Residential tenants should brace themselves for double-digit rent increases across the board next year, in line with Hong Kong’s inflationary trend, industry players warn.
People who signed leases during the market low two years ago have escaped rent rises this year thanks to a one-year grace period following recent legislation to freeze existing rents.
But tenants may have to pay higher rents next year when landlords get the upper hand as a result of growing expatriate demand and falling market supply.
Under the transitional termination notice (TTN), landlords must give tenants who signed leases before July 9 last year 12 months’ notice of termination.During this times rents cannot be increased.
“If landlords are being forced to accept lower rents for a year, tenants will find themselves in a more difficult situation next year because rents will continue to go up,” said Anne-Marie Sage, national director of residential services with Jones Lang LaSalle.
With the number of expatriates coming to Hong Kong on the increase and luxury stock in short supply, the market was likely to remain buoyant next year, she said.
The property consultancy expects rents in the luxury residential market grow another 10 per cent by year end, after 13.2 per cent growth in the first half.
If is estimated that rents in the sector will rise at least 22 per cent over the whole year but slow down to 15 per cent next year.
Inflation has been at its highest since September 1998, with the Composite Consumer Price Index (CPI) rising 1.3 per cent year on year last month.The growth was attributed mainly to increases in rents for private housing.
Rents have been rising from The Peak to Island South, and from Kowloon Tong to Tai Po.
“There is still a risk of double digit growth in rents in the next 12months,” said Knight Frank residential leasing director Kathinka van der Tak.“The bottom line is that there are more people and more demand.”
She expected rents to climb at least another 20 per cent in the mid-range to luxury housing market over the next 12 months.
Property prices have rallied as much as 70 per cent since Hong Kong emerged from 68 months of deflation last summer.
Economists said the increase in rents, the biggest component of the CPI (accounting for a third of the benchmark), would contribute to the inflation rate.
Experts believe wage increases for most Hong Kong people will not keep up with the pace of escalating rents, and that this could have a negative impact on consumption.
“The level of wage increases for some people will not match the pace of mortgage rate or rent increases,” Citigroup economist Joe Lo Nim-cho said. “This could have a negative impact on consumption growth.”
He expected inflation to go up 1.2 per cent this year and 3 per cent next year.
According to the Hong Kong Institute of Human Resource Management, pay rises for the average Hong Kong person will be no more than 2.3 per cent this year.
But Daniel Chan Po-ming, senior investment strategist at DBS Bank Hong Kong, said salaries for high-income groups would outperform other segments, and that this category should be able to handle the “normalised” rent levels.
Ms Sage said: “Certainly, the rental market is escalating more than inflation and salaries.But corporates are increasing budgets and housing allowances are beginning to catch up.”
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