Will rents take charge of Hong Kong's property market as home prices slow?

Developers are switching unsold luxury flats from the sales to leasing market to escape the claws of vacancy tax.

Rents for residential properties may just assume the role of maintaining the heated trajectory of Hong Kong’s property market as the government’s cooling measures may backfire after appearing to have only taken into account the sky-high selling prices of properties and not the associated rental costs. 

Also read: Public housing rents to climb 10% by September

The government rolled out a series of policy initiatives including a tax levied at 200% of the rateable unit value or around 5% of the property price of units in an effort to cool Hong Kong’s heated property market which has held the dubious distinction as the world’s most expensive property market for the eighth consecutive year.

Developers of luxury homes are likely to switch from the sales to the leasing market in an effort to escape the newly imposed tax on vacant properties, according to real estate consultant JLL.

In fact, Sun Hung Kai Properties is leading the pack in embracing the leasing market after the developer revealed plans to lease out all 140 units in Tower 6 which represents a fifth of total units at Victoria Harbour in North Point.

“Given the increased pressure to offload luxury stock in the short term and recent improvements in leasing demand, we anticipate more developers will put unsold stock for lease to avoid the tax, especially those in non-core luxury residential areas,” Henry Mok, regional director of capital markets at JLL said in a statement.

Also read: Developers slash unsold home prices as vacancy tax kicks in

Developers of unsold luxury flats in the New Territories are also likely to hop in on the rental bandwagon, JLL added. The leasing market is poised to receive a boost from new schools to be built in the area including the Shrewsbury School, Malvern College and French International School.

“All in all, we expect luxury rentals to remain steady in 2018, though the increase in availability is likely to gradually weigh on rents,” added Cathie Chung, national director of research at JLL.

Rents buck downward trend
The steady growth of home prices in space-starved Hong Kong have noticeably slowed from 1.86 % in April to 1.644% in June, according to data from the Rating and Valuation department.

Also read: Hong Kong's property market shows signs of cooling down

The number of primary transactions in the past weekend have also plunged 80% YoY with units from Victoria Harbour and St Martin accounting for the bulk of sold flats, according to an earlier report from UOB Kay Hian.

Rents, however, bucked the downward trend after growing at a faster clip from 0.3% in May to 1.2% over the same period. 

In fact, the outlook for rents in Hong Kong’s commercial property remains bullish with headline rents expected to increase 4.4% in the next year, according to a survey by the Royal Institute of Chartered Surveyors.

Respondents see capital values increasing over the next three and 12 months across all segments of the market.