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Hong Kong Tenants Play ‘Hardball,’ Pushing Rents to 2-Year Low
By Chia-Peck Wong
Feb. 26 (Bloomberg) -- Raif Cabbabe said his property agent thought he was crazy to offer only HK$20,000 ($2,600) a month for a two-room apartment in Hong Kong’s trendy Soho district. The flat went on the market two months earlier for HK$45,000.
Bargaining for the 900-square-foot (84-square-meter) home worked. Cabbabe said he sealed the deal in November at HK$25,000 for the 2-year-old pad, which has a 250-square-foot terrace. Since then, prices have fallen further, with January capping six straight months of declines, according to data from real estate agency Centaline Property Agency Ltd.
“The property market has fallen off a cliff, so people are playing hardball now,” said Cabbabe, 28, a steel trader who moved to Hong Kong from Australia. “My friends renegotiating their rents are telling their landlords, we’ll just walk away if you don’t give us a discount.”
Rents began falling in the city in August, a month before the collapse of Lehman Brothers Holdings Inc. sparked off a global banking crisis. Home leases may fall as much as 15 percent to 20 percent this year, said analysts including Simon Lo at Colliers International Ltd. Hong Kong slid into its first recession since 2003 in the third quarter, leading companies to rein in costs by firing workers.
Unemployment in Hong Kong jumped 0.5 percentage points to 4.6 percent in the three months through January, the largest increase in a decade, as companies such as Citigroup, HSBC and PCCW Ltd. cut staff. Gross domestic product may shrink 2 percent to 3 percent in 2009, Financial Secretary John Tsang said yesterday. He said the government will refund taxes, suspend property rates and boost spending on infrastructure to mitigate the slump.
More Choices
“If you have the same budget as last year, you can get a place that is at least 30 percent bigger and you definitely have more choices,” said Lo, director of research at Colliers.
Average domestic rents for the three months to January fell 16 percent to HK$13.3 a square foot, the lowest since December 2006, Centaline said this week.
Home leases in Hong Kong Island, where banks including HSBC Holdings Plc and Citigroup Inc. have their head offices, dropped 24 percent in January from a year earlier, the steepest decline of the four areas tracked by Centaline.
“Job cuts in the financial sector hit rents on Hong Kong Island particularly hard, as many foreigners living there worked at banks,” Wong Leung-sing, an associate director at Centaline, said in an interview.
London, Singapore Fall
The slide in Hong Kong rents echoes similar tumbles in other major financial centers. The cost of renting a luxury home in central London may drop 5 percent this year to the lowest in almost eight years, Knight Frank LLP said last month. In Singapore, rentals for private homes dropped 5.3 percent in the fourth quarter, after a 0.9 percent decline in the previous three months, the government said last month.
Hong Kong has the second-most-expensive luxury home prices in Asia, with an average price of $16,125 a square meter, after Tokyo, where prices are $17,998, according to the Global Property Guide Web site.
The drop in demand for apartment rentals in Hong Kong comes as supply is rising. Owners who initially put their properties up for sale decided instead to lease them out after sale prices slid about a quarter from last year’s peak, said Buggle Lau, chief analyst at Midland Holdings Ltd., Hong Kong’s biggest publicly traded property agency. “All of a sudden, the supply of rental units increased a lot.”
Rents for luxury homes, which fell to a 2 1/2-year low last month, may drop further as senior managers at foreign companies are pressured to scale down expenses, Lau said.
Sales Slow
The number of residential units that changed hands in January fell 67 percent to 4,875 from a year earlier, according to the government’s Land Registry.
“The rental trend is more or less the same as price trend,” said Alva To, head of consulting for North Asia at DTZ in Hong Kong, who forecasts home sale prices will fall as much as 20 percent this year. “They suffer the same problems: high unemployment and negative economic growth.”
Property rates will be waived for home owners for six months starting from April 1, with a cap of HK$3,000 a household, the government said yesterday.
The measures offer some relief for landlords with mortgages to cover. Philip Cheung, a 34-year-old stockbroker, said he is worried the tenants in his 800-square-foot apartment in North Point will leave when the lease ends next month.
He bought the flat in August already tenanted at HK$21,000 a month. His tenants, a local couple, said his offer of a 10 percent cut to HK$19,000 is not enough as the husband had his salary cut by 25 percent, Cheung said. He may cut the rent to HK$18,000 -- more than $1,000 below his monthly mortgage payment -- if he can’t find a new tenant quickly.
“I am worried because my tenants may leave when the lease expires,” he said. “In the worst-case scenario, I may have to pay for the entire monthly installment out of my own pocket.”
By Chia-Peck Wong
Feb. 26 (Bloomberg) -- Raif Cabbabe said his property agent thought he was crazy to offer only HK$20,000 ($2,600) a month for a two-room apartment in Hong Kong’s trendy Soho district. The flat went on the market two months earlier for HK$45,000.
Bargaining for the 900-square-foot (84-square-meter) home worked. Cabbabe said he sealed the deal in November at HK$25,000 for the 2-year-old pad, which has a 250-square-foot terrace. Since then, prices have fallen further, with January capping six straight months of declines, according to data from real estate agency Centaline Property Agency Ltd.
“The property market has fallen off a cliff, so people are playing hardball now,” said Cabbabe, 28, a steel trader who moved to Hong Kong from Australia. “My friends renegotiating their rents are telling their landlords, we’ll just walk away if you don’t give us a discount.”
Rents began falling in the city in August, a month before the collapse of Lehman Brothers Holdings Inc. sparked off a global banking crisis. Home leases may fall as much as 15 percent to 20 percent this year, said analysts including Simon Lo at Colliers International Ltd. Hong Kong slid into its first recession since 2003 in the third quarter, leading companies to rein in costs by firing workers.
Unemployment in Hong Kong jumped 0.5 percentage points to 4.6 percent in the three months through January, the largest increase in a decade, as companies such as Citigroup, HSBC and PCCW Ltd. cut staff. Gross domestic product may shrink 2 percent to 3 percent in 2009, Financial Secretary John Tsang said yesterday. He said the government will refund taxes, suspend property rates and boost spending on infrastructure to mitigate the slump.
More Choices
“If you have the same budget as last year, you can get a place that is at least 30 percent bigger and you definitely have more choices,” said Lo, director of research at Colliers.
Average domestic rents for the three months to January fell 16 percent to HK$13.3 a square foot, the lowest since December 2006, Centaline said this week.
Home leases in Hong Kong Island, where banks including HSBC Holdings Plc and Citigroup Inc. have their head offices, dropped 24 percent in January from a year earlier, the steepest decline of the four areas tracked by Centaline.
“Job cuts in the financial sector hit rents on Hong Kong Island particularly hard, as many foreigners living there worked at banks,” Wong Leung-sing, an associate director at Centaline, said in an interview.
London, Singapore Fall
The slide in Hong Kong rents echoes similar tumbles in other major financial centers. The cost of renting a luxury home in central London may drop 5 percent this year to the lowest in almost eight years, Knight Frank LLP said last month. In Singapore, rentals for private homes dropped 5.3 percent in the fourth quarter, after a 0.9 percent decline in the previous three months, the government said last month.
Hong Kong has the second-most-expensive luxury home prices in Asia, with an average price of $16,125 a square meter, after Tokyo, where prices are $17,998, according to the Global Property Guide Web site.
The drop in demand for apartment rentals in Hong Kong comes as supply is rising. Owners who initially put their properties up for sale decided instead to lease them out after sale prices slid about a quarter from last year’s peak, said Buggle Lau, chief analyst at Midland Holdings Ltd., Hong Kong’s biggest publicly traded property agency. “All of a sudden, the supply of rental units increased a lot.”
Rents for luxury homes, which fell to a 2 1/2-year low last month, may drop further as senior managers at foreign companies are pressured to scale down expenses, Lau said.
Sales Slow
The number of residential units that changed hands in January fell 67 percent to 4,875 from a year earlier, according to the government’s Land Registry.
“The rental trend is more or less the same as price trend,” said Alva To, head of consulting for North Asia at DTZ in Hong Kong, who forecasts home sale prices will fall as much as 20 percent this year. “They suffer the same problems: high unemployment and negative economic growth.”
Property rates will be waived for home owners for six months starting from April 1, with a cap of HK$3,000 a household, the government said yesterday.
The measures offer some relief for landlords with mortgages to cover. Philip Cheung, a 34-year-old stockbroker, said he is worried the tenants in his 800-square-foot apartment in North Point will leave when the lease ends next month.
He bought the flat in August already tenanted at HK$21,000 a month. His tenants, a local couple, said his offer of a 10 percent cut to HK$19,000 is not enough as the husband had his salary cut by 25 percent, Cheung said. He may cut the rent to HK$18,000 -- more than $1,000 below his monthly mortgage payment -- if he can’t find a new tenant quickly.
“I am worried because my tenants may leave when the lease expires,” he said. “In the worst-case scenario, I may have to pay for the entire monthly installment out of my own pocket.”
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