Hong Kong luxury residential leasing activity increases 30% in Q2

But the persistent high vacancy rate is hindering rent recovery.

While the transaction volume in Hong Kong’s high-end market almost doubled in 1H23 compared to 2H22, a report by JLL said the monthly volume slowed down notably in June, signalling a potential downturn of investment sentiment. 

Luxury capital values rose by 0.6% q-o-q in 2Q23. According to the report, among a scarce number of luxury sales transactions, a house at Mount Nicholson in the Peak was sold for HKD 577.4 million or HKD 82,000 per sq ft, SA.

Here’s more from JLL:

Leasing activities in the luxury segment rose by about 30% q-o-q in 2Q23. However, the existing high vacancy rate hinders rent recovery. The vacancy rate for Class E properties at end-2022 was recorded at 9.8% (according to the Rating and Valuation Department), a significant increase compared to 7.8% in 2021. Luxury rents increased by 1.0% in 2Q23. 

External headwinds pause home price recovery

Primary market sales volume dropped from a 15-month high of 1,787 units in April to 1,000 units in May. Many developers offered competitive pricing and sizable discounts to boost sales in new launches, achieving generally high sell-through rates. A total of 882 units at University Hill were sold in five rounds of launches, and four out of the five rounds achieved 100% sell-through rates. 

Major banks raised their prime rates from 5.625% to 5.75% in May, dampening the housing market sentiment. As the Hong Kong Interbank Offered Rate remained at about 5% for an extended period, there will likely be notable upward pressure on the prime rate after the expected US rate hike. The transaction volume involving Buyer’s Stamp Duty dropped in 2Q23, partly due to the depreciation of the RMB.

Out of 12 residential sites, 4 are to be tendered in 1H FY2023/24

In 1Q23, the number of occupation permits issued for luxury units dropped to six units, including two units at The Arles in Shatin and one unit at 10 Peony Road in Kowloon Tong. The supply pipeline of luxury units is expected to expand significantly in 2H23. 

In the second quarter of FY2023/24, the government will tender two residential sites in Kai Tak and Tung Chung, which are expected to yield about 1,325 units and 414 units, respectively. Together with private development and redevelopment projects, the total private housing land supply in the second quarter is estimated to produce about 4,050 units. 

Outlook: Supply to pressure price recovery, despite policy relaxation

The relaxed mortgage rule from July will improve affordability and release upgrade demand, although not much amid the current high interest rate environment. The mounting upcoming launches and stock in the Primary market will likely continue to weigh on home prices. Luxury capital values are expected to drop by 0%–5% in 2023.

The inflow of talent and relocations to Hong Kong should support the demand in the luxury leasing market. In year-to-May, the Immigration Department has approved 49,000 out of 84,000 visa applications. Among the 21,000 approved applicants in the Top Talent Pass Scheme, 3,400 had annual incomes above HKD 2.5 million. Luxury unit rents are expected to rise by 0%–5% in 2023.

Note: Hong Kong Residential refers to Hong Kong's overall luxury residential market.