Hong Kong luxury home market awaits return of affluent mainland Chinese buyers, as city’s talent scheme powers rentals

The city recorded 42 luxury home sales in the three months to June, down 37.3 per cent quarter on quarter, as high borrowing costs put off investors
The decline in Hong Kong luxury flat sales reflects the overall malaise in the city’s property market under the current high interest rate regime

Hong Kong property

Salina Li

Published: 12:00pm, 10 Sep 2023

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Hong Kong’s luxury property market is still waiting for affluent mainland Chinese buyers to return, according to industry analysts, but the wait could take longer as high borrowing costs and economic uncertainty continue to weigh on investors’ appetite for the city’s high-end flats.

“We’ve had many inquiries from mainland Chinese investors, but they are still taking a wait-and-see attitude during the second quarter,” said Lucia Leung, director of research and consultancy in Greater China at property consultancy Knight Frank. “Therefore, inquiry numbers were larger than transactions.”

The number of so-called super prime residential sales – covering transactions worth US$10 million and above – fell 17.6 per cent in the second quarter, down from their peak level in the fourth quarter of 2021, according to data from Knight Frank. Total consideration for these deals in the same period dropped 28.6 per cent from the high reached in 2021’s December quarter.

The city recorded 42 luxury flat sales in the three months to June, which amounted to a total of HK$6.54 billion (US$834 million). That reflected a 37.3 per cent quarter-on-quarter tumble in the number of deals and a 15.6 per cent decline in total consideration.

An aerial view of Kowloon Tong. Photo: Shutterstock

In the first half of the year, 1,318 luxury flats were sold, at an average price of more than HK$20 million, according to data from property consultancy Colliers. That number was down from the previous high of 1,717 such transactions during the same period in 2019.

Luxury residential sales in the first six months of the year were concentrated at The Peak and Kowloon Tong, upmarket areas traditionally favoured by affluent property buyers, according to data from Knight Frank and Colliers.

The decline in Hong Kong luxury flat sales reflects the overall malaise in the city’s property market, which has struggled amid high interest rates and a recent surge in unsold inventory from newly developed projects.

Hong Kong’s “prime” homes – defined by Knight Frank as the top 5 per cent of the residential market in terms of value – lost 1.5 per cent of their value for the year.

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“We don’t see a lot of reasons that support a luxury residential sales market recovery in the short term,” Knight Frank’s Leung said. “The recovery will need to wait until the US starts cutting interest rates. So we expect sales in the market will slowly pick up in the second quarter of 2024.”

The city’s luxury residential market, which gained momentum in the first quarter after its borders reopened, has since been hampered by high borrowing costs owing to the US Federal Reserve’s aggressive interest rate hike strategy. The one-month Hong Kong Interbank Offered Rate, a measure of the interest banks charge each other to borrow money, surged to 5.29 per cent in July from 0.2 per cent in May, largely freezing buying activity.

The priciest luxury home transaction recorded in July was a 4,470 sq ft town house at Twenty Peak Road by V, which sold for HK$860 million, or HK$181,435 per square foot. A flat measuring 7,111 sq ft at 59 Mount Kellett Road on The Peak was bought in the same month for HK$900 million, or about HK$126,564 per square foot.

In Kowloon Tong’s 36 LaSalle Road, a 7,083 sq ft house sold for HK$255 million.

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“We haven’t heard of an influx of mainland or foreign buyers in the housing market,” said Hannah Jeong, head of valuation and advisory services at Colliers.

“Capital is allocated and parked in risk-free assets, such as time deposits, under the [current] high interest rate environment,” Jeong said. “The wealthy mainland buyers or end users are cautious about the high borrowing costs.”

Still, there is some optimism that Hong Kong’s luxury home rental market has turned a corner and is set to rise on the back of the government’s Top Talent Pass Scheme.

“The Top Talent Pass Scheme attracted many mainland talents to work in Hong Kong,” and this group of professionals has also gradually bought or rented houses, driving a large amount of rental transactions on Hong Kong Island, a recent Ricacorp Properties report said.

Hong Kong’s luxury home renters should prepare to pay more amid rising demand

The Hong Kong government said in July that it received more than 100,000 applications to various talent schemes and approved over 60 per cent of them, nearly double the number targeted.

The city’s luxury home rental market edged up 3.2 per cent year-to-date in July, according to data from Knight Frank.

“Demand from the rental market is rather robust and dynamic,” Knight Frank’s Leung said. She indicated that luxury flat tenants are from the mainland and returning expats.

“Although the numbers are not as many as those pre-Covid, we are now seeing tenants coming from Singapore and Dubai,” she said.

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A three-bedroom, one-suite flat with an area of 1,032 sq ft in 80 Robinson Road at Mid-Levels West was rented to a mainland professional for HK$61,000 per month or HK$59 per square foot, according to a Centaline Properties report.

Also at Mid-Levels West, a 1,310 sq ft flat in Azure was leased in April for HK$85,000 a month in April, or about HK$65.3 per square foot, according to Ricacorp.

Although Hong Kong’s talent scheme is expected to appeal to a number of mainland Chinese and foreign professionals to lease luxury flats in the city, Collier’s Jeong said she remains “cautiously optimistic” about the prospects of the luxury residential rental market.