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#New:* HK luxury property values to improve in next 12 months

HONG KONG: Despite both the local and global economic uncertainties, property sales in Hong Kong were active in the first half of 2009, according to Colliers International in its mid-year review and forecast (May 2009 - May 2010) report.

The report said on July 16 that capital values and rental declines in residential property are expected to improve within the next 12 months due to increased liquidity in the market.

The report stated luxury residential sales market outperformed both in volume and prices in 1H2009, and this positive growth in sales is expected to continue.

According to the report, properties valued at HK$50 million or above in traditional luxury residential districts recorded an increase in the number of transactions by 114%, total turnover by 92% and unit prices by 23% compared to 2H2008.

Luxury property prices are projected to grow over 5% in the next six to 12 months, with rental yields anticipated to be between 2.5% and 2.8% as local banks continue to offer low interest rates amidst anticipation that the economy will stabilise in the near future. Supply in luxury residences is also limited. 

Colliers International Hong Kong managing director Richard Kirke said many investment institutions are net sellers or they stay on the sidelines looking for assets with high yields.

“Cash-rich private investors are the active buyers currently in the market. With the high interbank liquidity, the anticipation of approaching the bottom of the downturn cycle and possible inflation, all these stimulate buying demand."

Colliers' regional director of Asia Investment Sales, Antonio Wu says the investment market has showed signs of improvements.

"There was a mild drop of 2% year-on-year (y-o-y) to HK$16.24 billion in the total value of property investment transactions in 1H2009. However, the number of transactions rose by 12.5% y-o-y to 162 cases during the same period," he said.

Wu says half of the total investment transactions were concluded in May and June, with major buyers among cash-rich investors and families.

However, occupational demand has remained subdued, causing downward pressure on rentals especially in Grade A office sectors for the past six months.

Rentals for Grade A office leasing fell 12% quarter-on-quarter (q-o-q) in 2Q2009 and 24% since beginning of this year, and projected to decrease 15% in the next 12 months and likely to bottom in mid 2010.

Existing tenants are opting to downgrade their offices, some relocating from Causeway Bay to Kowloon East for example.

For the industrial sector, weak trade activity dampened leasing demand, causing a fall in rentals. Industrial rentals fell 5% q-o-q in 2Q2009 and 10% y-t-d.

Despite all this, due to the funds inflow, prices of industrial properties recorded an increase of 6% q-o-q in 2Q2009. Industrial rentals and properties are projected to drop 14% and 9% respectively.

Retail sales have seen negative growth since February this year, resulting in a greater number of vacant shops available for lease. Retail rentals in core shopping areas fell by 5% q-o-q in 2Q2009 and 8% y-t-d.

According to Colliers, retail property rentals for ground floor shops in core shopping area are projected to fall a further 12% in the next 12 months.
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