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Hong Kong Land Registry reports indicate residential real estate sales slipped 10.3% for the month and 40% for the year in December 2011, with the luxury real estate sales market seeing the biggest fall. Analysts at Knight Frank blame the wider global financial crisis and foreign real estate speculation on shrinking market interest in the region. Residential leasing also dropped, although commercial leasing remained active, but the overall forecast remains dismal due to Hong Kong’s exposure to volatility stemming from global financial crisis, and the protracted nature of the Eurozone debt crisis in particular. For more on this continue reading the following article from Property Wire.

Residential property sales in Hong Kong shrank further in December 2011 with continuing uncertainties in the global economy and potential home buyers and landlords travelling abroad on vacation, says the latest monthly report from Knight Frank.

It points out that according to the Land Registry, home sales dropped 10.3% month on month to 4,301 in December, the lowest figure since November 2008.

Sales of luxury real estate valued at over HK$10 million dropped 32.9% to 466, the largest decrease among all price categories. Over 2011, transactions of residential units plunged 40% year on year to 84,462.
 
The primary market outperformed with developers pricing their new developments competitively close to secondary levels. Individual developments received a good sales response, it

The Coronation in Yau Ma Tei, for example, reportedly sold its entire first batch of 50 units on the first day of launch, while 50 of the 58 mountain view units at Festival City Phase 3 in Tai Wai also sold on the first day of launch, according to the developer.
 
Amid poor sentiment in the secondary market, flat owners became flexible with prices. For instance, the asking price of a 2,058 square feet flat at Hilltop Mansion in North Point was lowered by HK$2.35 million within three weeks of being put onto the market and sold for HK$18.65 million, some 15% below market value.
 
On the leasing front, transaction volume was low because of the holiday effect. Some landlords opted to lower their asking rents to secure tenants and luxury rents decreased by 2.5% month on month.

Looking ahead Knight Frank says that the progress of a solution to the European sovereign debt crisis is set to remain slow, which will suppress residential sales.

‘In this regard, the primary sector will continue to outperform the secondary sector, while the rental market will remain inactive during this traditional low season,’ says the report. ‘We believe both luxury prices and rents are likely to fall during the year,’ it adds.

On the commercial front although many companies put their expansion plans on hold amid the economic uncertainties, leasing activity rebounded last month as relocation demand increased, with tenants opting to reduce operating costs by moving to less expensive offices, the report also says.

Transactions in December therefore increased compared with the previous month, mainly involving relocations and small floor plates. For instance, a mid floor unit measuring 5,500 square feet in Prosperity Tower, Central, was taken up by Kelly Services, while a mainland property firm leased three mid floor units totalling 3,960 square feet in Two IFC in the same district.
 
Offices in non-core areas were sought after for their competitive rents. A 20,900 square foot mid floor in Windsor House, Causeway Bay was taken up, while a logistics firm committed to about 30,000 square feet of space in Skyline Tower, Kowloon Bay.

Amid shrinking demand and strong competition from neighbouring districts, vacancies in core business districts started to rise. In order to retain tenants, some landlords in these areas demonstrated greater flexibility in the negotiation of lease terms, says Knight Frank.

However, asking rents in non core districts remained firm amid increased demand and low vacancy rates. As a result, Grade A office rents in core and non core districts showed divergent performances in December.

While Central and Admiralty saw rents slip 5% and 2.3% respectively, rents in Causeway Bay, Wan Chai and Kowloon East remained firm during the month.

Knight Frank points out that Hong Kong’s open economy means the city is exposed to the headwind of the global economy. ‘With the external environment worsening in the European Union and US, the local corporate sector will become increasingly cost sensitive and more companies will seek to decentralise to cut rental costs,’ it says.

Looking forward, with shrinking demand from the business sector, landlords in core areas will exhibit greater flexibility in rents in the coming months. Those in non core areas, meanwhile, are likely to remain firm on rents amid rising relocation demand and vaporising vacancies,’ the report explains.

It concludes that Grade A office rents in Central are likely to see a 10 to 15% correction in the first half of the year, while rents in non core districts, such as Causeway Bay, Quarry Bay and Wan Chai, will remain firm or see a small growth of 5% over the period.

This article was republished with permission from Property Wire.