Mixed Signals

June 6, 2008

There are strong signals from the US that the interest rate reduction may be coming to a halt, as various indicators are showing a declining economy. It is too early to tell if the rate will reverse its direction immediately when inflation is gathering momentum. One thing is for sure. the US government is caught in a dilemma. The struggling economy needs low financial cost to bail itself out of recession, but inflation is feared to spin out of control if not reined in by higher interest rate and tighter credit control.

In China, a similar dilemma confronts the government. The Sichuan earthquake has brought about an unprecedented devastation on an immense scale, costing the country at least 70.000 lives and losses in hundreds of billions of yuan. The government will have to invest heavily in rebuilding the infrastructure and rejuvenating the economy of the devastated areas. This may further fuel the spiraling inflation, which, before the quake, has been the government's major target of dampening effort.

In Hong Kong. the property market has been affected by such a myriad of uncertainties. Some people are seeing this as an opportunity and some are shunning investments, resulting in mixed market responses. The last few weeks were characterized by a sudden flurry of buying interspersed with quiet spells, indicating investors are still jittery about the market outlook. There is no overwhelming optimism or pessimism today. Property investors' swing of mood has dictated the market. with each swing bringing about swift changing of activity or non-activity.

The leasing market however has enjoyed a boom, as we are in the traditional peak season. Tenants newly arrived or nearing the end of their leases have found rentals increased at a much faster rate than inflation. Popular properties are snapped up within days of listing. and the achieved rentals are mostly in favour of the landlords. Rental properties in the range of $60.000 to $120.000 per month are highly skewed towards the landlords. Tenants with limited budgets have to find shelter in off-centre locations. We expect the market buoyancy will continue deep into the summer.

By Karen Xu