The woes of the VIP gaming rooms have begun to trickle down to the luxury property market. Owners of apartments in properties such as One Central and Lake View Tower, where junkets and their clients have tended to call home over the past few years, are starting to feel the pinch as their high spender tenants are moving out to cheaper accommodation.
Consider this. One of our clients has just moved into a 3-bedroom apartment in One Central, with attractive, modern furnishing and good views of the lake. The original monthly rental asking price for the place was HK$45,000 – already extremely low compared with prices in the sixty thousands a year or two ago – but with some gentle persuasion the owner agreed to rent it for HK$28,000!
Another example: In Lake View Tower we have a couple of listings for furnished 2-bedroom apartments that are HK$25,000 per month. Last year these were HK$30,000.
And it’s not just the peninsula that is seeing a drop in rents. With plenty of new supply coming on the market, even rental prices at the brand new One Oasis on Coloane are dropping. An unfurnished 3-bedroom unit that six months ago was HK$27,000, can be had now for HK$20,000. In central Taipa’s Nova City, rents for 3 bedrooms unfurnished have moved from HK$20,000 to as little as HK$17,000, and a basic, inexpensively furnished 2-bedroom at The Buckingham that we’ve helped a client move to recently is renting for HK$17,000 when last year it was HK$22,000.
For all the expats here on work contracts this is great news. With housing allowances of around HK$20,000 per month for middle to upper middle management, whilst one still needs to act fast to secure a place if you see one you like, there are homes to be had for within their budgets.
But for the owners, many of them locals, what can they do about protecting their investment income? Well for starters they can differentiate their units from the competition by choosing simple, modern, quality furnishings, not the cheap plastic rubbish and rock hard mattresses that are so often seen. Consider providing more services, such as part-time cleaning, which can be a big help for tenants. And stop being greedy, expecting to put up the rent in the second year; this was quite rare five or six years ago. We know of many owners who today, if they have a good tenant, are more pragmatic and only too happy to hold the rent with no increase for the duration of a 2-year lease.
Having said all that, it seems that fortunes have changed for investors of luxury properties whose business model is to have rental income cover the mortgage. For now, anticipate that lower rentals are here to stay until we see the much hoped for trickling back of VIP players.