ENG-2007 — Page 96

56 The Economy

The Property Market

Having quietened down for more than a year, the residential property market became active again in 2007. Both property trading and property prices picked up during the year, as buying interest revived sharply amid rising income and an improving job market. Market sentiment was particularly upbeat in the fourth quarter of 2007, fuelled by successive cuts in Hong Kong dollar best lending rates which amounted to one percentage point between September and December, and expectation of further interest rate cuts. Overall flat prices rose markedly by 26 per cent from end-2006 to end-2007. Leasing demand for residential property held firm. Overall flat rentals increased by about 16 per cent between end-2006 and end-2007 (Chart 13).

Chart 13

Prices and rentals of residential property

(1999=100)

140

120

100

80

60

40

20

Index

Price index

Rental index

0

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

Q4 Q1 Q2 Q3 Q4

2003

2004 I

2005

2006

2007

The rise in flat prices was supported by improving household incomes as well as lower mortgage rates, both of which helped home purchase affordability. Flat rentals rose as a result of strong user demand.

The non-residential property markets stayed strong in 2007, due to the general business upturn. This was particularly obvious in the office market where user demand was hectic across different grades of premises. Comparing with end-2006, overall office rentals rose by about 15 per cent at end-2007, with Grade A, B and C office rentals rising by about 15 per cent, 16 per cent and 11 per cent respectively. On the back of sanguine leasing prospects and interest rate cuts, sale prices of office premises soared by about 42 per cent in overall terms during 2007 (Chart 14).

More shopping and flatted factory space became available in 2007, but their rents rose notably. Compared with end-2006, rents of shopping and flatted factory space went up by about 9 per cent and 11 per cent respectively at end-2007. The