ENG-1996 — Page 98

THE ECONOMY

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The local workforce generally enjoyed a continued rise in income. In the third quarter of 1996, average earnings in the service sectors as a whole registered increases of 8 per cent in money terms or 3 per cent in real terms. Among the major service sectors, earnings in the wholesale, retail, import/export trades and restaurants and hotels had the most rapid increase, by 11 per cent in money terms or 5 per cent in real terms. This was followed by earnings in community, social and personal services; and in financing, insurance, real estate and business services, both with increases of 8 per cent in money terms. After discounting inflation, the corresponding increases in real terms were 3 per cent. Earnings in transport, storage and communications rose by 7 per cent in money terms and 1 per cent in real terms.

The Property Market

The residential property market picked up distinctly in 1996. Primary sales generally met with a good response, with substantial over-subscription in many instances. Trading in the secondary market was also active. While this was supported by a strong end-user demand, the cyclical downturn during 1995 had also rendered flats relatively more affordable to prospective buyers in the beginning of the year. The cuts in the local interest rate and the offer of more favourable mortgage terms by the banks as competition for business intensified, plus the intensive sales promotion and offers of more flexible payment terms by developers further stimulated demand for residential property. By the end of 1996, both market activity and prices returned to the previous peak in early 1994. Flat prices in selected major residential developments in December 1996 on average surpassed the previous peak in April 1994, and were also 37 per cent above the trough in October 1995. Rentals for newly leased flats were on a moderate rise. Towards the end of the year, there were signs of growing speculative activities, particularly at the luxurious end of the market. The sales figures of some popular new developments showed a very high proportion of new flats being purchased by shell companies for quick resale.

On commercial property, the market for office space recovered noticeably in 1996, following the correction in 1995. Investment interest in Grade A office space in prime locations was particularly strong. However, trading in Grade B and Grade C office strata titles was relatively more moderate. Prices for office space showed some increase but the rental market remained soft. With better retail business, the sales market for shopping space in prime locations turned more active.

Sales activity in the industrial property market showed no signs of recovery in 1996. Despite some revived interest in acquiring conventional flatted factory buildings for redevelopment or for godown use, this market remained generally slack. The market for industrial-cum-office premises also remained slack.

Government land sales in 1996 were met with enthusiastic response. For auctions, prices fetched for residential as well as commercial sites were all above market expectations. In particular, the price fetched for the site at Hung Hom Bay Reclamation was the highest ever achieved for a single site at government land auctions.

Inflation

Consumer price inflation was generally on a moderating trend in most of 1996. With a stronger US dollar and reduced or continued low inflation in the major supplier economies like China, Japan and the USA, there was little price pressure from