CBRE: Will Mini-Apartment Demand Rise in the China Housing Market?
CBRE: Will Mini-Apartment Demand Rise in the China Housing Market?
October 23, 2014
October 29, 2014, Beijing – The mini-apartments with an area of 7.5m2 launched by Li Ka-shing in Hong Kong sold out within half a day, stirring the attention of the industry. Just as its name implies, a mini-apartment is a micro-studio offering diverse functions enabling people to sleep, store items, have a bath, work and enjoy meals within a relatively confined space. Looking forward, will the mini-apartment rise up to become more popular in China’s real estate market? This is the question well worth considering.
Policy and Product - Policy Influences Product Type
Since 2003, due to the policies restricting minimum usage area along with the purchase and bank loan policies of residential products, the mini-apartment with accompanying 70 year property rights almost disappeared in the market. The newly emerging mini-apartment achieving satisfactory demand performance in the marketplace is primarily the hotel studio style apartment with 40-50 years’ property rights. For instance, a project with 40 years’ property rights in Xi’an launched its mini-apartment with a construction area of 18m2 and usage area of 15m2, however only available via wholesale distribution not through traditional retail channels. Additionally we note that some enterprises are negotiating to rent entire buildings for such projects. A particular project in Jiangbei, part of Nanjing city, was met with high interest as they offered a similar hotel style mini-apartment with 40 years’ property rights.
Urban Characteristics and Position - to Decide the Access Requirements
One might inquire further by asking; Is the mini-apartment applicable in each city across the market place? Eddie Heng, Executive Director, Head of CBRE Consulting, China said that the mini-apartment is no longer a newfangled idea in the developed Asian cities such as Tokyo, Taipei, Hong Kong and Seoul, with the typical owners of such units being young single men or couples. Therefore, it is reasonable to forecast there will be a concentration of target customers for mini-apartments where we find a population density of over 6,000 people/m2 coupled with a family household structure of less than 2.5 people/household. The current high purchasing prices combined with scarcity of housing resources greatly impact market access requirements for the mini-apartment. For example, if the housing price-income ratio exceeds 0.35, and the rate of urbanization exceeds 90%, there will more likely be greater demand for the mini-apartment approach. These factors are highly influential market access conditions for the mini-apartment to be launched into a given market.
The property and purchase indexes in many first-tier Chinese cities such as Shanghai and Beijing are now in line with other developed Asian cities. For instance, the family structure in Shanghai and Beijing has reached 2.5 people per household and 2.7 people per household with the housing price-income ratios at 0.43 and 0.51 respectively, exceeding the ratio of developed Asian cities. Despite the gap between developed Asian cities in terms of the population density and rate of urbanization, the first-tier cities of China have moved closer to the developed Asian cities, thus becoming the first cities to meet the access requirements of the mini-apartment in the market. Some advanced second-tier cities such as Hangzhou, Suzhou and Nanjing in the Yangtze River Delta region are also moving closer to the first-tier cities in terms of the indexes, and so will be expected to join first-tier cities in satisfying the mini-apartment access requirements.
Selection of position and location in the city significantly impacts the mini-apartment projects preparing to enter the market. Generally, the mini-apartment projects in downtown areas or in the emerging areas with surrounding resources such as university towns, industrial parks and local business community circles are more likely to achieve better performance in the market. 50-65% of the mini-apartment buyers are investors focusing more attention on the investment value of the product purchase. The remaining 40-50% of customers are young single men, who consider a variety of factors including the distances from their workplace and university, surrounding facilities, parking and public transportation.
Supporting Facilities and Design - Appreciation Makes Up the Defects of Mini-apartment
Due to the smaller living area, the mini-apartment has higher requirements with respect to the need for supporting facilities, interior design, public space and property management. Kidd Wu, Director of CBRE Consulting, Eastern China, suggested that the interior design of space utilization and free space shall be given more attention in order to ease the concern of purchasers about the space efficiency and the sense of smaller space. The need exists to efficiently and pleasantly create availability of multiple functions within the narrow space, making the small living area needs feel welcoming and comfortable rather than restricted. Therefore, public activity space such as public community living rooms shall be established to encourage exchange between neighboring occupants and to help relieve any sense of confinement by occupants. Finally, since there are many investors in the mini-apartment, the occupants are primarily tenants. The diverse mix of occupant profiles may also bring certain hidden safety hazards and so management’s attention to safety and security is a significant concern to the mini-apartment residential area.
Will mini-apartment popularity rise up once again to meet today’s shifting society? “With the increased population density, a higher rate of urbanization, severe scarcity of housing resources and smaller family structures across some cities, the mini-apartment will likely manifest as a rising trend with the possibility that relevant policies will make proper adjustments to cater to growing market demand.” said Eddie Heng.
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2014 revenue). The Company has more than 70,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 400 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com.