developments can start only six months before occupation permits are issued. No forward sales of car spaces will be allowed unless they are sold with flats. In the two months before the package was announced, residential property prices did fall by around 10 per cent, but there are signs of a rebound. Danny Chan, handling the sale of units at the new South Horizons development on the south side of Hong Kong island, said prices dropped initially, but the resulting high demand left prices only 5 per cent lower - his units are a snip at pounds 450 per square foot.

Demand for small and medium- sized flats far exceeds supply. Rising standards of living mean that more of Hong Kong's young workforce aspires to home ownership - and escape from parental scrutiny in the family flat.

For expatriates, the psychological stress has been considerable, though opposite to that suffered back home. Britons bemoan the fact that they did not buy a flat four years ago: for property-owners in recession-hit Britain, that would have been the time to sell.

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