Influx of Expatriates from Hong Kong Expected to Impact Rental Leasing Volume in Coming Quarters. Average Rent in Savills' Basket of High-End Non-Landed Residential Increased 6.2% in H1 2023 Compared to 35.9% In 2022 Full Year, Expected to Plateau.
Savills Research reported a decline of 1.9% QoQ and 6.5% YoY for private residential leases signed island-wide in Q2/2023.
Leasing volume of landed homes decreased by 8.1% QoQ to 1,089 transactions in Q2/2023. Foror non-landed homes, the largest decline in rental transactions was in Rest of Central Region (RCR), with a 2.8% QoQ decrease to 6,485 transactions in the quarter, followed by Outside Central Region (OCR) declining by 2.4% QoQ to 6,583 deals. In contrast, the leasing volume of non-landed homes in Core Central Region (CCR) increased by 1.1% QoQ to 5,542 transactions.
Global economic headwinds and the persistence of high rents were the main reasons behind the contraction of leasing activity. The labour market conditions have softened in the last two quarters, in tandem with the moderation in economic growth due to global uncertainties. This has resulted in either a rescheduling of the arrivals by expatriates or businesses putting on the hiring brakes for expats as cost saving and revenue generation have become priorities.
At the same time, leasing demand from homebuyers, who rented homes in the interim while waiting for their new homes to be completed, could also decrease significantly with the completion of 7,366 private residential units in the first half of 2023.
Alan Cheong, Executive Director, Savills Research & Consultancy: “We are sensing that another wave of Hong Kong based expatriates, albeit small are either relocating or starting to relocate to Singapore. Above that, the population in Hong Kong of those aged from birth to 44 years of age have declined from 3.79 million in mid-2018 to 3.47 million in mid-2023. (Please refer to Graph 1 below) As more Hong Kong nationals leave, some are expected to come here. This may impact the leasing volume in the coming quarters.
The average monthly rent of high-end non-landed residential projects in Savills’ basket continued to rise by 1.5% QoQ to S$6.19 per sq ft (psf) in Q2/2023, slower than the 4.7% growth in Q1/2023. Over the first half of 2023, the rents have only increased by an accumulated 6.2%, in sharp contrast to the 35.9% growth for the whole of 2022.
Rents have slowed down and is expected to plateau with some negative bias along the way till the end of the year. Challenging economic conditions and mass layoffs in the tech and social media sectors have shrunk the budgets of tenants, prompting many to downgrade to more affordable locations, smaller units or share an apartment unit with others. The rate at which rents were rising is finally starting to slow across both property type and market segment.
“Landlords have Hobson’s choice but to accept rents at levels which are less than expected due to lower demand, increasing supply and a longer time to let out a unit. With the expected completion of about 18,000 units of private residential homes, we may see a return toward pre-pandemic market behaviour norms and that the astronomical rental gains of the past two years will be behind us,” Alan added.
See Population of Hong Kong Graph here.
The full report can be viewed online here.