HONG KONG: Real estate agents believe luxury-property sentiment will remain sluggish on signs of a possible 20 percent fall in housing prices in the second and third quarter.

The property agencies gave the view after the high-end sector witnessed the largest fourth-quarter price decline in 17 years.

From October through December, the average price of townhouses nosedived by 38 percent, returning to the level last seen during the third quarter of 2006. The drop is the largest since the first quarter of 1992, according to property services provider Savills.

Yu Kam-hung, real estate services company CB Richard Ellis' senior managing director for Hong Kong, Southern China & Taiwan, said that prospective buyers are taking a wait-and-see approach on fears the prices will further plummet.

Jeffrey Ng, a property agent with Midland Realty, said the prestigious housing sector experienced a significant price drop in October, but the prices stabilized in November and December.

"Undoubtedly, luxury buyers' attitudes became more prudent recently, but the purchasing power is still there since the prices have been significantly undershot."

The number of mainland buyers, who account for 60 percent of the overall homebuyers in Hong Kong's luxury market, has shown no signs of receding in recent months, Ng said.

Regarding supply, Yu said some landlords prefer to rent their properties out rather than sell them for significantly less.

However, Ng said that the number of leases is still very small in the luxury market. "Unlike the mass residential market, prospective luxury buyers tend to own a property rather than rent it," he said.

DTZ Head of Consultancy in North Asia Alva To expressed belief that the luxury sector will continue to deteriorate this year amid the worsening economy.

"We expect luxury flats sized around 1,000 sq ft to be hit hard," he said. "The price of the luxury apartments will fall as much as 20 percent in the second and third quarter."

However, luxury properties with a price tag of more than HK$100 million are expected to be less affected by the financial tsunami.

Jimmy Fong, head of residential sales on HK Island of Savills, said the transaction price of the super luxury property doesn't soften because of a dearth in supply.

For instance, a luxury property in Gough Hill Residences 3B was recently sold for HK$180 million, equivalent to HK$31,800 per square foot. The transaction price is in line with the market level, indicating that luxury landlords have little room to compromise despite the downturn, Fong said.

Eddie Hui, an associate professor in the Department of Building and Real Estate at Hong Kong Polytechnic University, said that the extent of the fourth-quarter correction was very rare.

"The impact of the financial tsunami is unprecedented, but the price adjustment for this year will be relatively minor," he said. "However, the luxury market is unlikely to bottom out over the next 12 months."

(HK Edition 02/20/2009 page16)