Hong Kong's residential market is facing weaker demand next year as a result of the 'China effect', where a slight deterioration in the mainland economy has translated into reduced numbers of homebuyers coming to the city, at least in the short term, according to CB Richard Ellis.
'Demand rather than supply will be more of an issue in 2012 due to the traditionally volatile nature of the market, which is often driven by sentiment,' the report says.
Investment volumes have also dropped away considerably in the real estate market, resulting from global economic uncertainties, while credit has also dried up to a large extent.
'Buyer and seller price expectations differ and this has led to a level of stagnation,' the report says. 'However, an expected drop in rental levels next year should encourage investors that value has returned and upside gains are possible. This is likely to create greater interest, however the holding power of the sellers remains strong and distressed sales in the market are not envisaged.'
On the office market, it expects average rents might fall by less than 10 per cent, however the correction could reach 20 per cent in Central as companies become more cost conscious.
'Vacancies in the area are on the rise and this could accelerate over the next 12 months as some companies surrender space or opt not to renew leases which are set to expire,' CBRE says.