ENG-2013 — Page 78

Chart 15

3

The Economy

Prices and Rentals of Residential Property (Jan 2012-100)

Index

140

135

130

125

2220

Price index

Feb 2013

120

115

Rental index

110

105

100

Jan Mar

May Jul Sep Nov Jan

Mar

May

Jul Sep Nov

2012

2013

Uptrend of both flat prices and rentals moderated during 2013.

Raising flat supply through increasing land supply is the government's top policy priority to ensure the property market's healthy and stable development. The government has abolished the Application Mechanism since 2013-14 to fully resume the lead in selling government land. The government has also been carrying out various land use reviews, including reviews of government land currently vacant, under Short Term Tenancies or different short-term or government uses, as well as Green Belt and industrial land. The government identified about 80 new sites in 2013 that can be rezoned for residential use. Together with sites identified earlier, these could be made available in the coming five years for providing about 210,000 flats.

The total supply of flats in the coming three to four years (comprising unsold flats of completed projects, flats under construction but not yet sold and flats on disposed sites where construction can start any time) continued to increase, from 67,000 units as estimated at end- 2012 to 71,000 units as estimated at end-2013. Yet the demand-supply balance of the property market remains tight in the short term. The vacancy rate for private flats declined from 4.3 per cent at end-2012 to 4.1 per cent at end-2013, the lowest level since 1997 and well below the long-term average of 5 per cent over 1993-2012.

As it takes time to increase supply, the government has also put in significant efforts to manage demand and reduce the possible risks to financial stability arising from an exuberant property market. These measures have yielded notable results.

However, the risks of a property market bubble remained elevated. Home purchase affordability (ie the ratio of mortgage payments for a 45-square metre flat to median household income, excluding those living in public housing) stayed high at around 54 per cent in the fourth quarter of 2013, exceeding the long-term average of 47.9 per cent over 1993-2012. Should

50