ENG-2008 — Page 95

The Economy | 55

The Property Market

After a generally buoyant performance in early 2008, the local residential property market turned quieter towards mid-year, and took an abrupt downturn after the outbreak of the global financial crisis in September. Selling pressures intensified towards the end of the year, as prospective home-buyers and investors stayed on the sideline amid the rapidly deteriorating economic and employment outlook. The increasingly conservative stance of the banks towards extending mortgage loans, manifested in tighter property valuation and higher interest rates for new mortgages, also made financing more difficult. The leasing market for residential property also turned sluggish in the latter part of the year, amid mounting concerns about the global financial crisis. Having posted some gains in the first half of 2008, overall flat prices and rentals in the fourth quarter were down by 5 per cent and 1 per cent from a year earlier respectively (Chart 13).

Chart 13

Prices and Rentals of Residential Property

140

120

Index

100

Price index

80

60

40

20

0

(1999=100)

Rental index

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

2004

2005

2006

2007

2008

In the face of the gloomy economic and employment outlook resulting from the global financial crisis, residential property prices and rentals both showed a sharp correction during the second half of 2008.

The non-residential property market also felt the pinch, with overall prices for office space in the fourth quarter of 2008 declining by 7 per cent from a year earlier. Price drops for Grade A, B and C offices were 9 per cent, 8 per cent and 4 per cent respectively. Office rentals also started to fall in the latter part of the year, but by only 2 per cent between the third and fourth quarters. This could be partly attributable to the fact that tenancies commenced towards the end of the year actually reflected the rentals that were agreed earlier on. Consequently, overall office rentals in the fourth quarter still posted a 14 per cent rise on a year-on-year basis, comprising increases of 15 per cent, 12 per cent and 8 per cent for Grade A, B and C offices respectively (Chart 14).