XN000022-1996-11-29 — Page 8

The property market

On residential property, sales in the primary market were generally met with an enthusiastic response, and trading in the secondary market was also very active in recent months. Flat prices registered further gains. By September 1996, the prices of flats in selected residential developments had rebounded by 22% over the trough in October 1995, and was 18% higher than the level at end-1995. However, they were on average still 10% lower than the peak in April 1994. The cuts in local interest rate, the offer of more attractive mortgage terms by the banks as competition for mortgage business intensified, and the intensive sales promotion as well as offer of more flexible payment terms by developers all contributed to such an intensive activity in the residential property market. The favourable response to the land auction held in the third quarter further boosted sentiment. On the rental side, rentals for newly leased flats appeared to have bottomed out, with increases of around 1-2% recorded in the second and third quarters.

Trading in office premises also recovered noticeably, with prices particularly for Grade A office strata titles in prime focations firming up in the third quarter. On the other hand, rentals for office space remained generally soft, continuing on a downtrend since October 1994. The sales market for shopping premises showed signs of improvement in certain segments. Rentals for shopping premises in prime locations stayed firm, but those in less popular areas remained slack.

Sales activity in the industrial property market was generally sluggish, and prices continued to fall. There was nevertheless some rekindled interest in acquiring traditional flatted factory premises for redevelopment or for godown use. Leasing had turned more active recently, yet rentals eased further.

Inflation

Consumer price inflation moderated further. The year-on-year rate of increase in the CPI (A) slowed down to 5.4% in the third quarter, from 6.2% and 6.4% respectively in the first and second quarters. Taken together, the CPI(A) increased by an average of 6.0% for the first nine months of 1996 as a whole, significantly below the average increase of 8.7% in 1995. The CPI(B) and Hang Seng CPI followed a similar easing trend. Combining the three indices, the Composite CPI was up by an average of 6.4% in the first nine months taken together, also significantly lower than the average increase of 9.1% in 1995.

Domestically-generated inflationary pressures were subdued, helped by a more balanced situation in the local labour market and generally stable rentals in the property market. A stronger US dollar, coupled with mild inflation in the major supplier economies, also helped to reduce price pressure from imported inflation.