Hong Kong luxury market
heads for high end returns

 
Hong Kong’s luxury residential market ‘turned active’ in the fourth quarter of 2006, Colliers International has reported.

The number of transactions in this sector increased by about 29 per cent in the quarter while average luxury residential prices edged up 1.5 per cent to £635 per square foot.

‘Thanks to the continued inflow of liquidity and the positive implication of the land auction results in November 2006, the overall luxury residential property market showed signs of gathering momentum in the middle of the fourth quarter of 2006’, said Colliers. ‘One of the key trends was that the local inter-bank rates continued to come under downward pressure’.

There had been several large lump sum investment transactions in the luxury residential market over the last three months, it said. Multiple purchases of such properties had hardly been seen in the previous quarter.

Meanwhile a November Government auction of two plots with luxury residential development potential ‘received active responses from developers’. After strong competition among 11 bidders, the first site was finally bought for £126m – some 76 per cent higher than the opening bid and equivalent to £640 per square foot. .

The second site attracted bids from five developers, with the winning bid topping £211m, 35 per cent higher than the opening bid.

As the sales market was seeing improving signs, the luxury leasing sector was also supported by strong demand, said Colliers. Average luxury residential rentals edged up 1.6 per cent in the fourth quarter. ‘As more regional headquarters locate in Hong Kong, there will be more managerial level expatriates giving a stronger driving force for the luxury residential leasing market.’, said the firm.

‘Looking forward, the luxury residential market is predicted to see a positive growth. It could be attributed to the resuming investment sentiment in anticipation of an interest rate cut in 2007 and the increasing wealth of local residents. Therefore, the capital value is expected to increase 15 to 20 per cent year on year over the next 12 months. Besides, Hong Kong still has the privilege of being a preferred destination for foreign and mainland China companies to set up their offices - because of the existing low and simple tax system and the projected stable economic growth next year. Therefore, luxury residential rentals are expected to increase by 9 per cent year on year over the next 12 months’.

In mainland China itself only one luxury residential project was completed in the fourth quarter of 2006 but the number of buyers was relatively low. To date, its occupancy has reached over 50 per cent, said Colliers.

The Government’s stringent policies designed to control the property market seem to have worked, with a significant number of investors choosing to wait. Meanwhile developers have postponed developments until this year.

The result was that the 2006 supply of new high end apartments amounted to 2,003 units, only 41 per cent of the 2005 total, giving a chance for the leasing market to increase its vacancy rate.