Agents expect high-end rents to remain buoyant and the number of leasing transactions to rise The return of expatriates and a local economic upturn will help the luxury residential leasing market extend its buoyant trend this year, with property agents predicting a continued rise in both transactions and rents. In the mass housing market, leasing transactions are likely to slow as rising home prices prompt landlords to sell and tenants to become homebuyers. Tenants who once had reservations about the property market are buying homes after witnessing a sharp rise in prices in the past 12 months. Midland executive director Vincent Chan Kwan-hing said leasing transactions accounted for only 17 per cent of deals clinched by Midland to date this year; the rest were sales transactions. In 2003, leases accounted for 40 per cent of business. 'When the property market is down, landlords want to lease their flats, waiting for a recovery of capital values. That increases leasing activity. But the situation reverses in a property upward cycle, when they prefer to cash in,' he said. In the mass housing market, rents would also rise as supply fell, he said, adding that landlords wanted to lift rental yields - now down to 4 per cent compared with 6 per cent to 7 per cent in 2003. According to the Rating and Valuation Department, units of between 1,000 sq ft and 1,700 sq ft experienced the biggest jump in residental rents last year, rising 13.7 points on the rental index. Rents achieved for flats of less than 430 sq ft rose only 5 points, while rents for units from 430 sq ft to 750 sq ft registered a 6.8-point increase. Rents achieved for flats ranging in size from 750 sq ft to 1,000 sq ft rose 11 points, and did rents for units bigger than 1,700 sq ft. Midland Realty and Centaline Property said average housing rents rose 14 per cent last year. In the luxury residential sector, real estate consultants said rising prices had encouraged owners to put their properties up for sale, leading to falling supply in the short-term leasing market. But they expected an overall increase in both leasing activity and rents this year. Savills (Hong Kong) senior director of residential leasing Edina Wong Lai-mun said demand in the leasing market had been strong since the fourth quarter of last year. The firm expects rents to grow by 20 per cent to 25 per cent this year. CB Richard Ellis residential services director Jane Garnett said average rents for upmarket apartments had climbed 5 per cent so far this year. However, she expected moderate growth in average rents of 8 per cent to 10 per cent this year. Island South is the most popular district for expatriates, and the relatively new Residence Bel Air in Pokfulam was proving a favourite, agents said. They said growing rental demand was mainly brought about by the rising number of expatriates, most of whom came from the banking and finance, legal and information technology sectors. Despite the prevailing positive growth, property agents generally believe the boom in the market is nothing like the situation in 1997, when the property bubble was about to burst. 'There is much more sustainable growth in the market at the moment,' said Ms Garnett. 'We're still looking at a relatively low level of affordability and it is much easier to get financing from banks with the prevailing low interest rate.' Ms Wong said the current average rent in the luxury residental market was $40 per sq ft, still far off the $60 per sq ft peak in 1997. Ms Garnett said growth in the luxury residential market was the result of businesses expanding or setting up new operations in Hong Kong this year. Thanks to the strong economic rebound, both the number of regional headquarters and regional offices in Hong Kong reached all-time highs last year. According to the Census and Statistics Department, 1,098 companies had regional headquarters and 2,511 companies had regional offices in Hong Kong at the end of last year.