Hong Kong’s second quarter luxury residential prices up 3.8%

Luxury rents are estimated to soar further by 15% in the next 12 months.

According to Colliers International’s The Knowledge research and forecast report on the Hong Kong residential market, overall luxury residential prices edged up further by 3.8% quarter-on-quarter (QoQ) to HK$19,520 per sq ft as of May 2011. It represented a new record high, surpassing the previous peak in mid-208 by 30%. The robust luxury residential price growth was supported by the tight supply, as well as the strong demand from wealthy Mainland Chinese buyers.

Due to rising mortgage rates, further lowering in loan-to-value (LTV) ratio and growing concerns over the re-launch of Home Ownership Scheme flats, sales activity of the overall Hong Kong residential experienced slowdown in 2Q 2011. However, the luxury segment remained upbeat. During the three-month period ending May 2011, the number of luxury residential sales transactions in the three traditional luxury districts of The Peak, Mid-levels and South Side, that sold for over HK$20 million, increased by 11% QoQ. In the super-luxury residential market (referring to sales transaction of properties at over HK$100 million), the number of sales transactions recorded an even stronger growth of 50% QoQ over the same period.

“Active sales activity in the super-luxury residential segment, in which Mainland Chinese buyers represent about 40% of total buyers in the segment, were less cost sensitive as compared to the overall market,” said Simon Lo, Executive Director of Research & Advisory Services, Colliers International Asia.

“Lowering in LTV ratios and the unavailability of Mortgage Insurance Program to non-local borrowers are not expected to slow the buying spree as cash-rich Mainland Chinese buyers do not need mortgages. Instead, the further lowering in LTV ratios will impact overall residential sales activity, as end-user demand will be affected,” commented Lo.

On the leasing front, sustained occupation demand fueled further growth in rents in 2Q 2011. “Despite a mismatch between corporate housing budgets and landlord’s asking rents, landlords remained firm in rental negotiations, with some even raising their asking rents. Tenants who could not justify the widening gap between budgets and rents turned to downgrading flat sizes, or moving away from the traditional luxury residential areas to other districts, such as Kennedy Town or Pokfulam,” mentioned Lo in a Colliers International report.

After rising 3.62% QoQ in 1Q, the average luxury residential rent in the three traditional luxury residential districts increased further 4.1% QoQ to a record high, HK$47.3 per sq ft per month in 2Q. Meanwhile, overall luxury residential yield of the traditional luxury residential districts stayed relatively steady, increasing marginally from 2.72% in February 2011 to 2.73% in May 2011.

Amidst the challenge of further lowering in LTV ratio, tightening measures imposed by local banks and interest rate hikes in late 2011 or 1Q 2012, the residential market will potentially see a consolidation. However, with a tight supply situation, luxury residential prices do not expect a dramatic decline. According to Colliers’ projection, the overall luxury residential price growth will narrow to 5% over the next 12 months. Meanwhile, the average luxury residential rent is expected a much stronger growth of 15% over the next 12 month, due to the sustained rising inflow of expatriates from various industry sectors and escalating inflationary pressure.