Demand for luxury rental homes is weakening, forcing landlords to cut rents and offer more incentives to secure tenants, many of whom are also faced with reduced housing budgets from their employers.
The trend is in marked contrast to the rest of the residential sector, where landlords are experiencing no difficulty finding or retaining tenants, and where rents are on the rise.
Rents for luxury apartments offered for lease in Island South and on The Peak have been hit the hardest as a result of fewer expatriates arriving and an increase in the stock available.
Anne-Marie Sage, head of residential leasing and relocation services for Hong Kong at property consultancy Jones Lang LaSalle, said overall luxury residential rents dropped by 3.3 per cent last year, with the South Side and The Peak recording sharper falls of up to 7 per cent.
"This is in line with the rental brackets of HK$100,000-plus per month, which have been most affected. The very-high-end sector offered at HK$300,000-plus is really feeling the decline, with stocks remaining vacant for several months if landlords are not willing to lower the rentals," she said.
The main reason for the fall, she said, was a drop in the number of expatriate families coming to Hong Kong - particularly from the financial services sector. "The drop in relocations, coupled with more high-end luxury stock entering the market due to the stagnant sales market, is the reason for the downturn."
She believes rentals will continue the downward this year, forecasting a year-on-year drop of up to 5 per cent.
Koh Keng-shing, founder of property consultancy Landscope Christie's International Real Estate, said rents for flats in the range of HK$100,000 to HK$200,000 a month had dropped 10 per cent, while landlords asking for rents of more than HK$200,000 have had to take cuts of up to 20 per cent.
Clara Chu, a director of residential leasing at Colliers International, said more expats were signing up for apartments on personal leases, adding to the downward pressure on rents.
Previously, expatriates from the financial sector, who received a package of housing allowances provided by their employers, were willing to chip in more on top of the housing allowances.
Sage said expatriates were looking for more affordable locations. Singles or couples were keeping to the fringes of Central such as Sai Ying Pun, and precincts like Lohas Park in Tseung Kwan O had also become more popular.
"For families looking for more space, locations in the New Territories like Clearwater Bay and Sai Kung, as well as Discovery Bay, were very popular although they are not so affordable any longer."