Hong Kong's luxury flat rentals extend drop in third quarter as trade war, protests dent market sentiment

By Ryan Swift ryan.swift@scmp.com / https://www.scmp.com/property/hong-kong-china/article/3035280/hong-kongs-luxury-flat-rentals-extend-drop-third-quarter?utm_medium=partner&utm_campaign=contentexchange&utm_source=EdgeProp | November 5, 2019 11:01 AM SGT
Luxury flat rentals in Hong Kong have continued their slide into the third quarter as uncertainties stoked by US-China trade war and social unrest helped push the economy into a recession for the first time since the global financial crisis.
Hong Kong Island experienced a 1.6 per cent drop in the third quarter, the biggest pullback since the second quarter of 2014, according to real estate adviser Savills. Kowloon and New Territories fell by 3.6 per cent and 3.1 per cent respectively. This is the second straight quarter in which rates on luxury flats in the three markets have fallen in tandem.
Savills cited weak demand from "high budget" mainland Chinese tenants as the main drag to the market. There has been less disruption in the finance and professional services sectors, a key pillar in the city's upper end residential market.
Trade war and almost five months of anti-government protests have battered Hong Kong's economy into a technical recession last quarter, government officials have said this month, with steep declines in exports, retail spending and tourism. It is the first time the economy has contracted by two consecutive quarters since the start of 2009. Morgan Stanley this month cut its 2019 growth forecast for Hong Kong to minus 0.8 per cent from minus 0.3 per cent.
"The key drivers (of the luxury rental market) of the past two years have been PRC people, usually related to businesses, and local Hong Kong people that have been priced out of the luxury sales market," said Simon Smith, senior director for residential services for Asia-Pacific. For now, "these factors are holding up and the PRC business is there, even if volumes are weakened," he said.
Still, the litmus test may come as the Lunar New Year approaches, Smith said. Landlords will try to hold the line until after the festivity in January, and then take a view of both the trade war and social unrest. "If both issues look likely to drag on, then I think we'll see landlords capitulating on rent."