Monday 13 October 2008

HK: Luxury Rents to Decline Further on Trimmed Housing Allowances

Luxury residential rents are likely to continue falling as employers, particularly in the finance sector, cut back on housing allowances for senior executives next year in response to the troubled outlook for global markets.
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Luxury Rents to Decline Further on Trimmed Housing Allowances

Sandy Li
13 October 2008

Luxury residential rents are likely to continue falling as employers, particularly in the finance sector, cut back on housing allowances for senior executives next year in response to the troubled outlook for global markets.

The trend could take rental levels down about 20 per cent next year if the crisis shows no sign of easing, property agents said.

“Our corporate clients have become cautious about their expenditure,” said Colliers International research manager Simon Lo Wong-fai, adding that the extent of the cost cutting would become clearer in the first quarter of next year, when multinational corporations review housing allowances for senior management.

It would be no surprise to see cuts of 5 to 10 per cent in housing allowances now that rents for luxury apartments priced at more than HK$100,000 a month that have already declined 8 to 10 per cent, he said.

“Not only financial high flyers but also ordinary end-users have suspended plans to upgrade their rental accommodations at this moment,” said Joyce Ko Mee-yin, an assistant district manager at Midland Realty’s branch on the Peak and Island South District.

Prominent among tenants in the areas were corporate clients with housing allowances of between HK$50,000 and HK$400,000 a month, she said.

Housing estates such as Tai Koo Shing in Quarry Bay are also popular among middle-level management from Southeast Asia whose employers have been hard hit by the growing financial crisis.

Patrick Tsang Pak-yin, a regional director at Centaline Property Agency, said budgets of corporate clients were now about 10 per cent lower than earlier this year, when they were looking for rental accommodation.

Revised rental limits set by many South Korean, Japanese and Singaporean clients who had previously enjoyed allowances of HK$15,000 to HK$30,000 a month had dropped significantly last month, he said. Rents at Taikoo Shing fell to HK$25 per square foot last month from HK$28 early this year, he added.

One owner had cut the asking rent on his 675 square foot, two-bedroom apartment in Taikoo Shing from HK$15,800 a month to HK$13,800. There are now 440 units being offered for lease in the area compared with 300 units before the financial crisis.

Anne-Marie Sage, a regional director for residential at Jones Lang LaSalle, said no customers had yet indicated that their housing allowances were being cut.

“However, when companies come to review allowances for the new year, we will see some adjustments in the first quarter of next year,” Ms Sage said.

“Rents are softening. Landlords are becoming a lot more negotiable on renewals.”

Ms Sage expects the number of expatriates moving to Hong Kong in the coming months will drop.

Overall, she said rents should decline 15 to 20 per cent next year if no improvement was seen in the financial markets.