ENG-2001 — Page 102

THE ECONOMY

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terms. In the local manufacturing sector, earnings went up by 2 per cent in money terms or 3 per cent in real terms.

As to labour wages, those in manufacturing moved higher by 3 per cent in money terms or 4 per cent in real terms in September 2001 over a year earlier. Wages in the wholesale, retail and import/export trades, in restaurants and hotels, and in personal services had smaller increases, by 1 per cent in money terms or 2 per cent in real terms. Wages in transport services held steady in money terms, yet were slightly up by 1 per cent in real terms. On the other hand, wages in financing, insurance, real estate and business services fell both in money terms and in real terms, by 2 per cent and 1 per cent respectively.

The Property Market

During 2001, the sales market for residential property was characterised by a sustained decline in flat prices, and a pick-up in transaction volume towards the year- end. In the first four months of the year, market sentiment was hit by a host of negative factors, including in particular the slowdown in economic activity, sharp correction in share prices, and abundant supply of new flats coming on stream. Trading was subdued, as potential home buyers mostly stayed on the sideline. In May and June, some renewed acquisition interest emerged, upon the successive and sizeable cuts in local interest rates (by a total of 2.5 percentage points in the first half of the year), as well as the more intense sales promotion pursued by property developers. Trading activity however tapered again in the ensuing few months, amidst greater worries about the worsening economic situation and larger increase in unemployment. The September 11 incidents dampened buyer confidence even further, bringing the sales market nearly to a standstill in late September and early October. This far outweighed the effects of an announcement in early September for suspension of flat sales under the Home Ownership Scheme/Private Sector Participation Scheme up to mid-2002, and of further cuts in local interest rates (by another 1.5 percentage points up to end-October). In response, property developers stepped up their sales promotion further, by offering heavier discounts on flat prices. and more attractive financing arrangements to buyers. This helped stimulate a distinct rebound in sales in the primary market towards the year-end. Yet activity in the secondary market remained subdued.

On a quarter-to-quarter comparison, flat prices largely followed a downtrend in 2001. Apart from nil change in the second quarter, flat prices went lower in the first, third and fourth quarters, on average by 4 per cent, 3 per cent and 7 per cent respectively. For 2001 as a whole, flat prices on average declined by 13 per cent. Against the peak level in the third quarter of 1997, flat prices in the fourth quarter of 2001 were down substantially, by an average of 57 per cent.

The rental market for private residential flats, having held broadly stable in the first three quarters of 2001, weakened noticeably in the fourth quarter upon a fall-off in lease demand amidst the economic setback, concurrent with an increased supply of flats for lease from those hitherto for sale. On a quarter-to-quarter comparison, flat rentals on average fell by 1 per cent each in the first three quarters of 2001, and then by 4 per cent in the fourth quarter, giving a cumulative decline of 7 per cent for the whole year. Against the peak level in the third quarter of 1997, flat rentals in the fourth quarter of 2001 were significantly lower, by an average of 34 per cent.