Market to stagnate as tech grabs light
The investment market will continue to stagnate as more investors pour their money into technology-related projects in anticipation of better yields, according to property consultants.
Transactions in the luxury residential and grade A office sectors remained low despite a rise in activity earlier this year, agents said.
Michael McGuire, a director of A G Wilkinson & Associates, said corporations would dispose of luxury residential properties to beef up cash holdings for more attractive investments, including Internet or technology related projects. Investors had lost their appetite for luxury residential properties because of low yields.
The market for office space has also come down significantly because office prices had rebounded up to 15 per cent from 1998's low level, he said, adding that investors were unlikely to return to the market unless the rental yield improved. He said annual rental yield for luxury residential properties and offices were about 5 to 6 per cent.
However, activity in the retail sector in prime locations outperformed other sectors, with yields of up to 10 per cent per year, he said. Last month's poor land auction and concerns on interest rate rises would certainly dampen investors' interest in acquiring properties. But he expected to see office rental increase by 20 per cent this year, with Central the first to recover as a result of short supply. Although there was a positive outlook for office rentals, he said investors would remain cautious until a full recovery in office leasing.
Chesterton Petty associate director Watson Chan said the slowdown in investment was partly because of the poor land auction result and a possible rise in interest rates. He said the market would improve if mainland China gained entry to the World Trade Organisation. The market would become more active as Hong Kong would become a gateway for multinational firms to move into the mainland, which in turn would create demand for office space, he said.