Hong Kong Residential Prices To Face Downward Pressure With Abundant Supply

Global real estate and services company Knight Frank in their latest Hong Kong Monthly Report, have commented that leasing interest from Mainland Chinese firms in the SAR continued unabated, Grade-A office leasing in Hong Kong remained active. Also with the government’s intention to increase residential supply and continue implementing cooling measures in the near future this is expected to impose downward pressure on prices. Finally with sales of luxury products subdued, mid-tier retailers remained the pillar of the shop leasing market.

Here are the highlights from this months report:

Office

Hong Kong’s Grade-A office rents rose for the tenth consecutive month in October, with the vacancy rate dropping further to 1.6% on the back of strong leasing demand. On Hong Kong Island, mainland Chinese companies continued to expand or set-up new offices, mostly in Central.

Looking ahead, David Ji, Director, Head of Research & Consultancy, Greater China at Knight Frankexpected over 2.5 million sq ft of new Grade-A office supply in decentralised business areas to be newly available in 2016, exceeding the annual average take-up of 2 million sq ft across Hong Kong in the past 20 years. Grade-A office rents in decentralised areas, therefore, may slightly drop by 5% next year.

Residential

According to the Land Registry, in October, Hong Kong’s residential transaction volume fell 22.6% from September to 3,300, a 19-month record low, as the launch of primary housing became slower, while sales in the secondary market remained quiet.

The government reaffirmed its intention to increase land and new-home supply. As at the third quarter of 2015, The Transport and Housing Bureau said that around 86,000 new private homes are projected to enter the market over the next 3-4 years. David expects residential prices to remain relatively stable for the rest of the year. Luxury residential prices are set to grow 1-2% over the year, while mass residential price could increase 9-11%. However, with abundant residential supply in the future, home prices are likely to be under pressure next year, estimated to drop 5-10%.

Retail

Hong Kong’s total retail sales value fell 6.4% in September from a year earlier, with most types of retail outlets recording negative growth in sales. The declines were attributable to slower inbound tourist traffic, particularly from the Mainland. Luxury retailers remained quiet in the shop leasing market, while mid-end retailers were relatively active.

According to the Rating and Valuation Department, the number of retail property sales transactions in September reached only 95, the lowest since 1998. However in October, a number of mass-market shopping arcades were sold.

Looking ahead, shopping malls are expected to remain resilient with limited supply. Prime shopping malls rents are expected to increase 2-3% in 2016, while non-core shopping malls could see a 5-10% increase in rents, on the back of strong local demand for mid-tier goods and necessities.

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