A range of economic indicators is pointing to a strengthening economy in Hong Kong: GDP grew by 6.8 percent year-on-year in the first quarter of 2004 and 9.5 percent in the first half; private consumption grew by 5 percent, investment 5.8 percent and total exports by 13 percent; unemployment rate dropped to 6.9 percent in June, the lowest in 28 months.

The latest survey by MasterCard International also suggests sustained consumer confidence for the second half of 2004. The findings are underpinned by retail sales surging by 11.5 percent by volume and 13.2 percent by value in the first five months of the year as the economy recovered from a dismal SARS-affected 2003.

Rents and prices of high street retail properties each rose by 3 percent in the second quarter. Rents of high street shops have grown by 39.3 percent since July 2003, when the retail market recovered from the SARS epidemic; prices have grown at an even higher rate of 73.6 percent since then.

Pedestrianisation and beautification schemes in several prime retail locations have improved the shopping environment, and drawn an even higher pedestrian flow. More comprehensive schemes have now been proposed in Causeway Bay, which will further enhance the attractiveness of the district, and will drive competition for space from retailers.

"The strengthening economy and consumer confidence have pushed up demand for prime retail premises, especially those strategically located," says Dr Nelson Wong, Head of Research for Greater China at Jones Lang LaSalle, "While there will be short-term disruption, the extensive beautification schemes proposed in Causeway Bay will give another thrust to the area in the long term. We expect retailers with the ability to afford higher rents, such as international designer labels and jewellery/watches to be the dominant tenant type."

Property Market Looking Up

Following the sharp rebound in late 2003 and early 2004, trading activities in the property market consolidated in the second quarter, albeit still well above the quarterly average in 2003. Flat prices, after the appreciable increases in the earlier months, eased back by an average of 7 percent between April and June 2004. Yet they were still 25 percent above the trough in July 2003. Notwithstanding the recent consolidation and concern about US interest rate rise, the general market sentiment remained cautiously optimistic. Meanwhile, flat rentals continued to firm up in line with the reviving leasing demand. Leasing demand for office space also strengthened further amid the economic upturn. The market for shopping space stayed active, as inbound tourism remained buoyant and local consumer spending picked up further.

Primary Property Market Transactions Jump 26 Percent

The 25 authorized institutions which participate in the Hong Kong Monetary Authority's monthly survey of residential mortgage lending reported a small increase in new loans drawn down during July, by 3.1 percent to HK$10.80 billion.
New loans approved by the institutions during July, on the other hand, fell slightly, by 0.4 percent to HK$11.74 billion. Approvals relating to primary market transactions increased by HK$0.72 billion (26%), but this was offset by a HK$0.56 billion (11%) reduction in those relating to secondary market transactions and a HK$0.20 billion (5%) reduction in those relating to refinancing.

The proportion of new approvals priced at more than 2.5 percent below the best lending rate increased to 65.3 percent from 62.6 percent in June, while that for fixed rate mortgages decreased to 12.0 percent from 14.4 percent in June. The outstanding amount of mortgage loans edged up to HK$524.3 billion.
The mortgage delinquency ratio improved further to 0.54 percent from 0.57 percent in June. Together with the rescheduled loan ratio, which increased to 0.50 percent from 0.49 percent in June, the combined ratio improved to 1.04 from 1.07 percent.