(Bloomberg) -- Singapore is catching up with Hong Kong’s rental market as the city’s prices are expected to soar on limited supply, while Hong Kong grapples with dwindling appetite from population outflows.

That’s the view of analysts, who say many factors impacting prices in the two cities remain intact. Singapore rents could rise another 10-15% in 2023, while those in Hong Kong may only post a 5% increase, according to Bloomberg Intelligence estimates. 

Home rents in Hong Kong are predominantly more expensive when compared with Singapore. Yet with few signs of a rebound in the former, Singapore could continue to stand out in 2023 even with a slowdown in growth levels from the 30% surge last year. 

Singapore rents are “much closer to Hong Kong levels now,” said Simon Smith, a senior director at Savills Plc in Hong Kong. Given the limited luxury stock in Singapore to satisfy the demand, “the gap will narrow, and there will be very little daylight between the two markets.” 

Analysts are forecasting leasing values in Hong Kong to remain flat in the next few months after 2022 saw neighborhoods popular with expats tumble. 

Hong Kong has seen a decline in housing demand as expatriates relocated overseas to avoid the city’s pandemic restrictions. That happened just as geopolitical instability was already testing confidence. Areas popular with expats are among the locations with the steepest fall in rents in the past three years, according to online rental platform Spacious.hk. 

“There’s no major positive catalyst for rents in the first half,” said James Fisher, chief operating officer at Spacious.hk. However, returning expats and mainland Chinese could lift demand for Hong Kong rental homes later this year, he added.

In Singapore, an acute supply crunch and an influx of wealth has pushed up rents. Locals turned to renting homes due to pandemic-related construction delays, while a months-long wait-out period imposed on owners who wish to sell their private homes and purchase public housing units exacerbated supply shortfalls, said Victoria Garrett, Knight Frank head of residential for Asia Pacific. 

“Competitive advantage is always relative, and Singapore’s status as a safe haven has been elevated by stringent Covid-19 measures in mainland China and Hong Kong” most of last year, she added.

Restrictions Lifted  

That said, Hong Kong is still expensive. The median rent for a 800-square-foot apartment in Hong Kong’s Wan Chai area costs about $5,200 per month, 70% pricier than one in Singapore’s District 9, which includes Orchard, according to data compiled by Bloomberg News.

A resumption of quarantine-free travel with mainland China and Hong Kong’s gambit to attract foreign talent could prop up the housing market during the second half of this year. 

The speed of any recovery in Hong Kong rents will hinge on the city’s removal of all the remaining pandemic measures that have deterred businesses and visitors. 

“A lot is predicated on the speed with which the final restriction is lifted, how the border reopening plays out,” said Smith at Savills. “We still have mask regulation here, we still have these issues we need to overcome before we can truly move on.”

©2023 Bloomberg L.P.