ENG-2010 — Page 102

60 The Economy

Chart 14

Index

180

160

140

120

100

80

60

40

20

0

Prices and Rentals of Residential Property

(1999=100)

Price index

Rental index

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

2006 I 2007 | 2008

2009 1 2010

Both flat prices and rentals soared further in 2010.

As home prices continued to rise faster than income, the home purchase affordability (i.e. the ratio of mortgage payment for a 45-square metre flat to median income of households, excluding those living in public housing) rose from 38.4 per cent in the fourth quarter of 2009 to 44.5 per cent in the fourth quarter of 2010, and would move even closer to the long-term average of 51.3 per cent over 1990-2009 should interest rates return to a more normal level.

The Government has always been mindful of the risk of a property market. bubble, as well as the repercussions of wild fluctuations in property prices on overall economic and financial stability. The Government introduced successive packages of measures in February, April, August and November 2010 to ensure a stable and healthy property market. In October, the Chief Executive also announced a series of short, medium and long-term measures in his Policy Address. The latest package of measures, mainly targeted at curbing speculative activities through the introduction of a Special Stamp Duty (SSD) on short-term resale transactions and further tightening of the loan-to-value ratios for mortgage loans, was announced in November 2010 after the US Federal Reserve introduced the second round of quantitative easing measures. The successive packages of measures have achieved noticeable results in raising flat supply, increasing transparency of the property market, preventing excessive growth of mortgage lending and curbing speculative activities.

Regarding supply, completions of private residential flats rebounded sharply by 87 per cent to 13 400 units in 2010, and are forecast at 10 700 units in 2011. Over the medium term, reflecting the Government's effort in boosting land supply, the total supply of flats in the coming few years (comprising unsold completed flats, flats already under construction but not yet sold and flats on disposed sites where