Hong Kong celebrated its first decade since the handover as good news flooded in during the first half of the year. Buoyed by the latest expansion in mainland wealth management opportunities under the Qualified Domestic Institutional Investors (QDII) schemes, institutional funds stepped up their pursuit of equities in the Hong Kong stock market. This has created an explosive effect on local investment activities. With a high level of liquidity in the property market and the perceived promise of monetary return, institutional funds have actively expanded their property portfolios. The finite supply of premium properties also attracted substantial interest from buyers who had previously adopted a wait-and-see approach. Outlook for the remainder of 2007 remains positive as investment from the mainland continues to flow into Hong Kong, bringing further growth for the market.

Rick Santos, Managing Director of CB Richard Ellis Hong Kong said, "The buoyant demand and the relatively limited supply of top quality properties will continue to maintain property prices at a relatively high level. Mounting inflationary pressure, amid a weak US dollar and Renminbi appreciation, made real estate an attractive investment alternative to capitalise on possible price appreciation in the foreseeable future."

Investment Market
During the first half of 2007, a total of 96 transactions worth over HK$100 million were recorded across all property sectors, a 17.1% increase compared with the same period last year. The total consideration amounted to over HK$27.5 billion. Local investors contributed to 70.8% of the total value, with the remaining 29.2% registered through acquisitions by foreign investors. The residential sector accounted for approximately 32.9% of transactions, while 26.6% of transactions came from the office sector.

William Liu, Director of Investment Properties, Hong Kong, commented, "The Hong Kong property investment market remained robust in the first and second quarter of 2007, driven by the strong local economy and the active activities of institutional funds. Although some investors may interpret the recent fluctuation of the stock market as a negative signal, many more investors continue to turn their capital to property investment as the property market is comparatively stable."

Office Market
The office market witnessed a high level of activity during the first two quarters of the year. Grade A office rents and sales prices increased 10.2% and 6%, respectively, for the first six months of 2007. Vacancy rates in prime areas fell to 3.9% in June.

Alan Lok, Executive Director of Office Services, Hong Kong, commented, "The strong level of pre-commitments in actively marketed new projects indicates a rising trend in office demand, partly generated by new set-ups, not merely by relocation or expansionary moves of existing tenants. We expect to see a large number of IPOs list in Hong Kong in the second half of the year, which will boost the office leasing market."

Retail Market
While the retail sales market performed well in the first half of 2007, both capital values and rents remained relatively stable over the same period, with overall capital values rising 8% and rents up 2.3%.

Joe Lin, Senior Director of Retail Services, Hong Kong commented, _In first half of 2007, we witnessed quite a number of international brands arriving in Hong Kong to open their flagship stores, sometimes with multi-levels, locating in prime areas. The trend of renowned brands to build their flagship stores on the high street rather than inside shopping centres pushed up the general rental level of the shop premises on the same street, as retailers in general are willing to pay premium rents to stay closer to the brand names to take advantage of the increased shopper flow.

Industrial Market
Over the first six months of 2007, industrial premises registered moderate rental growth, with the factory, warehouse and industrial/office (I/O) sub-sectors appreciated by 2.8%, 2% and 3.2% respectively. Factory prices achieved a 7.4% growth, warehouse prices rose 5.2% and I/O prices rose 10% in the first half of 2007.

Roy Chan, Senior Director of Industrial and Logistics Services, Hong Kong, commented, "Interest in local industrial properties was spurred by the inauguration of the Hong Kong-Shenzhen Western Corridor on 1 July 2007. The establishment of the Hong Kong-Shenzhen Western Corridor will have a great impact on both the logistics industry and industrial properties in Hong Kong, as it is the only highway linking Hong Kong with the mainland arterial highway network and will further facilitate trading activities between Hong Kong and the mainland."

Hong Kong Luxury Residential Market
During the first half of 2007, overall rents for luxury residential properties on Hong Kong Island increased by 5.8%, while prices registered an increase of 6.9% during the period.

Alan Man, Senior Director of Residential Services, Hong Kong said, "Amongst the new luxury units coming on stream, all eyes will be on the impending sales of four new single houses on Pollock's Path. Owned and developed by celebrity Mr. Stephen Chow, the new project will be under the spotlight, as it is widely expected to exceed even the past reputation of 'Skyhigh', the development that previously occupied the plot and was one of the hottest properties in the city."

Rick Santos concluded, "Looking ahead, with a relatively limited supply of top quality properties, we expect to see a firming of capital values, and buyers and investors will likely remain active in the property market. The volatility of stock market may also attract more investors to diversify their capital into the property market. We expect the property market in the months ahead to achieve steady growth."