Unsettled economic climate will keep Hong Kong rental market under pressure

Buggle Lau is chief analyst at Midland Realty. He offers some insights on Hong Kong’s rental market for the rest of the year.

Do you think rents in the mass market will fall further this year, and what advice would you give to people who want to lease a home in the coming months?

Up to March, rents had corrected by about 8 per cent from their peak last September. Meanwhile, residential prices had slid from 10 to 12 per cent. Rents are still going down, mainly because the first and fourth quarters of the year are quiet periods, because of Christmas and Lunar New Year, when many tenants tend to stay put. Demand drops and there is not much supply. As you know, supply comes from the primary and secondary markets. According to statistics, 5,800 units were completed from the fourth quarter of last year to the first quarter of this year. For investors who get the keys to their new apartments, their top priority is to rent them out, so that they can start collecting rental yields. So, there are a number of units available. As the supply increases, rents are bound to drop. I would suggest to prospective renters that they should be sure of which area they want to live in, and then go for a reasonably priced flat.

What are the reasons for the dip in rents in
Hong Kong, and do they also cut across into
mass and luxury housing?

One of the main reasons is that the economic climate in Hong Kong is not very promising. Also, the increase in supply of new units affects rents in the secondary market. Summer time is the most active period, as people rent during this time. Plus schools are closed and people can take some time off to look for new homes for rents. But new supply and sluggish economic conditions mean that rents will continue to be under pressure. I would say that towards the end of the year, rents would be soft. As far as rents in mass and luxury housing are concerned, I would say that mass housing is affected more. Luxury rents depend on expats, and so far they have not shown a sharp downward trend.

Will luxury rents take a dip in the coming months if more expats downsize?

If expats decide to downsize, or their employers reduce their rental allowances, and they have to move to mass housing, then things will change for the luxury market. Rents for the luxury market are dominated by professionals from the financial industry and, in recent times, a number of top-notch investment banks have reduced, or even scrapped, the housing allowance, which has affected rents in the luxury market. I would say that rents in the luxury property market are going to be soft.

Given a choice between renting and buying, what advice would you give?

If you think that property prices in the secondary
or primary market in the area you want to live fit your budget then definitely go for it. Don’t wait and watch, as you never know when prices might shoot up.