An elevated view from Fei Ngo Shan Mountain shows buildings in the Kowloon region of Hong Kong. The city's luxury home prices may rise 20 percent this year as the economy expands and supply remains limited, real estate broker CB Richard Ellis Group Inc said. Bloomberg News

20% increase in luxury market, 5% rise in mass rents forecast

HONG KONG: Luxury home prices in Hong Kong could surge 20 percent in 2010, further boosted by the better economic conditions, continuous inflow of mainland capital and limited supply of new luxury flats in the market, real estate broker CB Richard Ellis Group (CBRE) said yesterday.

The US-based property consultancy also expects the city's mass residential prices and rents to rise 15 percent and 5 percent, respectively, in 2010, benefiting from the extremely low interest-rate environment.

"We expect foreign assets will continue flowing into the Hong Kong property market in 2010, while the majority of the assets will be coming from the mainland," Yu Kam-hung, senior managing director of valuation and advisory services told reporters in Hong Kong yesterday.

Yu noted that the central government's measures to tighten lending for second home purchase on the mainland are unlikely to whittle down the interest and ability of mainland buyers to invest in luxury homes in Hong Kong.

Driven by ample market liquidity, historically low interest rates and persistent inflow of mainland capital, sales of residential market in Hong Kong rebounded significantly in 2009.

Residential sale and purchase agreements registered last year jumped 20 percent to 155,092, while total considerations also advanced 23.9 percent to HK$425.8 million.

"The rosy performance of the residential market indicates that a residential asset is by far the most attractive investment vehicle for the majority, especially when there is an expected return of inflation," Yu said.

Luxury residential properties have put in a particularly strong performance in 2009. Among all the residential transactions, 6,701 of them were luxury homes priced over HK$10 million, a 43.9 percent increase as compared to 2008.

Luxury home prices, meanwhile, leaped 50.7 percent last year, with average capital values reaching HK$18,713 per square feet.

Rents for luxury homes, however, rose only 2.5 percent in 2009, as demand from expatriates has not yet recovered.

Yu expects luxury residential rents should gradually improve, by around 10 percent, amid growing leasing commitments from returning expatriates in the financial and banking sectors.

Henderson Land Development, controlled by billionaire Lee Shau-kee, said in October that it sold a luxury duplex at 39 Conduit Road for a world-record price of HK$439 million, or HK$88,000 per square foot.

Lee said in December he expects local home prices will rise another 10 percent in 2010.

CBRE's senior director for investment properties Tony Ng said the low interest-rate environment and loose monetary policies will continue fueling the local property market in 2010.

"Even if the interest rates increase by a quarter or half a percent, they are still at a very low level," Ng said yesterday.

Despite the prosperous outlook on residential prices, CBRE expects the future increment of the interest rate in the US as well as the further tightening of credit by the central government may impact luxury residential prices.

"Under such circumstances, we cannot rule out the possibility that the aforesaid measures could pose a greater dampening effect on the price level relative to the rental level in the foreseeable future," CBRE's Yu said.

He added that the rental level, which reflects the fundamental affordability, is usually more stable and lags behind the price level.

(HK Edition 01/13/2010 page4)