Prices of luxury residential flats in Hong Kong, which are reeling under the global financial meltdown, may see a further 20 percent drop next year, said Los Angeles-based real estate consultancy firm CB Richard Ellis.

However, the sector is expected to be the first to pick up when the property market starts to rebound in the second half of 2009, said Craig Shute, Managing Director of CB Richard Ellis.

The real estate firm said the 35-percent price cut in luxury residential properties since the collapse of Lehman Brothers in September has brought some good price corrections to the sector, which had surged as much as 37 percent from the fourth quarter of 2007 to the third quarter of 2008.

"As the economy in Hong Kong is unlikely to improve in 2009, luxury residential prices may continue to fall by not less than 20 percent next year," said Yu Kam-hung, senior managing director of Hong Kong, southern China and Taiwan. CB Richard Ellis also expects the luxury flat rents to drop by 10 to 15 percent throughout 2009.

Despite the volatility on the local property market, the firm remains optimistic about the luxury residential sector. "With only a limited supply of high-end properties... we believe that demand will pick up gradually, which tends to cushion the impact of price fall amid a sluggish market," Yu said.

However, the firm says, the current financial crisis seems to have ended the rent bubble in prime retail property after 18 months.

Senior Director of Retail Services Joe Lin said rents in some prime retail areas have soared by 70 to 100 percent over the past 18 to 24 months. Yet he expects rents of the prime retail districts to tumble by 25 to 30 percent in 2009, and a milder 10 to 15 percent slump for the secondary retail area, which did not experience a significant increase in the last two years.

"The economic downturn is likely to provide more opportunities for retailers targeting mass or sub-market spenders, some of which also plan for expansion," Lin said, adding that some local fast-food chains, mass fashion shops and convenience stores may seize the opportunity to increase market share at a time when rents are low.

Talking about the general residential property market in Hong Kong, Yu said the sector's transaction volume remains quite low, yet the price drop is much less than that of luxury flats.

"In the last 12 months, prices of general residential flats have declined by 16 percent. We expect them to fall around 10 percent in the future," Yu said.

CB Richard Ellis also said that some best buying opportunities may come up in 2009, when the property prices will fall and the market will stabilize in the second half.

(HK Edition 12/11/2008 page2)