Price BreakIf there’s one thing there’s a lot of in Hong Kong, it’s luxury residential apartment towers. To the average person it feels as if every other building under construction at any given time over the last decade or so has been a swank tower (when it’s not a retail project), touted as the “ultimate” or the “pinnacle” of luxury living in “exclusive” developments. The final properties have been a symbol of all that is right or wrong, good or bad, hideous and gorgeous about real estate in Hong Kong — depending on your point of view. Luxury properties have been blamed for skyrocketing prices and lauded for truly internationalising the city. They are omnipresent and a home in one is the aspiration of many.

In the early part of 2012, those same luxury residences are under siege. A new research report by Colliers International states that both sales prices and rental rates in the luxury sector are heading down for 2012 on the heels of fourth quarter 2011 numbers.

In the three months ending in November last year, transactions dropped by 27 percent, based largely on an increase in land supply as announced in the fall Policy Address and rising mortgage rates. Add to that cautious banks making financing more difficult than in the past and the net result is fewer sales in traditional luxury strongholds on The Peak, in Mid-Levels and Island South. “The average luxury residential prices decreased 2.4 percent quarter-on-quarter to HK$19,149 per square foot in the traditional luxury districts, representing the first dip since 2009,” said Executive Director of Research & Advisory, Asia at Colliers International Simon Lo. “This is largely due to individual landlords lowering their asking prices to push the sale of their properties in the fourth quarter 2011.”

It’s not just sales that are suffering either. Taking into consideration leasing in the last quarter of the year is typically slow, rental rates nonetheless took a hit too: rates dropped for the first time since mid-2009, and sat around HK$47 per square foot at the end of last year, a 0.02 percent compression. Colliers isn’t alone either. Consultancy DTZ’s research for the same period drew the same conclusions, stating, “The luxury residential market … witnessed a modest decline this quarter. The DTZ luxury residential index reached 204.9, a 2.8 percent quarter-on-quarter decrease,” referring to DTZ’s own metric where January 2000 prices were a perfect 100.

The swirling concoction of increased government land and careful developers, an influential debt crisis in Europe and a sure-to-be contentious election in the slowly recovering United States are dampening the mood. But that same American recovery and relaxing Chinese monetary policy could also lead to a gradual growth in mortgage approvals despite rising mortgage rates (which should flirt with 4 percent this year). Hong Kong’s strong fundamentals will ultimately carry the day, and Jones Lang LaSalle chimes in with a silver lining of its own. Prices across the region (JLL monitored, among others, Beijing, Singapore, Bangkok and Mumbai as well as Hong Kong) were relatively stable, and often recorded price upticks over the same period in 2010. Looking at the bigger picture, JLL stated, “Prices in China are expected to soften further over the next 12 months, although developers are likely to introduce only moderate price discounts due to limited supply in prime locations. Prices in Hong Kong and Singapore are also expected to decline over 2012, as a result of projected rental correction, tighter credit as well as government measures in place. That said, generally low holding costs will likely limit the extent of price correction. Among emerging South East Asian markets, prices in Kuala Lumpur and Bangkok should be largely flat while the Jakarta sales market should be supported by a strong economy.” So while the luxury sector may be taking a hit, it’s pretty much the same all over. In this Hong Kong is far from unique.

Colliers concluded, “luxury residential prices are projected to fall by 13 percent towards the end of 2012. In anticipation of another round of downsizing in individual financial institutions, which will eventually weaken the leasing demand, luxury residential rents are expected to decrease by 6 percent towards the year-end.” But it’s the proverbial one man’s trash. Lo predicted similar patterns in all property sectors early in 2012, and for serious buyers, now could be the time to at least negotiate with sellers and do some preliminary mortgage shopping. Estimates are for luxury prices and rental rates to start a slow climb again late in 2013, so there’s a little time to work with in the event of any lingering aspirations.