Rents at popular Hong Kong housing estates falling faster than home sale prices
Concern about the deteriorating economic outlook has more middle-class Hong Kong families looking for cheaper rental deals
Rents at blue-chip housing estates are falling faster than home prices as a growing number of middle-class families start to cut their accommodation budget in anticipation of salary cuts amid a bleak economic outlook.
Industry experts forecast residential rents will plunge as much as 15 per cent this year. Rents at Taikoo Shing – a housing estate targeting middle class families with household income of HK$80,000 to HK$100,000 a month – have fallen 16 per cent from their peak in October last year compared with an overall 11 per cent drop in home prices over the same period.
“We have seen more leasing transactions record low rents on Hong Kong Island than in other districts. It reflects that middle class families are more careful in budgeting their expenses to prepare for tough times to come,” said Wong Leung-sing, an associate director of research at Centaline Property Agency.
These families now may settle for lower floors or move out of more expensive areas to look for more affordable accommodation, he added.
Landlords will need to react promptly by adjusting their asking rents downward if they want to find tenants before market sentiment turns worse, he said.
In the fourth quarter in 2015, Hong Kong Island accounted for 24.1 per cent of residential leasing transactions, according to deals brokered by Centaline – with rents ranging from HK$15,000 to
HK$19,999 per month. This compares to 20. 6 per cent of all transactions in the third quarter, and 19.5 per cent in second quarter.
Among the housing estates, Taikoo Shing recorded five leasing transactions under HK$20,000 a month in the final quarter of 2015, compared with just two deals in the previous quarter.
Nan Fung Sun Chuen in Quarry Bay has registered 17 leasing transactions below HK$20,000 a month in the three months to December, versus 10 in previous quarter, while Island Resort in Siu Sai Wan registered seven leasing transactions under HK$20,000, up from six during the same period.
Ken Ng, principal senior sales manager at Midland Realty’s Taikoo Shing branch, said entry-level rents at Taikoo Shing were now HK$18,000 per month, down from HK$21,000 for the cost of the smallest unit size of 500 square feet.
Average residential rents have dropped to HK$35 per square foot, down 16.6 per cent from HK$42 per sq ft from the peak in May last year.
“The leasing market has become active in Taikoo Shing as we handled about 90 deals last month, compared to an average of 60 deals previously. The increase is mainly because more people prefer leasing instead of buying amid the uncertain market outlook,” Ng said.
Most tenants at Taikoo Shing have a household income of about HK$80,000 to HK$100,000, said Ng.
Recent news of pay and hiring freezes at banks and brokerages have added to the deteriorating market sentiment.
HSBC, the largest bank in Europe and Hong Kong, told its staff at the end of January that a worldwide freeze on hiring and pay increases would be in effect this year as part of efforts to cut up to US$5 billion in costs by the end of next year.
However, the pay freeze was called off by HSBC chief executive Stuart Gulliver on February 10, but he made it clear that pay rises would be subject to individual staff performance reviews and would be funded out of the 2016 bonus pool due to be paid out in March 2017.
Brokerage firms are also freezing recruitment and salary increases, with headhunters saying the current level of hiring is the worst since the 2008 global financial crisis.
Midland Realty chief analyst Buggle Lau Ka-fai believes economic fundamentals have a severe impact on household spending.
“When a family sees their income is becoming unstable, they will definitely spend less,” he said.
For instance, employees in the retail industry would become prudent when they see their commission pay declining in line with sluggish retail sales. Some of them may think of looking for a cheaper place or even moving back home to live with their parents.”
Lau said leasing for luxury apartments would also be affected as the stock market turbulence could dent financial institution profits, resulting in lay offs as a way of cost control.
“Investment bankers will become less generous than before in terms of paying rents,” he said.
Midland Realty said average residential rents saw a month on month 2.6 per cent decline in January to HK$31.7 per square foot, the lowest since July 2014.