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The Economy
Raising flat supply through increasing land supply is the government's top policy priority in facilitating the property market's healthy development. Combining the various sources (including government land sale, railway property development projects, the Urban Renewal Authority's projects and private re-development/development projects), the aggregate private housing land supply in the financial year 2014-15 is estimated to have the capacity to provide about 20,000 flats, exceeding the annual target of 18,800 flats. This is a record high since the government introduced the private housing land supply target in 2010.
Reflecting the government's sustained efforts, the total supply of flats in the coming three to four years (comprising unsold flats of completed projects, flats under construction but not yet sold and flats on disposed sites where construction can start any time) rose from 71,000 units as estimated at end-2013 to a record high of 74,000 units as estimated at end-2014. Yet the demand-supply balance of the property market remained tight in the year. The vacancy rate for private flats fell further from 4.1 per cent at end-2013 to 3.8 per cent at end-2014, well below the long-term average of 5 per cent over 1994-2013.
As it takes time to increase supply, the government has also put in significant efforts to manage demand and reduce the possible risks to financial stability arising from an exuberant property market. These measures have yielded notable results, but with the current revival of the market, the risks of a housing market bubble are still prominent. Following the almost uninterrupted rally in the past few years, overall flat prices in December 2014 have surpassed the 1997 peak by 61 per cent. Home purchase affordability (ie the ratio of mortgage payments for a 45-square metre flat to median household income, excluding those living in public housing) worsened to around [58] per cent in the fourth quarter, exceeding the long-term average of 47 per cent over 1994-2013. Should interest rates rise by three percentage points to a more normal level, the ratio would soar to 76 per cent.
Likewise, the non-residential property market has also turned more active since the second quarter. For the year as a whole, prices and rentals recorded moderate gains in general. Trading activities showed some pick-up from the lows in the first quarter, though they were still at subdued levels by historical standards. Taking 2014 as a whole, the number of sale and purchase agreements for non-residential property dropped by 11 per cent to 17,700, and total consideration by 28 per cent to $114 billion.
Sale prices of retail shop space rose by 8 per cent and rentals by a modest 5 per cent between December 2013 and December 2014 (Chart 13).
For office space, overall prices recorded a moderate gain of 3 per cent. Prices of Grade A, B and C office space went up by 1 per cent, 4 per cent and 1 per cent respectively. Overall office rentals rose by 5 per cent, with Grade A, B and C office space increasing by 3 per cent, 6 per cent and 8 per cent respectively (Chart 13). Meanwhile, prices and rentals of flatted factory space rose by 5 per cent and 9 per cent respectively.
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