June 26, 2015 / 10:25 AM / in 2 years

China developers aim small as high prices lift mini-flat demand

A property agent (R) shows visitors around a mobile show flat by China's largest developer China Vanke, during the Pearl River Delta Real Estate Fair in Guangzhou, China May 23, 2015.Clare Jim

HONG KONG (Reuters) - Tiny is the new big for Chinese property buyers who are snapping up smaller, more affordable apartments as property prices in big, busy cities rise, fueled by scarce land and a surge in demand due to lower borrowing costs.

The studio flats commonplace in New York, Paris or London - as well as in space-starved Asian cities like Singapore, Hong Kong and Tokyo - remain a novelty in China, where larger units are still the most sought after.

But as real estate prices continue to rise in more developed cities, demand for units smaller than 50 square meters (538 square feet) is also rising, enticing China Vanke Co Ltd and Evergrande Real Estate Group - China's two biggest developers by sales - to develop some mini-flats, a sector that has so far been the domain of provincial firms.

On Saturday, Vanke is due to launch sales of a 13 sq m (140 sq ft) flat, which property agents say is China's smallest.

"These apartments are a solution to the high price housing problem," said Alan Cheng, a general manager for realtor Centaline in the southern city of Shenzhen. "You don't have enough cash, so you have to buy a smaller living space."

Last month, official data showed home prices in Beijing, Shanghai, Guangzhou and Shenzhen rose between 1.1 and 6.6 percent on the previous month after the central bank cut interest rates for the third time to revive a property sector key to the growth of the world's second largest economy.

Vanke, which is launching the 13 sq m flat in Guangdong, said it was targeting recent graduates and young professionals who would be shut out of the housing market otherwise.

"MiCool satisfies the housing needs of city youngsters and entrepreneurial youngsters," the company told Reuters about its 5,000 unit project, which includes units as big as 38 sq m.

Almost all the first batch of 2,000 flats released in the project have received initial deposits, Vanke added. The 13 sq m flats, which the company displayed on a truck bed, even have a balcony and cost 260,000 yuan ($41,878), or about a fifth of the city's 1.5 million yuan average home price.

Wang Dong Chuan Mao, a 24-year-old engineer who bought a 40 sq m, one-bedroom flat in Guangzhou this year for about 760,000 yuan, said the size, and price, suited his needs.

"I'm still young, I may go back to grad school. If I went for a big apartment it'd be too much for me to pay the down payment as well as mortgage," he told Reuters.

Guangzhou, capital of the southern Guangdong industrial heartland, has seen the built-up area of small flats surge four-fold in the first five months of the year to 275,785 square meters from the same year-ago period, data from property researchers CRIC shows.

While that is a fraction of the total area being built up in city, property agents say small flats are also attracting well-heeled buyers seeking investment opportunities.

"More people are investing in service apartments lately - a studio, or a single room, and they look for 6 to 8 percent returns," said Centaline general manager Cheng.

Editing by James Pomfret and Miral Fahmy

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