Tenants' dilemma: to buy or not to buy

HONG KONG: To rent or to buy? Cereal Luk, like so many other tenants in Hong Kong, is currently wrestling with this tricky question.

While she is keen to avoid paying rapidly rising rents, buying now seems fraught with risk, since average home prices are approaching the peak levels reached before the 1997 East Asian crisis and luxury-home prices have exceeded those levels.

"I am trapped in a dilemma," confessed Luk, who works in finance and is renting a two-bedroom flat in North Point for about HK$8,000 (RM3,111.90) a month. She expects to have to pay more when her tenancy expires in the first quarter of next year.

A survey by estate agency Midland Realty of rental renewals at 100 housing estates that it monitors showed that average home rents rose to HK$19.80 per square foot per month last month, up 38.46% from HK$14.30 per square foot in March 2009, and up 8.8% compared with March of last year.

A study by Centaline Property confirms the trend of rising rents is continuing. In the first quarter, it found, flats renting for between HK$5,000 and HK$10,000 a month accounted for 31.5% of the market, down from 32.2% in the fourth quarter of last year.

Flats renting for below HK$5,000 accounted for 0.6%, down from 1% in the fourth quarter of last year.

Centaline said the number of flats renting at between HK$5,000 and HK$10,000 a month was down 15.56 percentage points from the 46.96% recorded in the first quarter of 2009. That is the lowest ratio on record since it began the survey in 1996.

Anne-Marie Sage, regional director of consultancy Jones Lang LaSalle, said rents were also rising on luxury homes.

"We have seen an overall increase of 2.3% in luxury rents so far this year and we think that rents in the sector will continue to rise throughout the year, but at a slower pace," she said.

Faced with the rising rents, corporations are looking at an increase in rental allowances for their expat staff. Sage expects to see an increase of between 8% and 20%.

She predicts that luxury rents will rise by between 10% and 12% this year. As a result, she said that some long-term expatriates were deciding to buy a home rather than continue renting.

"I think more and more expats buy now than, say 10 years ago, and certainly long-term expatriates."

Rents apart, Luk said another reason she was weighing the option of buying was her concern that she might be asked by her landlord to vacate her flat on short notice.

Luk rented the flat in the first quarter of last year under a one-year lease with an option to renew for a further year. Her landlord can terminate the contract in the second year with one or two months of notice.

"Many of my friends have been kicked out by landlords, as they want to sell their flats to maximise profits in the market boom," said Luk, who is now looking at flats on Hong Kong island priced at around HK$4 million, or HK$10,000 per sq ft.

"It seems that I can't get anything below HK$9,900 per sq ft," she said.

According to Centaline, average home prices rose 11% from the beginning of this year, compared with growth of 7.4% in the fourth quarter of last year.

Centaline said home prices had now risen every quarter since the first quarter of 2009, for a total of 72.9% in the past nine quarters. — SCMP