Increase expected to aid local inflation

Local real estate agent Midland Realty said Thursday that rents in the city may increase 10 percent in 2011 despite tough new anti-speculative measures launched by the government in mid-November.

Although the measures mean that more owners are likely to rent out property in 2011 - thus increasing supply for prospective tenants - rents are still exhibiting a rising trend. Although revising the previous target of 18 percent down to 10 percent, Midland nevertheless expects rising rents to be a factor in the city's inflation rate this year, which is expected to be in the range of 4 to 5 percent.

According to data complied by Midland Realty released Thursday, the number of residential properties put up for rent in December was 5,793, a hike of 7.2 percent compared with November. The absolute number represented the largest supply of properties for rent in the city since the financial crisis broke out in October 2008.

As the supply of rental properties increased, rents in December were down a slight 1.73 percent at HK$19.48 per square foot compared with November.

"We revised our rent growth forecast for 2011 downward from 18 percent to 10 percent as the stabilization of local property sales should help rein in a certain portion of this year's rental surge," Buggle Lau, chief analyst at Midland Realty said at Thursday's press briefing.

On November 19, the Hong Kong government unveiled a Special Stamp Duty of 15 percent that penalized property buyers who resell their properties within six month of purchase. Down payments have been increased for most mortgages.

Although the rents growth level has been revised downward, Lau cautioned that even a more modest increase will still take a toll on the city's inflation.

"Local residential rent levels in the last two years have posted a compound growth rate of nearly 38 percent," said Lau. "However, this has not been fully reflected in local inflation figures because there is a time-lag effect."

Lau said that although his firm has revised down rent levels, which have a yield level of around 4.5 percent, some local investors still favor property investment due to the city's low interest rate environment.

Regarding the government's recent proposal to extend both positive and negative mortgage data in the existing credit data-sharing system, Lau said that it would aid the healthy development in the local property market.

"The proposal will help local banks to monitor the financial background of mortgage loan applicants and prevent excessive lending," Lau said. "Local banks can find more qualified home buyers in due course and should help stabilize the financial system should the local home market experience a significant correction."

China Daily

(HK Edition 01/07/2011 page3)