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HK's property market sees good sales, low rental values

KUALA LUMPUR: The Hong Kong property market is being pulled into two directions. On one hand, sales are rising but leases are on a downward trend. According to Colliers International Hong Kong 2Q 2009 property report, the general market mood is still conservative but investors are snapping up properties to ensure they are in good position to reap the benefits when the global economy recovers.

OFFICE SPACE

Due to ample liquidity and with near zero interest rates, real estate purchasers, including a number of local private investors, have entered the market in anticipation of a global economic recovery in 4Q2009 to achieve capital gains, said the report.

As a result, prices increased in 2Q. For example, the average asking price for strata-titled office buildings in Admiralty rose to between HK$10,000 to HK$13,000 psf compared with between HK$8,000 to HK$9,000 psf in the previous quarter.

Rental, on the other hand, have gone down, with tenants preferring to play it safe with downgrades to less expensive offices or second-tier buildings. The vacancy rate across the various business districts increased 0.43% from 7.43% in February to 7.89% in 2Q2009.

Overall, Colliers predicted that Grade A office rentals will see a further slide of 15% over the next 12 months unless there is a change in the economic climate.

RESIDENTIAL

The luxury residential sector also saw an increase in sales in 2Q09 thanks to the low mortgage rates of as low as 1% per annum based on certain conditions making investment buying attractive. The number of sales in the three traditional luxury residential districts of The Peak, Mid-levels and South Side all saw a leap of more then 100%.

On the leasing front, however, the market is weak, no thanks to the low occupational demand for luxury units by multinational companies' employees.  A number of tenants have opted for cheaper areas due to tightening purse strings.  

Colliers said luxury residential capital values should rise by 5% over the next 12 months, although rentals are likely to edge down 3% during the same period.

INDUSTRIAL

Transactions in the industrial sector rose 129% quarter-on-quarter from 393 in March 2009, the lowest level since 1999, to 900 in May 2009. The most active areas were industrial districts of Kwai Chung/Tsuen Wan and Kowloon East.

There was a rather subdued feeling in terms of leasing due to the global recession. Although individual warehouses are taking advantage of the market downturn to upgrade their premises to be in prime position when the economy recovers, tenants remain cautious when it comes to rental expenses. As a result, industrial rentals are expected to fall by 5% to 15% over the next 12 months.

RETAIL

The drop in tourist numbers, the A(HINI) flu pandemic situation and the global slowdown has resulted in a downward trend in rents  of retail property. The average retail rent in the four traditional shopping districts of Central Causeway Bay, Mong Kok and Tsim Sha Tsui showed a decrease of 4.7% quarter-on-quarter in 2Q2009, compared to the fall of 3.1% quarter-on-quarter in Q12009.

Nonetheless, Colliers predicted that rentals will decline further by another 12% over the next 12 months.

However, investment buying has grown thanks to increased capital inflow and more relaxed lending policies by local banks. The number of major transactions with lump sum considerations of HK$10 million or above increased by 70% quarter-on-quarter.
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