Hong Kong luxury residential rents to drop by up to 10% this year

Blame it on weak expat demand and their shrinking housing budgets.

Despite developers turning conservative in marketing new projects in the beginning of the year, JLL reveals buying sentiment picked up gradually after the Chinese New Year. Reasonably priced projects were generally well received during the quarter. For example, all of the 145 units launched at ‘Monaco’ in Kai Tak, developed by Wheelock Properties, were sold on the first day of the project’s launch.

There remained almost no new expat arrivals in the quarter. According to JLL, housing budgets for existing expats continue to shrink. Driven by the relaxation of social distancing measures during the quarter, viewing activities increased from very low levels with the luxury rental market mainly supported by local demand.

Here’s more from JLL:

Government to tender 15 residential sites

A total of 99 luxury units are expected to be issued with their occupation permits in 1Q21, including ’21 Borrett Road (Phase 2)’ by CK Asset (50 units) and ‘Central Peak (Phase 2)’ by Sun Hung Kai Properties (19 unit); both in the Mid-levels.

A total of 15 residential sites were listed in the FY2021/22 Land Sale Programme, capable of providing some 6,000 units. Coupled with MTRC and private development and redevelopment sources, the land supply for private housing for the coming financial year can potentially yield 16,500 units, 28% higher than the government’s reduced target of 12,900 private flats per year.

Luxury capital values rebound owing to notable transactions

Luxury capital values rebounded by 0.8% q-o-q in 1Q21 after dropping 8.2% in 2020, largely attributed to several eye-popping transactions in the primary market during the quarter.

Supported by local demand amid the ongoing border shutdown, luxury rents remained almost flat, dropping a mere 0.2% q-o-q, after a significant slip of -13.3% in 2020. Among major submarkets, the New Territories recorded the most marginal decline with rents down only 0.1% in 1Q21.

Outlook: Luxury sector mired by high vacancy

With new luxury units continuing to trickle in and offshore buyers still restricted from entering Hong Kong for inspection, demand for luxury properties should remain soft. Prospective buyers will likely continue to ask for discounts given the high vacancy level, despite the low interest rate environment. As such, we maintain our forecast for capital values to drop in a range of 5-10% in 2021.

We expect to see more leasing enquiries in the coming six months amid the traditional home search season. Still, the luxury leasing market is likely to be less active compared to previous years, owing to weak expatriate demand in tandem with their shrinking housing budgets. Luxury rents are forecasted to drop in the range of 5-10% in 2021.

Note: Hong Kong Residential refers to Hong Kong's overall luxury residential market.