Hong Kong home rents expected to fall along with prices

Housing costs expected to fall up to 10 per cent in the next six months after 17-month increase and as more new homes come on the market

PUBLISHED : Wednesday, 30 September, 2015, 12:36am
UPDATED : Wednesday, 30 September, 2015, 1:14am

Tenants In Hong Kong can now breathe easy as property experts predict rents to fall up to 10 per cent in the next six months.

After having risen for 17 consecutive months, property agents and analysts say they expect home rents, as well as prices, to face downward pressure.

With major residential projects hitting the market in the next six months, that pressure can only grow, they say.

"Supply of homes for rent will increase in the fourth quarter along with the delivery of several major projects," said Derek Chan, the head of research at agency Ricacorp Properties.

The projects include the 1,096-unit Avenue II in Wan Chai, Mayfair by the Sea I and II providing 1,091 units in Tai Po, and the 691-unit Grand Austin at Austin train station.

According to property agents, 160 units at the Grand Austin are already on the rental market even though they will not be ready until the end of the year.

"Rents in the area will definitely face downward pressure when the units are completed," said Cheung Chun-kit, a sales director at Ricacorp's Kowloon branch.

"But we have not seen any rent cuts so far probably because the units are not ready."

Alfred Lau, a property analyst at Bocom International, said he expected home rents to fall 5 to 10 per cent in the next six months because of new supply.

Some 15,000 private housing units will be delivered this year, or more than 30,000 flats if government housing is included.

This will be the first time since 2011 that new units will exceed new households, according to Lau's estimates.

He said he expected home prices would drop by up to 20 per cent when interest rates started to increase.

Cusson Leung, the head of Hong Kong equity research, regional conglomerates and properties at JP Morgan, also expects rents and prices to fall.

"While we are expecting secondary residential prices to drop 5 to 10 per cent in 2016 due to the weak economy, we expect residential rents will fall similarly for the same reason," Leung said.

Property agents have started reporting cases of rent cuts. A flat owner at Whampoa Garden recently rented out his unit at 18 per cent below the market rate of HK$33 per square foot in terms of saleable area.

"The owner was cautious about the market outlook amid all the negative news about the economy and the property market," said Justin Chan, a sales manager at Ricacorp.

But Derek Chan said tenants in general were yet to see rent cuts on a wide scale.

According to agents, rents at 50 housing estates last month still hit a record high at an average of HK$33.56 per square foot but the month-on-month growth slowed to 0.4 per cent.

"We will see rent growth narrowing this month and probably a correction of 5 per cent in the fourth quarter," said Derek Chan.

Thomas Lam, the head of valuation and consultancy at property consultancy Knight Frank, said he did not expect mass housing flats to fall this year.

"It may happen next year when prices start softening," Lam said. "Real demand for rental homes remains strong as many people cannot afford to buy.

"Those who recently renewed their leases are paying more than previous occupants. The pace of rent rise will narrow, though."

Lam said he also expected luxury rents to drop 5 per cent in the fourth quarter because of weaker demand.