The Property Market

The residential property market went from buoyancy to consolidation
over the course of 1997. Flat prices escalated amid hectic trading in the
first half of the year, backed by strong end-user and investment demand
along with much speculation, and against a tight supply. In the third
quarter, market activity began to ease, in face of the government's
commitment to stabilise the market and to increase flat supply
substantially in the longer term. In the fourth quarter, the market came
under substantial downward pressure, as the contagion of the regional
currency turmoil spread and as local interest rates were driven higher.
Mortgage lending by the banks tightened, trading in the secondary market
shrank sharply and cases involving forfeiture of deposits reportedly
increased. Nevertheless, response to the primary sales of some new
developments with substantial price cuts and more flexible financing
packages from the developers were better received. Flat prices surged by
34 per cent during the first 10 months of 1997 to peak in October, before
falling 13 per cent from the peak by December. Flat rentals for new leases
edged down by about 1 per cent in the fourth quarter of 1997 over the
preceding quarter.

On commercial property, the sales market for office space was active in
the first half of 1997, before softening in the second half as economic
growth tapered and as an abundant supply of new office space was
anticipated to come on stream in the near term. The negative turn in
sentiment brought about by the regional events further dampened
acquisition interest. The sales market for shopping space was also active
during most of 1997. After a short spell of particularly hectic activity in
the third quarter, trading quickly quietened in the ensuing months. The
rental market for commercial property held steady during most of the
year, before easing towards the year end. The market for industrial
property remained generally slack throughout 1997, in line with the
continued relocation of production processes away from Hong Kong.
Within this, the market for industrial-cum-office premises nevertheless
fared better.

Government land sales in 1997 were generally met with an enthusiastic
response. This was largely so even towards the year-end when the
property market was already consolidating. In overall terms, prices
fetched for the 18 sites in the eight land auctions held during the year
were above market expectations. In particular, the sale of a residential
site in Siu Sai Wan in March fetched the highest land premium ever
achieved for a single site at government land auctions.  

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