ENG-2002 — Page 93

THE ECONOMY

On a quarter-to-quarter comparison, flat prices declined on average by 2 per cent, 5 per cent and 5 per cent respectively in the second, third and fourth quarters of 2002, having shown nil change in the first quarter. For the year as a whole, flat prices on average fell by 12 per cent. Against the peak level in the third quarter of 1997, flat prices in the fourth quarter of 2002 plummeted by an average of 62 per cent. Following the marked decline in flat prices and successive cuts in mortgage rates, and notwithstanding reduced household income, there was a substantial improvement in home purchase affordability over the past several years.

The rental market for private residential flats remained subdued in 2002. Apart from a lesser lease demand upon the impact of reduced salaries and housing allowances, there appeared to have been an increased supply of flats for lease from those hitherto for sale. Flat rentals came under greater downward pressure in those areas with a considerable number of newly completed flats. On a quarter-to-quarter comparison, private housing rentals on average declined by 4 per cent, 3 per cent, 3 per cent and 4 per cent respectively in the four quarters of 2002. For the year as a whole, there was on average a drop of 13 per cent. Against the peak level in the third quarter of 1997, private housing rentals were significantly down in the fourth quarter of 2002, by an average of 43 per cent. Mainly consequential to the distinct fall in flat rentals, lease affordability likewise improved over the past several years (Chart 17).

Chart 17

Prices and rentals of residential property (1999=100)

Index

200

Price index

150

100

50

Rental index

0

QI Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

1997

1998

1999

2000

2001

2002

Prices and rentals of residential flats both continued to drop during 2002, with sentiment mostly staying subdued and amidst an abundant supply relative to demand in the market.

On commercial property, the rental market for office space weakened further in 2002, as demand continued to be dampened by the ongoing process of downsizing and rationalisation in the business sector. Grade A office space was additionally hit by an excess supply, particularly in the central business district. Also relevant was the move by some companies to relocate their offices to secondary districts as a cost-

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