ENG-2006 — Page 85

Chart 13

Prices and rentals of residential property (1999=100)

Index

140

120

100

Rental index

80

60

Price index

40

20

0

The Economy 1 57

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

2003 I 2004 T 2005

2002

2006

Flat prices continued to move within a narrow band during 2006, sustaining the consolidation after the earlier hectic situation which lasted until mid- 2005. However, sentiment about the longer-term market outlook stayed positive. Flat rentals moved up steadily in the wake of solid user demand.

The non-residential property market fared rather well in 2006, with the office segment performing strongly. Rents in this segment rose by 14 per cent in December 2006 compared with a year earlier. Concurrently, rents of Grade A office space in core districts went up more by 19 per cent. The sharper increase was supported partly by the growing volume of high value-added activities in the economy, particularly in the financial and professional services. Also relevant was the low vacancy and limited new office supply in core districts in the near future. On the sales front, activity levelled off after the earlier busy spell. Increases in overall office space prices and prices of Grade A office space in core districts steadied at 4 per cent and 3 per cent respectively during 2006 (Chart 14).

As for other non-residential properties, the demand for shopping space was bullish but increases in rents and sale prices narrowed further to 4 per cent and 3 per cent respectively in December 2006 compared with a year earlier. The increases during 2006 occurred mainly in the latter part of the year as sentiment turned more positive against the backdrop of sustained strength in retail sales. In respect of industrial property, rents and prices of flatted factory space surged by 11 per cent and 24 per cent respectively during 2006. The user demand for flatted factory space from the manufacturing and trading sectors stayed strong, while the attractive rental yield and the potential for converting factory space into commercial space continued to appeal to investors.