Private domestic rental index only 3% below its historical peak

HONG KONG, 5 September 2024 – The current private housing index is only 3.0% below its historical peak in 2019 after the housing rents continue to rise, according to JLL's latest Residential Market Monitor released today. The average rental yield for Class A (sized less than 431 sq ft) units has increased to its highest point since 2012.

The RVD private domestic rental index for Class A, B, and C units rose by 6.9% y-o-y in July 2024, reaching their highest levels since 2019. The rental index for Class A and B (sized between 431 and 752 sq ft) units post y-o-y increases of 6.9% and 7.3% respectively. 

Cathie Chung, Senior Director of Research at JLL in Hong Kong, said: "The rental growth for small units is more significant. The high demand for these units is driven primarily by non-local students and talents seeking living options near business districts. Meanwhile, Class C units experienced a steady y-o-y increase of 6.3%. The declining property prices and elevated mortgage rates have led many local residents to opt for renting over purchasing. The prospect of further declines in home prices and the financial burden of high mortgage payments have made renting a more attractive option, particularly for those looking to upgrade their living conditions." 

Amid rising rents and declining property prices, the average rental yield for Class A units has increased to 3.4% in June 2024, surpassing the average level of the past decade by 70 basis points and reaching its highest point since 2012.

The primary drivers behind the rental market's growth appear to be the number of new household formation and an increasing tenant-to-owner-occupier ratio. Between June 2023 and June 2024, the average domestic household size decreased from 2.7 to 2.6 individuals, contributing to a 1.5% y-o-y rise in the total number of households by 39,800 to 2.76 million. Meanwhile, a recent survey on “Families under the talent scheme who bring their children to live in Hong Kong” indicates that 86% of non-local talent respondents are leasing their accommodations, a proportion significantly higher than that of the overall population.

Norry Lee, Senior Director of Projects Strategy and Consultancy Department at JLL in Hong Kong, said: "Further government policies aimed at attracting talent, such as the broadening of eligibility under the Top Talent Pass Scheme, are expected to further support a sustained demand for rental properties. Hence, we anticipate the upward momentum in rent and market yields will persist in the near term,”

However, based on data from Census and Statistics Department, there are some downside risks in the leasing market.

“The marginal decline of population, stagnation in income growth and weakening job market are going to affect the residential rents. Between mid-2023 and mid-2024, Hong Kong's population contracted slightly by 4,300 individuals. This decline is attributed to a negative natural population change of 18,100 and a negative 30,200 movement of others, offset by an inflow of 44,000 One-Way Permit holders. Also, the y-o-y increase in median monthly household income slowed from 3.4% in January 2024 to 1.0% in June 2024. As income growth fails to keep pace with rising rents, households are required to allocate a larger portion of their income to rent payments. The job market is also exhibiting signs of strain, particularly in the FIREBS sector, where the number of employed persons decreased by 15,000 y-o-y in 1Q24. This sector's contraction could have broader implications for housing demand, particularly among expatriates and high-income earners,” he added.