4th December 2023 – (Hong Kong) Hong Kong property market has experienced a decline in the value of coveted parking spaces and retail shops. This downturn can be attributed to the underwhelming economic conditions following the clearance of goods this year, coupled with persistently high-interest rates that have made property investments less appealing compared to fixed deposit returns.
Notably, the months of October and November have witnessed a significant drop in the value of parking spaces in two prominent residential estates on Hong Kong Island, namely Tai Koo Shing in Quarry Bay and Belcher’s in the Western District. During this two-month period alone, both these estates have seen notable cases of parking space depreciation.
The alarming decline in the parking space market is evident as there have been at least 10 reported cases of depreciation in the past two months. This trend is even observed in the traditionally robust Hong Kong Island area, marking a rare occurrence in recent years.
Parking spaces in Hong Kong have always been in high demand, with prices consistently reaching new highs over the years. Rental rates have also experienced continuous upward pressure. For instance, a few years ago, Swire Properties (01972) made headlines when it first sold parking spaces in the prestigious Taikoo Shing Estate in Quarry Bay. These spaces were sold for approximately HK$1.8 million to HK$2.55 million, and some secondary market rental rates even exceeded HK$5,000 per month, resulting in a rental yield of less than 3%.
However, the economic climate post-clearance has not met expectations this year, prompting the Swire Group to significantly reduce prices by approximately 30% in June for the remaining unsold parking spaces. The current transaction rents for these spaces in the estate have plunged by over 20%, ranging from around HK$3,600 to HK$3,900 per month.
Over the past months, several instances of parking space depreciation have been observed in the aforementioned estate. For instance, a single parking space at On Shing Terrace was sold for about HK$1.4 million, which was significantly lower than the HK$1.74 million it was registered for just four months prior. This represents a depreciation of nearly 20% and a loss of over HK$300,000 in value within a short span of time.
In addition, The Belcher’s in the Western District also witnessed at least two cases of parking space depreciation last month. One space was registered for approximately HK$2.3 million, significantly lower than its purchase price of around HK$2.9 million in 2014, representing a drop of approximately HK$600,000 or nearly 21% after nine years. Another parking space in the same estate was sold for around HK$2.5 million, indicating a depreciation of about HK$450,000 or over 15%.
Large-scale residential estates in other areas have also experienced similar declines. Kingswood Villas in Tin Shui Wai recorded multiple cases of depreciating parking spaces. For instance, a double-space unit in Lakeview Crescent was transacted for approximately HKD 1 million last month, significantly lower than the purchase price of around HK$1.45 million in 2019, representing a substantial decline of 31%.
Meanwhile, TKO Plaza in Tseung Kwan O witnessed a significant depreciation case for a parking space. A single-space unit was registered for approximately HKD$1.49 million in October, whereas it was purchased for over HK$2.15 million in 2019, resulting in a depreciation of over 30%.
Some investors believe that the future trend of parking space prices will depend on interest rate trends and market conditions. However, he asserts that a significant decline, akin to the real estate market, is unlikely. Hong Kong has always faced a scarcity of parking spaces due to its high vehicle density and limited supply, particularly in areas such as Central, Causeway Bay, Heng Fa Chuen, and Yau Tsim Mong. Consequently, investing in parking spaces remains a viable option in the current market.
With interest rates remaining high and property investments failing to match deposit interest returns, the property market continues to struggle to regain momentum. Even investing in high-yield real estate stocks falls short in comparison. In order for the rental yield to rise from around 3% to 4.5%, assuming rental rates increase, it would need to approach the current market interest rate of 5%. Until interest rates show signs of decline, the overall landscape of the real estate market is unlikely to change.