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Peggy Sito

Yvonne Liu

Investor interest in Hong Kong properties has surged in recent weeks, driving prices sharply higher in all sectors despite lingering uncertainty about the pace of economic recovery.
At the office market bellwether Lippo Centre in Admiralty, the cost of buying office space had soared 75 per cent in just four months to HK$14,000 per square foot from a bottom of HK$7,300  in January.
In the retail market, sales volumes rose 49.8 per cent to HK$2.18 billion in May from HK$1.45 billion in April - a 10-month record high. 
And in the luxury residential market, prices at Dynasty Court in  Mid-Levels  climbed 18 per cent to HK$13,450 per square foot in May from HK$11,421  in December last year - the  trough since the outbreak of the global financial crisis. 
'The rebound in prices in the office market has been beyond the expectations of all agents,' said Desmond Poon Chi-ming, an associate director of  property agency Chartersince Realty (International).
Investors had become aggressive in buying office properties  since the stock market rebound and the cuts in savings deposit rates, he said. 
'The cuts meant that you could earn just HK$1,000 a year in interest  on your HK$100 million in a savings account,' Mr Poon said. 'But you could get a rental yield of 3.5 per cent if you bought office properties.' 
Lippo Centre office prices had fallen  61 per cent to HK$7,300 per square foot in January from a peak of HK$18,830 in April last year, he said.  
However, the office space investment market  had turned active since March and sales volumes jumped 70.5 per cent to HK$1.11 billion in May from HK$651 million in April,  data from the Land Registry shows.
The demand helped push total office deals in Admiralty to 15 in May, with prices also  rising significantly,  Mr Poon said.
Many recent buyers were looking for short-term capital gains.  
Property agents said Hong Kong-listed Capital Strategic Investment stunned the market by 'flipping' an office floor on the China Merchants Tower at Shun Tak Centre in Sheung Wan for a profit of HK$15 million in just three days. 
The  firm bought a 25,835 square foot office floor  last Friday for HK$262 million and sold it on Monday to Gale Well  for HK$277 million. 
But following the steep rise in prices in recent weeks, the medium-term outlook for the office market was now uncertain,  agents said. Rents for grade A offices, hit hard by the global financial crisis which led to an exodus of financial sector tenants, slumped almost 30 per cent in the first quarter,  property consultant CB Richard Ellis said.  
The latest research from consultancy Knight Frank shows the slide continues, with rents dropping a further 2.9 per cent in April  from March.
Henry Lam, a director of investment at Knight Frank, said  office rents remained in a down-cycle and yields on office investments would  drop further unless rents increased to match the big rise in prices. 
'So it may be risky to continue investing in the office market, compared with investing in luxury residential or retail markets,' he said.
In the  retail space sales market, demand had rebounded  since the sharp fall in transactions from August last year, said Pierre Wong Tsz-wa, the chief executive of Midland's  commercial and industrial division.
'Retail rents in prime locations  can produce a rental yield of 4 per cent, while the mortgage rate  is 1.5 per cent only. That means investors  can enjoy a net rental yield of 2.5 per cent, which  is attractive,' he said.
Retail rents in shopping areas have dropped  about 10 per cent  since the fourth quarter of last year,  a lower decline than rents in the office and residential markets, and retail rents in Mong Kok, Causeway Bay and Tsim Sha Tsui have been stable in recent months.
In the luxury residential market, a total of 566 luxury homes valued at HK$10 million or more changed hands last month,  rising 40.1 per cent from a month ago to an 11-month high,  Centaline Property said.  
'Rising momentum in the market was bolstered by the inflow of hot money, which did not only go into the stock market, but was also invested in the property market,' said Simon Lo Wing-fai, the director of research  at Colliers International.
'In a scene  not seen for months, transaction prices of expensive homes were higher than their asking prices due to strong demand,'  said Landscope Surveyors managing director Koh Keng-shing, who noted  that the jump in deals had pushed prices higher.
However,  Mr Lo and Mr Koh believe  growth in demand is unlikely to be sustained without  sound economic fundamentals. 
Mr Lo said recent strong price rises in the luxury residential market could not be sustained as long as luxury rents continued to fall. 
Henry Lam of Knight Frank said investment activity would likely focus on property worth between HK$100 million and about HK$300 million. 'Many banks remain cautious about lending for large-scale acquisition. It remains difficult for investors seeking to acquire property worth more than HK$500 million to raise a loan.' he said.
Price spiral
Offices at Lippo Centre now sell for HK$14,000 per square foot 
Prices of office space for sale at the property had risen in four months by: 75%



Investor interest drives market up