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Hong Kong

Hong Kong’s Luxury Residential Property Rents Continued to Decline in 1Q13 on the Back of Softer Demand in High-end Luxury Sector

Demand for luxury residential rental properties shifting to Kowloon and the New Territories


HONG KONG, 15 April - Although the rise in sales prices of luxury properties appeared to have reached an inflection point in 1Q13, rents continued to show a clear decline due to softer demand, according to Jones Lang LaSalle’s latest report on Hong Kong’s residential leasing market.

Rents for luxury properties recorded a decline of 1.2% q-o-q in 1Q2013, after an overall drop of 10.9% y-o-y in 2012. On Hong Kong Island, rents for luxury properties experienced an overall decline of 1.4% q-o-q in 1Q13, with the Mid-levels and Island South recording the largest drops of 1.5% q-o-q, respectively. Serviced apartment rents recorded a slight decrease of 0.3% q-o-q in 1Q13.
 
Softer demand for high-end luxury properties continued to weigh down rents in 1Q13, although demand and rents for mid-luxury premises held firm. With cuts in expatriate housing allowances owing to the sluggish European and US economies and corporate restructuring, corporate executives turned to mid-luxury rental premises. As a result, demand for luxury properties with monthly rents from HK$50,000 to HK$100,000 has risen, accounting for 37% of the total leasing transactions conducted by Jones Lang LaSalle in 2012, up 6 percentage points from 2010.
 
According to Jones Lang LaSalle’s research data, leasing demand from the financial services sector softened, partly due to a 25% drop in the number of families from the financial sector moving to Hong Kong in 2012. On the other hand, stronger demand was recorded from the legal services sector and particularly the retail sector, which saw a large influx of staff and their families into Hong Kong last year.
 
The leasing market gained support from the Government’s latest austerity measures in the property sector. Under the latest round of cooling measures, the cost of purchasing luxury properties by expatriates increased substantially. For example, the initial cash requirement for a property with a value of HK$12 million is about doubled. Consequently, leasing demand has risen as more and more expatriates turn to the leasing market.
 
On the supply side, new luxury property units will remain limited, with the supply of Class E luxury units (1,722 sq. ft. and above) likely to be around only 300 units for 2013 and 200 units in 2014.  Moreover, a majority of the upcoming supply will be clustered in outlying areas or non-traditional locations outside Hong Kong Island. The supply pipeline from 2013 to 2016 will be mainly focused on the New Territories and, in 2016, about a half of all new units are expected to be concentrated in the this area.
 
The geographic flight to non-traditional locations for luxury properties is related to the close link between the residential leasing market and the office market. Weak demand in the office sector has already been reflected in the decline of luxury residential rents. Moreover, the demand for luxury residential property leasing will likely move eastward following the trend of the office market. With the roll-out of the Government’s Kowloon East Development plan, the emergence of new office markets in Kowloon will support greater accommodation demand for residential properties. New transport infrastructure such as the Wanchai Bypass and Island Eastern Corridor Link in 2017 and new MTR rail lines connecting Central to Kowloon East by 2020 will also drive demand in Kowloon East.
 
In addition, although new international school places will remain tight in the next few years, the proposed construction of international schools in Sai Kung, Kowloon Bay and Lam Tin will further expand the customer base for luxury properties in Kowloon and the New Territories.
 
Denis Ma, Local Director of Greater Pearl River Delta Research for Jones Lang LaSalle Hong Kong, said: “As Hong Kong’s economy is expected to improve with GDP growing close to 4% in 2013 and the employment market remaining positive, we expect luxury residential rents to bottom out this year, and we remain cautiously optimistic about the outlook of Hong Kong’s residential leasing market in 2013.”
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