Rental yields for Hong Kong residential properties have hit the highest level in more than a dozen years and are set to remain at an elevated level for two or three years, driven by robust demand from newly arrived residents and reduced mortgage costs, according to analysts.
The average rental yield in the city inched up 0.04 percentage points to 3.47 per cent at the end of September, the highest reading in nearly 12.5 years on Centaline Property Agency’s Centa City Rental Index Yield. The gauge advanced by 0.38 percentage points in the five months ended September.
Of the 138 properties tracked by Centaline, the rental yield for 22 exceeded 4 per cent in September, four more than in August. Tak Bo Garden in Kowloon Bay hit 5.16 per cent yield, the first time a property has topped 5 per cent since January 2012, Centaline data found.
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“Rental yields have been almost at peak already this year, and may slide slightly due to the seasonal reasons, but just a bit,” said Yeung Ming-yee, a senior associate director at Centaline. “They will stand at 3.4 per cent by the end of this year.”
Momentum may increase further after Lunar New Year in 2025, when leasing activity typically accelerates, and will continue to rise in the next two to three years, albeit at a slower pace, she said. The main drivers of demand will be people putting off home purchases amid worries about slumping prices and newly arrived residents via the city’s talent scheme, she added.
Small units, measuring 430 sq ft or less, yielded 3.7 per cent in September, 0.6 percentage points higher than the same period in 2023 and the highest in 12.5 years, according to Ricacorp Properties, based on data provided by Hong Kong’s Rating and Valuation Department.
Flats measuring between 431 sq ft and 752 sq ft also recorded a yield increase, rising 0.1 per cent to 3.2 per cent in September, it added.
“Gross rental yields, in general, are still lower than mortgage rates, but the gap is narrowing,” global rating firm S&P said in a report. This is on the back of declining mortgage rates, falling home prices, and rising residential rents, with the latter up more than 5 per cent so far this year as of September, S&P said.
Prices for the city’s lived-in homes fell by about 1.7 per cent in September to their lowest level since August 2016, according to data from the Rating and Valuation Department. Prices have slumped 28 per cent since hitting an all-time high in 2021 and are down 7.5 per cent this year.
The Hong Kong Monetary Authority, the city’s de facto central bank, this month lowered its base interest rate for the second time this year, to 5 per cent. Six major Hong Kong lenders, including the city’s three note-issuing banks – HSBC, Standard Chartered, and Bank of China Hong Kong – followed suit, trimming the cost of borrowing for the second time this year to the lowest level in two years.
The cost of carry – the difference between rental income and loan interest – for private homes in Hong Kong will improve after the latest adjustment, said Raymond Cheng, a managing director at CGS International Securities in Hong Kong.
It is expected to turn positive by the end of 2025’s first half thanks to a potential additional rate cut of 25 basis points, he added. Residential rents will rise by another 5 per cent in 2025, while secondary home prices will increase by 3 per cent, he said.
“Rental yields continue to rise, while the mortgage rate fell amid rounds of rate cuts,” said Derek Chan, head of research at Ricacorp Properties. “This offers an ideal time for people to buy, no matter whether it is for self-use or as an investment, and this may dampen the rental demand slightly.”
But the rental market is expected to maintain robust performance next year, benefiting from substantial demand from professionals entering Hong Kong, he added.
As of September 30, two-year visas had been approved for 81,463 out of 100,972 applicants under the city’s talent scheme, exceeding the administration’s original target of 35,000 a year. A total of 66,109 have already arrived in Hong Kong.
However, a large supply of unsold new homes may weigh on rents, especially in certain districts, Chan added, as some renters may be drawn into buying.
Some 108,000 first-hand units may be available in the coming three to four years, according to a calculation from the Housing Bureau at the end of September.
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