Hong Kong's biggest health crisis in decades is pushing the city's home rentals further down a slippery slope, making it firmly a tenant's market since prices began retreating from an all-time high in August amid social unrest.
The latest transaction records in early February for some housing estates such as Sha Tin, Hung Hom, Whampoa Garden and Tseung Kwan O indicate prices have softened by more than 10 per cent from the start of the year, analysts said. Without any mitigating force, they could drop by 10 to 15 per cent by year end.
The coronavirus outbreak that originated from Wuhan in mainland China's Hubei province has so far prompted retailers like J. Crew and Sa Sa International to shut some stores to save costs after enduring months of street protests and a technical recession in 2019. The city's biggest property agencies are also seeking rent relief, as no one dares to come out to visit sales offices.
"Tenants now have a greater say on prices in the home leasing market than they used to," said Sammy Po Siu-ming, chief executive of the residential division at Midland Realty. This will persist "if the outbreak continues and the economy does not get any better".
Hong Kong has 42 confirmed cases of coronavirus infection as of Tuesday, including a family of nine who contracted them over a hotpot dinner in a restaurant in Kwun Tong on January 26, health officials said. One death has been reported.
The health emergency is straining a government that has lost a lot of good will with the population after sustained social unrest in 2019. It is also watching over an economy that is forecast to contract again this year, after shrinking last year for the first time since the global financial crisis.
Rentals fell by 1.9 per cent on average to HK$35.38 per square foot in December from a month earlier, according to Ricacorp. They have declined 5.1 per cent since the market peaked in August, according to an index compiled by the city's Rating and Valuation Department.
The pressure on rentals is especially felt right after the Lunar New Year when demand is typically weak. The viral outbreak is hurting the city's landlords at a vulnerable time, said Derek Chan, head of research at Ricacorp Properties.
"We are currently in a low season for the leasing market, so the coronavirus is making things worse," he said. "We expect the number of transactions in the leasing market and rental prices will continue to fall" by 3 to 5 per cent this quarter, he added.
In Sha Tin, flat rentals have dropped by about 10 per cent in the first week of February from January, said Richie Leung, Midland Realty's chief senior sales manager in the area.
A 770-sq ft flat in Pictorial Flat with a parking space was recently leased out for HK$20,000 a month, a 16 per cent drop from the start of the year, he added. A 688-sq ft unit in City One Sha Tin was priced at HK$20,000 earlier this month, about 13 per cent cheaper than a comparable unit in the same estate in January.
Rentals have also dropped in the area around Whampoa and Hung Hom due to the viral outbreak, according to Ken Lee, a deputy sales director for Centaline Property.
A 462-sq ft three-bedroom unit in Sunshine Plaza in Hung Hom was recently leased for HK$16,500, or 12 per cent below its last contract in 2018.
"Towards the end of January, homeowners looking to rent their flats have been more eager to accept any offers from potential tenants," said Lee, who is hopeful things will rebound in April. "For now, homeowners have been much more cautious in allowing potential tenants to view their property" for health safety reasons, he said.
In Whampoa Garden, one of housing estates affected by coronavirus infection, no transactions have taken place this month, after a 25 per cent drop in January. In a Tseung Kwan O estate, records this month indicate an 11 per cent retreat from January's levels, according to Midland Realty.
Demand is unlikely to return in a big way soon, especially with tightened border controls to contain the epidemic, said Louis Chan, vice-chairman for Asia-Pacific at Centaline Property Agency. The usual pool of tenants, such as mainland Chinese and the expatriate community, is shrinking, while businesses in Hong Kong are tightening their budgets.
"Landlords will not really have a choice in this environment," said Chan, who predicts a 10 to 15 per cent drop in rentals on average this year. "They will need to lower the price."
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2020 South China Morning Post Publishers Ltd. All rights reserved.
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