Hong Kong luxury residential rents to rise by up to 5% this year

Meanwhile, prime residential capital values are forecast to drop by up to 5%.

Elevated interest rates will likely continue to dampen the luxury housing demand. According to JLL, the underperformance of the stock market, with Hang Seng index falling to its lowest point this year in September, will likely drag on the price recovery of luxury residential properties. 

“We maintain our forecast that luxury residential capital values are expected to drop by 0%–5% in 2023,” the analyst said.

Here’s more from JLL:

Non-local talents are expected to shift from hotels and serviced apartments to traditional multifamily leasing as they settle down, giving a boost to leasing demand. As external trade and the financial market improve, the return of expatriates in the coming quarters should also drive luxury properties take-up. Luxury residential rents are expected to rise by 0%–5% in 2023.

Rising mortgage rates worsen market sentiment

Primary transaction volume fell to a six-month low of 742 units in August. Although most new projects were launched at considerable price discounts, not all managed to achieve high sell-through rates. On their respective first day of project launch, The Coast Line II in Yau Tong offloaded all 626 units in August, while MORI in Tuen Mun sold 33 of 158 units in September.

The decline of home prices has accelerated, and the housing market showed minimal response to multiple relaxations of mortgage rules amid rising mortgage rates. HSBC and BOC hiked prime rates by 12.5 bps, raised HIBOR-based mortgage rate caps by 50 bps to 4.125%, and reduced cash rebates in 3Q23. The mass residential capital values fell 2.5% q-o-q in the quarter.

Only one residential site to be tendered in 3Q FY2023/24

In 2Q23, the number of Occupation Permits issued for luxury units rose to 64 units, including 50 units at 21 Borrett Road (Phase 2) and 6 units at 52-54 Stanley Village Road. 

In 3Q FY2023/24, the government will tender a residential site at Cheung Sha, expected to yield about 110 units. The MTRC will tender Package 1 of Tung Chung East Station, providing 1,200 units. URA will put up two development projects in Kowloon City and Ma Tau Wai, yielding 1,450 units in total. The private housing land supply in 3Q would support the development of around 3,200 units. 

Market activity in the high-end market slows down

In 3Q23, the transaction volume for residential properties valued at or above HKD 20 million has fallen by 51.5% q-o-q, and luxury capital values have dropped by 1.6% q-o-q. Among a scarce number of luxury sales transactions, a house at Severn 8 on the Peak was sold for HKD 300 million (HKD 59,207 per sq ft, saleable area).

During the summer holiday peak season, the leasing market experienced a boost in take-up. In 3Q23, the leasing transaction volume in the luxury market rose by 58.5% q-o-q, and luxury rents rose by 2.2%. Anecdotal evidence suggests that the scale of expat employee relocations to Hong Kong remained small. Leasing demand was primarily supported by local and Mainland Chinese families.

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