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"We cannot escape the unfortunate fact that, under Hong Kong's circumstances, pressure on prices is one of the less acceptable but continuing costs of our commitment to sustained growth," he pointed out.
On the property market, he said by the middle of January this year, the prices of existing residential properties had fallen by an average of 14 per cent from their peak in April 1994.
Whilst prices have moderated, they remain at levels which are historically high.
He said the package of measures introduced by the Government in June last year helped to make the market work more fairly and efficiently.
In the short term, the intention was to squeeze out the speculator, and it had largely succeeded.
In the long term, the Government will tackle the problem at its root by increasing the supply of flats, he said.
"Beyond this, however, we must leave the housing market to find its own equilibrium."
In terms of office accommodation, the prospects for the medium term are that a new equilibrium will emerge as additional supply becomes available from the redevelopment of existing sites in Central, from developments on the Central and Wanchai Reclamation and from sites along the Airport Railway.
Referring to criticisms about massive reclamation around the harbour, he said: "We have no intention whatsoever of reducing our magnificent harbour to a mere trickle.
"Nor do we have any intention of flooding the market with huge amounts of new land.
"As always, the timing of actual land sales will depend on market conditions. But we must put ourselves in a position where we can meet future demand," he said.
Sir Hamish added that the additional land would enable people living in congested areas to enjoy a better quality of life without having to uproot themselves from the urban area.