* Hong Kong, S'pore flat prices to fall 20-21 pct by end '09
* Finance sector retrenchment to hit Hong Kong office mar
* Tokyo property to fall but better placed to weather slump
By Susan Fenton
HONG KONG, Nov 21 (Reuters) - Asia's property markets are about to be hit by the global economic downturn with apartment prices and office rents in Hong Kong and Singapore set to skid more than 20 percent by the end of 2009, a Reuters poll on showed Friday.
Tokyo residential prices are forecast to fall 10 percent by the end of next year while Grade A office rents and capital values are seen slipping by up to 5 percent, according to the poll of financial institutions and property consultants.
Hong Kong residential property prices, already down 15 percent from a peak earlier this year, are set to drop 20 percent.
"They are heading back to levels seen during the SARs outbreak in 2003," said Leland Sun, founder of Hong Kong-based Pan Asian Mortgage Co Ltd. "Although mortgage rates are low, at around 3 percent, banks are reluctant to give 70 percent mortgages because of declining economic conditions."
In Singapore, home prices fell 2.4 percent in the third quarter of 2008 -- marking the end of a four-year housing boom -- and will drop another 21 percent by the end of 2009.
The downturn in Asian property lags the end of the property boom in the United States and Europe but will be felt more keenly next year. In comparison, Reuters polls forecast a 6.4 percent drop in U.S. house prices in 2009 [US/HOMES] and a 10 percent decline in UK house prices [GD/HOMES].
Hong Kong, Singapore and Japan are all now officially in recession. In Japan, more than 400 small and medium-sized developers and real estate firms have gone out of business in the past year as the residential market has turned down and as tighter credit has made it harder to finance property deals.
Office supply in Tokyo is relatively tight but rents at new buildings have started falling for the first time in six years.
"PAY-BACK TIME"
Hong Kong, Asia's biggest international financial centre, will probably be most exposed to retrenchment in the financial sector. HSBC said this week it would lay off 500 staff in the city although redundancies by banks in Asia will be less than in New York or London.
As finance companies are locked into long leases, falling demand will filter through slowly, meaning further downside for office rents and prices in 2010 and possibly 2011, analysts said.
Capital values of Grade A office space in Hong Kong are poised to slump 30 percent between while office rents are expected to tumble 26 percent, according to the poll.
Office rents in Singapore have quadrupled in the past five years as companies expanded amid limited supply. As supply now looks to overshoot just as companies are cutting back, Grade A rents are set to drop 21 percent by the end of 2009 and prime office capital values will slide 25 percent.
"It is pay-back time for all the excesses in 2006 and 2007," said Colin Tan, head of research for Chesterton International in Singapore. "The price rise was too quick and too high and, deep down, the industry knew that it was unsustainable."
One reason commercial property prices in Asia are set to slide is that landlords who need to refinance debt will find that banks are cutting credit to 40-50 percent of the value of a building from as much as 70-80 percent before the crisis.
With the cost of non-recourse loans also up, typically by 150-200 basis points, some landlords could be forced into fire-sales.
"I'm very pessimistic," John Pattar, who runs property funds for CLSA, told a conference in Hong Kong this week. "The bankers will force prices down," he said, adding he thought Hong Kong and Singapore office values would fall by half.
"You won't get financing until you hit those levels."
An accelerated slide in Asian residential property values is likely to dampen consumption and prolong the economic downturn.
In Hong Kong more than 10,000 people who bought flats early this year are now in negative equity. However, analysts do not foresee a repeat of the post 1997/98 Asian financial crisis crash -- when apartment prices plummeted 70 percent in six years -- saying economic fundamentals are stronger.
Falling Asian property prices are adding to a negative wealth effect created by sharp losses on the region's stock markets.
Property shares have been hammered and Tokyo's real estate sub-index and Hong Kong's property sub-index have shed more than 60 percent this year. (Additional reporting by Mariko Katsumura in Tokyo, Daryl Loo in Singapore, and Dominic Whiting in Hong Kong) (Editing by Kazunori Takada)