ENG-2003 — Page 93

THE ECONOMY

As to the rental market for private residential flats, leasing activity likewise turned more active in the second half of 2003, after remaining quiet in the first half of the year. Flat rentals, having eased during most of 2003, tended to stabilise in the fourth quarter. On a quarter-to-quarter comparison, private housing rentals on average declined by 3 per cent, 4 per cent and 2 per cent respectively in the first three quarters of 2003, but were broadly stable in the fourth quarter. For the year as a whole, there was on average a fall of 9 per cent, lesser than the 14 per cent dip in 2002. Against the peak level in the third quarter of 1997, private housing rentals were significantly down in the fourth quarter of 2003, by an average of 48 per cent (Chart 13).

Chart 13

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140

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100

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40

20

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Index

Prices and rentals of residential property (1999=100)

Rental index

Price index

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

1998

2002

2003

1999

2000

2001

Having fallen during most of 2003, flat prices picked up visibly in the fourth. quarter, while rentals tended to stabilise, amidst a distinct improvement in the overall economic performance and outlook.

On commercial property, the rental market for office space weakened further during most of 2003, but became more active towards the end of the year. The abundant supply of new and existing office space, coupled with the SARS impact, exerted much downward pressure on rentals in the first half of the year. Yet, after the waning of SARS, such downward pressure on rentals tended to dwindle in the second half. With rentals for Grade A office space having fallen to a more attractive level and with an upturn in business sentiment, leasing demand for office space strengthened somewhat in the latter part of the year. Also, more tenants were willing to relocate their offices from buildings which were older or in secondary locations to better ones. On a

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