Standard & Poor's Ratings Services said Tuesday that the outlook for the Hong Kong property sector is likely to continue to improve as the local economy enters an upward cycle.

“Over the past 12 months, the agency has changed its outlook on most of its Hong Kong property-related companies to stable from negative," said credit analyst John Bailey, director at Standard & Poor's at press conference.

Property developers have regained their pricing power and are expected to deliver meaningful operating margins and increased profitability in 2004-2005, Bailey said.

The end of deflation, a recovery in local consumer confidence, and strong home affordability will boost demand for housing and increase price, according to Bailey.

Although Standard & Poor's believes further improvement is likely, there are limits to the growth potential of the residential market.

Rising interest rates, historically high unemployment rates, low wage inflation, and faltering economic growth in the United States could subdue in investor demand. What the government does with its land supply policy could also have an impact on property price, according to Bailey.

Standard & Poor's also expects office rents to recover in earnest in 2005 and beyond as a decline in new supply helps to drive vacancy rates down.

The retail property sector continues to perform strongly because of a tourist influx, which has led to a recovery in retail sales, Standard & Poor's said.

(Xinhua News Agency September 15, 2004)