Luxury prices forecast to fall as much as 12pc
Persistently high unemployment and negative economic growth will drag down luxury property prices a further 12 per cent in the first half of the year, according to a report.
However, prices could rebound slightly in the second half if interest rates were cut by 50 to 75 basis points and growth turned positive, said Simon Lo, research director of property firm Colliers Jardine.
With a spread of about 2.5 per cent between interest rates in the United States and the SAR, the rates could be cut further, boosting the property market, he said.
'We could see a slight rebound of 5 per cent in capital values,' Mr Lo said.
Residential rents were expected to remain within a tight band during the remainder of the year, fluctuating up or down by about 5 per cent.
'There is not going to be a major upside or a major downside to residential rents this year,' he said.
Luxury rents had dropped by about 24 per cent since the height of the market in 1997.
Mr Lo said the downturn in the Hong Kong economy was the single largest reason for the lacklustre trading in the residential leasing market this year.
The number of new companies setting up in Hong Kong had dropped 20 per cent since the economic downturn, while the number of companies going out of business had risen 30 per cent.
This would depress demand for flats of more than 1,500 square feet, Mr Lo said.
'That is why luxury rents are not expected to do very much this year,' he said.
Mr Lo said investors could expect yields of about 5.7 per cent.
PAIN THEN GAIN Poor state of economy takes blame for decline Rate cut in second half could improve situation Sector rentals expected to stay in tight range