Hong Kong Real Estate: Price per Floor Area GFA may Deceive

Stephen Chung

Managing Director

Zeppelin Real Estate Analysis Limited

March 2007

Because the basis for calculating the GFA (Gross Floor Area) used for marketing / selling / renting out the real estate may vary from property to property as there is, up to the date of writing this article, no statutory rule or regulation governing how this marketing GFA is to be measured. In some properties, this GFA may include not just covered common areas such as staircases, building services rooms etc, but also uncovered areas such as podiums, gardens, open spaces, parking, and the like, thus further diluting the .net・ to gross floor area ratio. How much common area is included appears to depend on a variety of factors, such as market sentiment, target buyers or users, property characteristics, selling strategy, financial concerns, and / or the like. Do note this marketing GFA is different from ones used in building development applications or land lease negotiations, which the related government departments have standard guidelines on what and how floor areas are to be calculated, included, or exempted.  

As such, whether in buying or renting real estate, a straight comparison of quoted HK$ / ft2 GFA (marketing type) from different properties could be deceiving. For instance, two residential properties could be right next to one another and offer basically the same building qualities and amenities, yet one carries a HK$5,000 / ft2 price tag while the other a HK$6,000 / ft2. On the surface, it seems the former is a bargain (or the latter being overpriced) compared to the latter. However, it could very well be just the opposite IF say the net floor area basis is to be used, and one needs to dwell into how .efficient・ the GFA is for both properties. The higher the floor area efficiency ratio (defined generally as the net floor area divided by the GFA), the higher the percentage of .net・ area is in the quoted GFA. Putting figures into the above example, if the former property has an efficiency ratio of 65% while the latter 85%, then it would mean the former property has a price tag of HK$7,692 / ft2 while the latter a HK$7,059 / ft2, i.e. the latter is actually selling for less. Note though a lower overall HK$ / ft2 does not automatically imply a bargain, and for that matter, nor does a higher HK$ / ft2 mean an overpriced property. Other angles and factors have to be taken into account to form a better analysis.  

Naturally, it would make life easier, especially for analysts like your humble author, IF a standardized way of calculating the floor area could be adopted. While some would advocate the net floor area basis (the interior floor area of the unit plus half thickness of party walls and the full thickness of exterior walls without deducting for columns etc), which is not an unreasonable selection, the important thing is to have a consistent basis in measurement which in turn is not only rational but also easy to comprehend by professionals and laypeople alike.  

As to whether sales and leasing would be affected IF a more standardized way of measuring floor area is to be used, the simple answer is YES, as the price or rent per floor area, especially the residential sector, will have larger figures (now that fewer square feet are being used to divide the overall price of a unit) although the market would adjust to it overtime. Nonetheless, real estate professionals may need to spend some effort and time in converting the unit price quotes to the new floor area basis.

Notes: The article and/or content contained herein are for general reference only and are not meant to substitute for proper professional advice and/or due diligence. The author(s) and Zeppelin, including its staff, associates, consultants, executives and the like do not accept any responsibility or liability for losses, damages, claims and the like arising out of the use or reference to the content contained herein.                                

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