JLL Hong Kong holds a news conference on July 11, 2023 to announce the performance of Hong Kong's real estate market in the first half of this year. (LI XIAOYUN/ CHINA DAILY)

Hong Kong’s residential property sector showed a lukewarm performance in the second quarter, as rising mortgage rates, an ample new housing supply and a lack of mainland buyers has continued to weigh down the market.

JLL Hong Kong, a global company offering real estate services and investment management, said on Tuesday that the capital value of mass residential properties fell into negative territory from April to June, dropping 1.2 percent on a quarterly basis, following a 4 percent rebound in the first quarter.

Growing leasing momentum, especially in core shopping districts, has led to a decline in the vacancy rate of High Street shops, from 16.6 percent at the end of December to 13.7 percent at the end of June

While the transaction volume for properties valued at or above HK$20 million ($2.56 million) surged by nearly 97 percent in the first half, the capital value of luxury homes rose only 1.3 percent, it said.

READ MORE: Boundary reopening brings light to Hong Kong property market

“Hong Kong’s housing market is now having the longest period of price adjustment since 2008, and the market has not found a bottom,” JLL Hong Kong Chairman Joseph Tsang said.

Tsang said the current cycle indicators are not conducive to the city’s housing-market recovery, as factors that include rising interest rates, a volatile stock market, the challenging external economic environment, and an ongoing drop in new marriages and births will dampen the demand for housing.

The retail sector, meanwhile, has shown a significant improvement since the border between the city and the Chinese mainland reopened earlier this year, with total retail sales increasing by 21 percent year-on-year in the first five months of this year.

Growing leasing momentum, especially in core shopping districts, has led to a decline in the vacancy rate of High Street shops, from 16.6 percent at the end of December to 13.7 percent at the end of June.

READ MORE: JLL: Cooling measures for HK housing market no longer needed

While food-and-beverage, grocery, mass fashion and lifestyle trades as well as experiential retail are expected to further create leasing demand, the company warned that rising outbound travel and the weakening renminbi could dampen local spending, with more Hong Kong people going outside the city to shop and fewer people from the mainland visiting the city.

Office market also benefited from the border reopening, with total leasing volume growing by 13.8 percent in the first six months, JLL said. That represented 73 percent of the pre-pandemic level at the end of 2019.

“The government’s talent schemes, along with office rents lower than their peak and increased flexibility in leasing terms offered by landlords, will help boost demand for office leasing,” said Paul Yien, executive director of JLL’s Office Leasing Advisory.

Contact the writer at irisli@chinadailyhk.com