3
The Economy
Notwithstanding the recent consolidation, overall flat prices in December 2015 still exceeded the 1997 peak by 65 per cent. Home purchase affordability' was about 62 per cent in the fourth quarter, which was still significantly higher than the long-term average of 46 per cent from 1995 to 2014. Should interest rates rise 3 percentage points to a more normal level, the ratio would soar to 81 per cent.
The demand-supply balance of flats remained tight in overall terms in 2015, though the situation looks set to ease in the years ahead. With the take-up of private flats exceeding net completions?, the vacancy rate for private flats edged down from 3.8 per cent at end-2014 to 3.7 per cent at end-2015, well below the long-term average of 5 per cent over 1995-2014. Yet, reflecting the government's sustained efforts on the supply front, 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 successively from 74,000 units as estimated at end-2014 to 87,000 units as estimated at end-2015, a record high since the statistics were published in September 2004.
As it takes time to increase supply, the government has also made significant efforts to manage demand and reduce possible risks to financial stability arising from an exuberant property market. These measures have yielded notable results.
The non-residential property market also cooled off in the second half of 2015. Trading activities have quietened down since the third quarter, though for the year as a whole the number of sale and purchase agreements for non-residential property still rose 14 per cent over the low base of last year to 20,200, while total consideration increased 16 per cent to $132.1 billion. Prices and rentals likewise came under pressure towards the year end, recording only modest. gains or even slight declines for 2015 as a whole.
Sale prices of retail shop space dipped 1 per cent between December 2014 and December 2015, while rentals rose 2 per cent (chart 13).
For office space, overall prices recorded a moderate gain of 5 per cent. Prices of Grade A, B and C office space went up 9 per cent, 7 per cent and 6 per cent respectively. Overall office rentals also rose 5 per cent, with those of Grade A, B and C office space recording a gain of 5 per cent, 6 per cent and 4 per cent respectively (chart 13). Prices and rentals of flatted factory space rose 3 per cent and 5 per cent respectively.
1 The ratio of mortgage payment for a 45 square metre flat to median income of households, excluding occupants of
public housing.
2
Gross completions net of demolition.
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