Soaring rents pile pressure on expats

HONG KONG: When Heather Wedl and husband Monte moved to Hong Kong from the United States three years ago, they knew they would be in for a shock when it came to renting a flat.

They'd come from a four-bedroom house with two-car garage in downtown Memphis, Tennessee, the headquarters of Federal Express, where Monte Wedl works as a pilot for the company's freight planes.

They settled on a 1,000 sq ft apartment in Chianti, Discovery Bay, which gave them just enough space for themselves and their daughter Ava, seven. They even got lucky with the timing of their move, managing to secure a 50% discount on their sign-up rent of HK$32,000 (RM12,419.05) a month after the lease later came up for renewal in the midst of the global financial crisis.

But now they are steeling themselves for a sizeable increase when their lease again comes up for renewal. This concern at record-high rents is stopping them making longer-term plans about staying in the city.

"Our contract is basically open-ended. But can I really live here for 10 or 15 years? I don't think so," Heather says. "We're used to living in larger places, and there's something not quite home-like about this place."

Rents are now 2.2% above the previous record, set in July 2008, according to Colliers International, and are forecast to climb a further 15% in the next year. Coupled with bad air quality and a lack of international school places, Hong Kong has three strikes against it as a location for overseas employees.

"It's definitely putting people off moving to Hong Kong," says Deborah von Eldik, who runs the brokerage Compass Real Estate.

The schooling situation may be even more serious. There are around 350,000 expatriate employees in the city but only about 35,000 places at international schools. Many are taken up by local families keen to get their kids an international education.

Anne-Marie Sage, the regional director for residential at Jones Lang LaSalle, says the lack of international school places is by far the most serious factor that puts expat workers off a Hong Kong posting.

"The most important question now is: 'Can I get my children into school?' Housing comes a very far second," Sage says. "If I can't get my children into school, I'm not coming. Can I get my children in school in Singapore? Yes, I can."

But rents are another massive concern, and may determine how long expats stay once they get here. Tim and Mary Quinn also moved to Hong Kong in 2008 with FedEx. The company has a base in Guangzhou, and many of the pilots live in Hong Kong and commute to the city.

But the company has not been able to fill all its pilot positions. Prospective employees are put off either by the prospect of living in Guangzhou, where rents are lower but quality of life may suffer, or by the high cost of living, and particularly rents, in Hong Kong.

The Quinns are also bracing themselves for a hefty rise when their lease comes up for renewal in December. Neighbours have seen their rents rise by as much as 40% and are being forced to move to smaller flats in Discovery Bay, or to places like south Lantau.

Mary Quinn loves the convenience and lifestyle of Hong Kong. She and her husband are not thinking of leaving yet but are shocked at having to pay more for a 1,000 sq ft apartment than they spent on their mortgage for a 4,000 sq ft, five-bedroom house in Virginia Beach, with a hot tub and a nice plot of land.

She would rather not think about what's going to happen at the end of the year. When her friends keep packing up to change flats, inevitably a few leave Hong Kong each time. Even staying in the city and constantly relocating becomes a grind.

"I'm just living day to day because I know my landlord is going to drop the bomb and my rent is going to go up," she says.

Multinational companies are trying to be more flexible. They used to adjust their housing allowances once a year. But faced with a rapidly moving market, some manufacturers and financial companies have switched to twice-yearly reviews.

They have been more than matched, however, by big landlords. Property companies that used to price rents on a quarterly basis are now making month-to-month moves. They quickly lowered rents to avoid big vacancy problems during the financial crisis. But now they are raising them just as fast.

Multinationals "are trying to match market rents, but the market rent is rising much faster than their expectations", says Clara Chu, director of residential leasing at Colliers.

There is now a 10% mismatch between the housing allowances companies pay their expatriate workers and the rents they need to pay. Though sales may be slowing, luxury rents increased 1.6% in May, the quickest rate of growth in the last three months, and an annualised rate of almost 20%.

Knight Frank, which compiled the figures, credited exceptionally strong demand from expatriates and the lack of apartments to rent. Prices have climbed most at the top end, with rents on The Peak up an average of 16% over the last year, compared with gains of 14% in Mid-Levels and 6% on the south side of Hong Kong Island.

The most popular rental properties now have waiting lists of 100 names or more. Faced with being edged out by skyrocketing prices or simply a lack of properties, expats are responding by settling for smaller or worse apartments, or moving to less convenient locations.

You could make a sizeable down payment on a conventional apartment with the monthly rent paid for a luxury apartment. For instance, a 9,596 sq ft house at 24 Middle Gap Road was recently rented out at HK$700,000 a month. Elsewhere on The Peak, a 6,080 sq ft house at 28 Gough Hill Road fetched a rent of HK$500,000 a month.

Where the higher rents may really hurt Hong Kong is in luring younger expatriates — or returning Hong Kong Chinese — to the city. Hong Kong has always been a magnet for people who want to try living and working in Asia, and its attractiveness is arguably at an all-time high thanks to China's economic emergence.

But it may be getting prohibitive to start your career here. Rents at the lower end have also climbed dramatically, with apartments that used to rent at HK$8,000 or HK$10,000 six months ago now fetching HK$12,000. Though the increments are smaller, the percentage gain is just as big — and those free frontier spirits don't have big pockets backing the difference. — SCMP