ENG-2016 — Page 82

Chart 12

The Economy

Prices and Rentals of Residential Property

(Jan 2012-100)

Index

180

Oct 2012

Feb 2013

170

160

150

140

130

120

110

Price index

Rental index

Nov 2016

100

Jan Apr Jul Oct Jan 2012

|

Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct

2013

2016 |

2014

2015

Flat prices and rentals showed decelerated growth in the fourth quarter of 2016.

As a result of the surge over the past several years, overall flat prices in December 2016 exceeded the 1997 peak by 78 per cent. Home purchase affordability' worsened to about 64 per cent in the fourth quarter, significantly above the long-term average of 46 per cent over 1996-20152. Should interest rates rise 3 percentage points to a more normal level, the ratio would soar to 83 per cent.

While the demand-supply balance of flats is still tight for the time being, it is set to ease in the years ahead. The vacancy rate remained low at 3.8 per cent at end-2016, only marginally higher than the 3.7 per cent at end-2015. Nonetheless, reflecting the government's sustained efforts in raising land supply, 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, rose to a new record high of 94,000 units as estimated at end-2016.

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

1

The ratio of mortgage payment for a 45 square metre flat to median income of households, excluding those living in public housing.

The historical data on home purchase affordability has been revised to reflect the revision to income statistics in the General Household Survey.

48