1 March 2012
Similar decline also recorded for luxury residential rent
According to Colliers International's Residential Market Research & Forecast Report, both luxury residential prices and rents edged down in 4Q 2011 and are expected to see downward adjustment pressure in 2012.
During the three-month period ending November 2011, the total number of sales and purchase agreements of residential units notably dropped 27.7% quarter-on-quarter (QoQ) to 14,261, according to the Land Registry. The overall residential market remained depressed due to the government’s determination to increase supply, which was announced in the 2011-12 Policy Address, and rising mortgage rates that increased 25 basis points to over 2.5% in 4Q 2011.
In the luxury residential sales markets, buyers were cautious about future market movement and found it more difficult to obtain funding from financial institutions. As a result, the sales activity slowed with the number of residential sales transactions over HK$20 million and HK$100 million shrinking 51.2% and 54.5%, respectively, in the traditional luxury districts – The Peak, Mid-levels and South Side – in 4Q 2011.
A softening sign in the luxury residential market was also revealed in the falling prices. "The average luxury residential prices decreased 2.4% QoQ to HK$19,149 per sq ft in the traditional luxury districts, representing the first dip since 2009," said Simon Lo, Executive Director of Research & Advisory, Asia at Colliers International. “This is largely due to individual landlords lowering their asking prices to push the sale of their properties in 4Q 2011."
Meanwhile, the luxury residential leasing market also slowed in 4Q 2011. As the last quarter of a year is a traditionally low season in the job market which sees slowdown in recruitment and hiring activities, there was a decline in occupation demand in 4Q 2011 and this translated into decreasing residential rents. The average luxury residential rent dropped for the first time since 2Q 2009, down 3.3% QoQ to HK$46.77 per sq ft per month in 4Q 2011.
With a luxury residential rental fall larger than that of prices, overall luxury residential yield compressed marginally from 2.77% in August 2011 to 2.75% in November 2011.
Looking ahead, the luxury residential market will likely continue to witness compressing factors such as the government's continual land supply, developers’ cautious attitude in land sales, effective mortgage rate to moving upward to over 4%, etc. According to Colliers’ research, luxury residential prices are projected to fall by 13% towards the end of 2012. In anticipation of another round of downsizing in individual financial institutions which will eventually weaken the leasing demand, luxury residential rents are expected to decrease by 6% towards the year-end.