After almost 24 months of unrelenting spikes, all signs suggest that the end of the Hong Kong property market’s bull run is near. Colliers International has projected that all properties — with the exception of ground-floor retail properties in traditional shopping districts — will enter a downcycle in 2012.

“Over-positive buyer sentiments coupled with a dire lack of supply across all sectors have catapulted the property market except for the luxury home market, which saw no change from end-2010 due to the correction in late 2011 — into a booming core with the retail sector taking the lead,” says Richard Kirke, managing director of Colliers International in Hong Kong.

“Without substantial economic fundamentals, all that goes up will eventually come down. There are already weakening signs since 2H2011,so we expect a subdued outlook for rents and prices in Grade A office, luxury residential and industrial property sectors in 2012,” he adds. Kirke said ground-floor retail properties in core areas will be the only sector to see an increase, albeit at a slower rate.

In the first 11 months of 2011, there were 792 property investment transactions valued at over HK$30 million each (RM12.26 million), an increase of 52% from the previous year. Meanwhile, the total transaction value amounted to HK$97.7 billion, representing a rise of 19% y-o-y.

In 2011, retail properties and strata-title offices were the most sought-after, collectively contributing to 80% of the overall investment transaction volume from January to November 2011.

After a strong start this year, the steam is slowly being let out with various challenges in store for the property investment market in 2012.

According to Antonio Wu, Colliers executive director of Investment Services Asia, factors such as limited supply, the deepening credit crunch and the widening gap between bank interest and capitalisation rates will be the barriers to growth in the property investment market.

Wu, however, says the investment market’s outlook is not all gloom as investor sentiment and demand are on an upsurge. “We expect en-bloc offices, strata-titled offices, particularly those in Kowloon East, hotels and serviced apartments to be the hot favourites. Bets are also on industrial assets located in the vicinity, as market growth and potential will rise from the stimulation efforts by the government,” he says.

Grade A office market
The Grade A office market registered 14% rent and 18% price growth in the first 10 months of 2011. “As Central office rents have risen after the financial tsunami until 2Q2011, some tenants in Central have realised that rents have exceeded their affordability and are now seeking alternatives in the sub-market or other districts,” said Wendy Lau, executive director of office services.

“In view of the substantial rental premium of Central over individual office districts, the pressure of decentralisation is expected to continue in 2012. Occupational demand is expected to be slow and Grade A office rents and prices are projected to fall 8% and 16% respectively in 2012,” forecasts Lau.

Luxury residential market
Luxury home prices edged up 6% between January and October 2011. However, with a correction at the end of 2011, prices by end-December are estimated to return to a level similar to that of end-2010. Rent were up 7% in the first 10 months of 2011.

“Prospective buyers are made up of end-users, estimated at 60%, with buyers from Mainland China constituting about 15%,” says Ricky Poon, executive director of residential sales. “Effective mortgage rates in 2012 are anticipated to rise further to over 4% per annum. In the short term, potential buyers will likely adopt a wait-and-see attitude, auguring a quieter first quarter in 2012. With this in mind, luxury residential prices are projected to edge down 13% in 2012.”

On the leasing front, the inflow of expatriates affected by the uncertain global economy will slow down the demand for luxury residential leasing. In the next 12 months, rents are projected to drop 6%.

Industrial market
The industrial market has been resilient in 2011. Over the first 10 months, the average industrial rent and price increased 12% and 17% respectively.

“While all eyes are on the potential of Kowloon East’s revitalisation scheme as well as the government’s ‘Energising Kowloon East’ initiative in infrastructure development, we feel that the industrial market will unlikely be spared from a decline in 2012 as re-exports are anticipated to register negative growth amid the worsening global economy.. Average industrial property rent and price will likely fall 4% and 6% respectively,” says Simon Lo, executive director of research and advisory in Asia.

Retail market
Retail leasing market growth was the strongest among all Hong Kong property markets in 2011, registering a 21% increase in the first 10 months of this year.

“The retail market is supported by buoyant retail sales, achieving over HK$32 billion worth of sales per month in 2011. This is due to tourism growth Retail leasing demand is led by retailers of jewellery, cosmetics/skincare, electrical appliances and fashion, which are favoured by tourists from Mainland China,” says Lo.

Retail growth in 2011 sees deepening segmentation with properties in traditional shopping districts outpacing the second-tier areas. In 2012, retail rental and price growth are expected to taper off.

This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 890, Dec 26-Jan 1, 2012