Gloomy outlook for Hong Kong’s property market

KUALA LUMPUR: Cooling measures and economic uncertainties will continue to weigh down on values and yields of Hong Kong properties, said Knight Frank in a report on Jan 21.

Residential properties will be hardest hit with values expected to decline by a further 10% to 15%, while rents are expected to decline by up to 5%.

“Residential sales could drop further with continued cooling measures and increased supply,” the international real estate services agency said in its Greater China Property Market 2013 Yearly Review & 2014 Outlook.

Knight Frank noted that last year, the residential market took a breather as measures to control demand and supply kicked in, but prices nevertheless stayed firm.

“The sales volume plunged to a record low [in 2013], with sales in the secondary market reaching a level even lower than that in SARS-affected 2003,” it said.

As for the office market, values and rents of Grade A offices are likely to slip by as much as 5%, but leasing is expected to remain stable thanks to sustained demand.

While values of prime retail spaces are also expected to dip by as much as 5%, rents are expected to remain stable on slower retail growth compared with last year.

Retail growth in 2013 was driven by China’s mainland visitors to Hong Kong with a preference for mid-range brands, which compensated for slower expansion of international brands.

“Their changing spending patterns to the mid-market segment stimulated the expansion of mid-range brands. More retailers shifted to shopping areas targeting Mainland travellers,” it said.

“Commercial property sales could start to defrost with capital accumulation and the [impact from] absorption of cooling measures,” it added.

On the flipside, Tier-1 cities in Greater China such as Beijing, Shanghai and Guangzhou are expected to perform better this year, with the new Shanghai Free Trade Zone expected to benefit properties in its vicinity.

Beijing’s residential market is poised for a slight increase on the back of strong end-user demand and inflation expectations, while in downtown Guangzhou home prices will rise steadily on strong demand and shrinking supply.

While Beijing’s office market will see stable rents with limited new supply, rents of Grade A office space in Shanghai will dip by 2% as five million sq m of space will be launched over the next two years, while in Guangzhou a further 600,000 sq m of new space will keep vacancy rates up and rents down.

Retail properties in Shanghai and Guangzhou will continue to command higher rents, with rentals in the latter’s traditional shopping areas to remain high with no incoming supply this year.

However, online retail will continue to give department stores in Beijing a run for their money.

This article first appeared in The Edge Financial Daily, on January 24, 2014.

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