The worst is over for Hong Kong’s high-end home rentals sector, as local demand has gradually filled up the empty flats left behind by expatriates, according to the luxury residential leasing arm of Sun Hung Kai Properties (SHKP).

Luxury home rents have dropped by 16 per cent in the last two years, and local tenants have taken advantage to upgrade to better quality projects.

“The market started to get warmer in the second quarter this year, and rent became stabilised in the summer,” said Derek Sun, managing director of SHKP’s Signature Homes unit, which manages more than 2,000 properties from single houses in the south of Hong Kong to serviced apartments in core business districts. “The worst is behind us and we are more optimistic about the rental market in 2022.”

Luxury residential rents in Hong Kong recorded an increase of 1.4 per cent between April and June, the first quarterly rise since the third quarter of 2019, according to JLL’s Hong Kong Residential Sales Market Monitor.

Mid-Levels saw the highest rental growth, of 2 per cent, among the major submarkets, largely on the back of limited availability.

The market was primarily supported by the current pool of residents in Hong Kong, which offset the significant drop in expatriate arrivals, said JLL.

“With the ongoing travel restrictions, expatriate arrivals are expected to remain limited in the short term. However, we still expect to see more leasing enquiries in the third quarter of 2022 as summer is the traditional home search season,” said Norry Lee, senior director of the projects strategy and consultancy department at JLL in Hong Kong. “With the expectation of border reopening before the year-end, the luxury leasing market is anticipated to improve gradually.”

SHKP’s leasing portfolio has units costing from HK$22,000 (US$2,830) a month for a studio in its Townplace in Soho to HK$650,000 for a single house at 50 Island Road in Deep Water Bay.

In May, a 7,022 square-foot detached house at 73 Mount Kellett Road, owned by an unrelated private entity Giant Expert Investments, was leased for HK$1.6 million a month, or HK$228 per square foot, making it the most expensive in per square foot terms in Hong Kong this year.

Early in 2021, Hong Kong’s embattled serviced apartment operators and landlords slashed their rents and offered sweeteners to boost occupancy rates that had been hit hard by travel restrictions and a sharp decline in relocations because of the pandemic.

“Some of our clients from overseas have postponed their reservation [with us] during the pandemic,” said Sun of Signature Homes.

At the height of Covid-19 last winter, he said rents were cut by about 10 per cent for leases upon renewal, as many cities had imposed travel restrictions that kept expatriates away from Hong Kong.

In the first half of this year, visa approvals from the General Employment Scheme and Mainland Talents and Professionals Scheme plunged by half from the same period of 2020 to 11,128, according to data from the Immigration Department.

“We have started to work with agents to bring in local families to replace corporate tenants [from overseas],” said Sun.

Sun said occupancy rates have rebounded to 80 to 90 per cent as a result of a local marketing push and the refurbishment of existing properties

Signature Homes completed the renovation of Four Seasons Place at Hong Kong Station in Central last year, and refurbishment work at Dynasty Court in Mid-Levels is ongoing.

“The market is receptive to newly renovated properties at a high rent,” said Sun.

As a corporate landlord, SHKP has a full technical team capable of offering immediate maintenance services that individual landlords cannot provide, he said.