ENG-1995 — Page 91

THE ECONOMY

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concentrated mainly in the primary market, prompted by substantial price cuts by developers and the offer of more flexible payment packages. Performance in the secondary market was generally subdued. Speculative activities subsided. Several banks cut their mortgage rate for new mortgage loans during the third quarter. As a result, activity in the secondary market recovered somewhat towards the end of the year. Market sentiment improved, as the response to a number of pre-completion sales in the fourth quarter held up well along with small increases in prices. At the end of 1995, flat prices were, on average, about four per cent above the trough in October, but still about 24 per cent below their peak in April 1994. With more landlords leasing flats in a sluggish sales market, rentals also softened.

On commercial property, the market for office space also underwent a correction in 1995 after the buoyancy in 1994. Generally subdued investment sentiment in the property market, coupled with the anticipation of an ample supply in the next few years, prompted this correction. Tenants continued to trim costs by economising on office space and by shifting to secondary locations. Prices and rentals for office space were pushed down in 1995. Prices and rentals for shopping space also fell, along with the slack retail business.

The industrial property market remained weak. Acquisition interest in old industrial buildings en bloc as well as in industrial sites for redevelopment into modern multi-purpose industrial buildings slackened further. Leasing activity was generally sluggish.

The response to the various government land sales in 1995 was mixed. For auctions, while prices fetched for residential sites in prime urban areas were generally above market expectations, response to the sale of commercial sites and industrial-cum- office sites at less popular and less convenient locations was not enthusiastic. As to tenders, the price fetched for the prime commercial site at Tamar Basin was above market expectations.

Inflation

Consumer price inflation picked up in the first quarter of 1995, but soon resumed a moderating trend in the ensuing quarters. In the early part of the year, the inflation situation was exacerbated by a pick-up in imported inflation along with the uptrend in world commodity prices, a weaker US dollar, and high inflation in China. But with labour supply becoming generally more abundant and property prices and rentals softening, locally-generated inflationary pressures eased in the ensuing months. This, together with the moderation in inflation in China and less rapid increase in import prices following the rebound in the US dollar after the second quarter, helped to alleviate overall inflationary pressures.

Reflecting these developments, the year-on-year rate of increase in the Consumer Price Index (A)), after rising to 9.5 per cent in the first quarter of 1995, moderated to 9.2 per cent in the second quarter, and further to 8.6 per cent and 7.7 per cent in the third and fourth quarters, respectively. For 1995 as a whole, the CPI(A) increase averaged 8.7 per cent compared with 8.1 per cent in 1994. The CPI(B) and Hang Seng CPI showed broadly similar movements. Taking the three indices together, the Com- posite CPI decelerated from a 9.8 per cent increase in the first quarter to an 8.2 per cent increase in the fourth quarter, giving an annual average increase of 9.1 per cent in 1995.