Hong Kong Luxury Residential Leasing Market
November 2011

Factors

Sales activities and prices are contracting after steadily rising trends since 2009. In Q3, the volume of transactions in the mass residential sector dropped significantly by about 40%, with prices dropping 3%, the first decline recorded since Q1 2009.

• Government measures to tighten lending are in place, including the introduction of a tax on the sale of a property held for less than 2 years.
• The number of Chinese buyers has waned as China’s economic growth slows and the State took measure to curb spending.

Total stock is projected to reach 86,752 units by the end of 2012 and annual new supply is expected to exceed 2,000 in the foreseeable future. In the luxury residential (1,100 sq.ft. or above) sector, the 2012 estimate is forecast to be 2,860 – as opposed to 1,222 in 2011 – the highest level since 2002.

• The government vows to maintain the annual land supply of 40,000 residential units and increase the supply of residential land.
• The current market is dominated by buyers looking for long term investments or their own occupation.

Rents in the luxury residential sector have risen approximately 8% in the first three quarters of this year. As of October 2011, the index for luxury residential rentals stood at 143.2, just 1.4 points below the historical high of 144.6 set in October 1997.

• The take up rate has remained strong in 2011 in spite of the rising rents.
• Solid economic growth has lead to a net inflow of affluent Mainland Chinese and expatriate executives relocating to Hong Kong.
• Demand for both long-term and short-term luxury accommodations continues to be strong.

Forecast

With sufficient land supply and anti-speculative measures in force, sales activity is expected to stay quiet in the near future. Investors remain sidelined until they see how far the market will consolidate its gains of the past 2½ years, absorb current global economic concerns and where near-term interest rates will stablize. 

Asking rentals are likely to remain firm for at least the next two quarters and continue an upward trend as user demand keeps the vacancy rate low. Nevertheless, prospective tenants are recommended to explore a wide range of options before making a final decision.

• The slow down in the sales sector and Government tax on properties held for less than 2 years means that those who previously kept their properties vacant for a quicker sale are now turning to the rental market.
• Those who have bought into new developments – where a number of vacant and similar units are coming on to the market at the same time – will be competing for tenants and may offer incentives to make their properties more attractive.