Decline in new flats expected to continue

Newly completed office space is seen rising to nine-year highs by next year

The number of flats completed is expected to dip to 12,740 this year, the lowest level in more than a decade, while the amount of completed office space will probably surge to nine-year highs by next year, the government says.

The amount of commercial space newly completed is also forecast to shrink to 52,000 square metres this year, down from 183,000 square metres last year. This year's supply will be the lowest in more than 10 years.

Deputy Commissioner of Rating and Valuation Mimi Brown played down concerns over the expected drop in flats coming on to the market this year. She said it was estimated more than 16,000 would be completed next year, which would be in line with expectations. The number of new homes has been steadily declining since 2002, when 31,050 flats were completed.

She declined to forecast movements in housing prices and rents, saying it depended on the market.

'Overall home prices in the fourth quarter of last year compared to a year ago rose 3 per cent while rents increased 5 per cent. I think this reflects the strong economic growth and is a normal development,' Mrs Brown said.

Year on year, prices for flats smaller than 1,076 sq ft were flat, rising only 0.67 per cent, although rents rose 5.8 per cent. For larger flats, prices rose 2.4 per cent while rents were up 7.1 per cent. Average housing prices and rents rose 0.7 per cent and 5.9 per cent respectively. Rent tends to lag behind housing prices.

Eddie Hui Chi-man, a professor in Polytechnic University's building and real estate department, said he remained optimistic about housing price rises given the sound economy and government efforts to reinvigorate the real estate market with cuts in stamp duty on property sales. He expects prices to rise between 5 and 10 per cent this year.

'There should be a pickup in market demand for housing this year as people are still buying despite the drop in supply,' Mr Hui said.

The slower pace of growth in new homes comes in the midst of a strong rebound in demand for grade-A offices.

Last year, 91,000 square metres of space came on line, almost half of which was from a single development in Kowloon Bay. That was up from the 30,000 square metres completed in 2005, the least since 1970, when 12,200 square metres were completed.

About 209,000 square metres of grade-A office space is expected to come on to the market this year and 321,000 square metres next year, all in non-core areas like Yau Ma Tei, Kwun Tong, Sha Tin and the eastern district of Hong Kong Island.

One of the biggest sources of grade-A office space is the International Commerce Centre above the MTR's Kowloon station. It will be Hong Kong's tallest building and the third-highest in the world.

'There might be some downward pressure on office rents, but not much, as none of this new supply is in core districts like Central,' Mr Hui said.