Will Developers switch to Rentals?

Will HK Developers switch to the Rental market?


Secondhand sellers have - maybe some Property developers will do that too. Returns are lower, but at least they can make cash flow, and borrowing costs to finance the properties should be lower than the cash flow they receive from renting - Then they can sell later when the property market is more liquid.


While I do think this change is highly possible, I do not think we will see it until after the property market falls by at least 5 -10%. So long as developers can continue selling at today's high prices, I think they will go on selling.


(This idea was inspired by an article in The Standard):


Renting finds new lease of life


Natalie Ngan / March 28, 2013


Residential property sales have plunged since banks boosted mortgage lending rates on top of the government's various market cooling measures. The moves prompted more people to become renters rather than purchasers.


EXCERPTS:

+ "The number of for-lease flats increased 10-20 percent suddenly as property owners have changed from selling to leasing out their flats after the mortgage rate went up," said Centaline's Tseung Kwan O senior sales director Ken Lee Yuk-cheung.


"In the past, sales and rental transactions each constituted about half of all the transactions [in Tseung Kwan O]. Now a vast majority are rental transactions. Previously, there were on average 200 rental transactions each month. Now there have already been 200 rental contracts between March 1 and 17."


Tseung Kwan O only recorded about 50 sales transactions up to yesterday, compared with the normal monthly sales of 250, Lee added.


In Ma On Shan, the ratio of sales to rental transactions used to be 6:4, but is now 2:8, said Wilson Tsui Ho-chi, Centaline's senior sales manager in the district.


+ Sales commission for primary flats has reached 4 percent, while developers are expected to offer further inducements such as discounting prices and boosting commissions even higher.


"Some are giving 10 percent commission to agents for their remaining firsthand homes. This motivates more agents to try to sell the flats," Chiu said.


Midland Realty assistant sales director Ivan Tsang Chi-kwong expects developers to provide cash rebates, extend transaction periods, and open more show flats for their remaining firsthand units and upcoming projects.


"It is an inevitable trend for property agencies to reallocate their manpower and strengthen their rental and primary home businesses, because the government did not strike at the rental market," Tsang said.

===


+continues: http://www.thestandard.com.hk/news_detail.asp?we_cat=16&art_id=132431&sid=39338096&con_type=3&d_str=20130328&fc=7

A One-Shot increase in Rental supply?

=======

"The number of for-lease flats increased 10-20 percent suddenly as property owners have changed from selling to leasing out their flats after the mortgage rate went up..."


This seems to be a one shot jump in Rental supply, since the shift - once done - increases supply in a jump step. But once the increase in rental supply has been absorbed, then the increasing number of Tenants who decide to Rent rather than Buying, could put upwards pressure on rents.



Here's another factor spurring a possible increase in Rental Demand:


+ The Government has decided to go after those living in sub-divided Industrial properties.


(There's a SUPPLEMENT in today's Standard, advertising):


SAY "BYE" to subdivided flats in Industrial Buildings


"Potential risks cannot be rectified solely by remedial or improvement works, subdivided flats within industrial buildings are absolutely not suitable for domestic use."


Apparently, the Building Department is going to start making regular inspections of Industrial buildings, and will fine landlords where they find subdivided flats with tenants.


They are encouraging those who know of such properties to turn in the landlords, and have promised to help re-house those who get displaced.


Here's the telephone Hotline to report such properties:

Hotline : 2626-1616

Email : enquiry@bd.gov.hk