The average luxury residential price and rent are expected to drop by 10% and 5%, respectively, over the next 12 months
21 May 2013
Hong Kong’s residential sales market was off to a slow start in 2013. According to Colliers International’s Hong Kong Residential Market Research & Forecast Report 1Q 2013, the number of sales transactions valued at over HK$20 million in the three traditional luxury residential districts – The Peak, Mid-levels and South Side – decreased by 35% quarter-on-quarter (QoQ) during the three-month period ending in February 2013. Meanwhile, luxury residential prices also fell by 1.5% QoQ.
Simon Lo, Executive Director of Research & Advisory, Asia at Colliers International, sees the lackluster residential sales volume being attributed to the new round of tightening measures announced by the government and Hong Kong Monetary Authority.
“As the cost of transactions for residential properties is increased by doubling the existing stamp duty, this discourages speculative and investment demand for properties and creates a negative pressure on both transaction activities and prices.”
With the variance in stamp duty amongst residential units – 4.5% for units priced at HK$4 million or less versus a maximum of 8.5% for high-priced units, market segmentation is seen to have increased. This has caused less-expensive residential properties to become more appealing to buyers due to a relatively lower cost of transactions and see a relatively stronger driving force to growth.
As the latest cooling measures will slow the sales activity of luxury residential properties further and are likely to lead to a price correction, Colliers projects luxury residential prices to decrease by an average of 10% in the next 12 months.
With the demand-side cooling measures in place, some prospective buyers remain on the sidelines, while some of them may resort to the leasing market.
The leasing market on the other hand has experienced a rising demand for units of smaller sizes in 1Q 2013 due to increasing local leasing demand, continued rise in the number of junior-level expatriates arriving in Hong Kong and lowered housing allowances in both financial and non-financial enterprises. Besides, tenants whose housing budgets have been trimmed opted to downsize their units or relocate to residential districts of lower rental level. As a result, the rental in mass residential leasing sector saw an upward adjustment pressure.
However, Lo mentions that in the traditional luxury residential districts such as The Peak, Mid-levels and South Side, the number of vacancies in residential units of larger sizes has increased. This was because the number of middle and senior-level expatriates, particularly those with families in the banking and finance sectors, remained low. As a result, the corporate landlords of apartments with large size and houses tended to reduce their asking rents. In 1Q 2013, luxury residential rents declined further, registering a drop of 2.2% QoQ in February 2013.
Looking ahead, as multinational companies, particularly those in the banking and finance sectors will remain cautious in their hiring plans, the key demand of luxury residential properties continues to come from expatriates in non-financial companies. Coupled with housing budgets generally kept in check, Colliers projects luxury residential rents to decline moderately by 5% over the next 12 months.