INTEREST in the Hongkong property market had started to pick up after reaching a virtual standstill because of political uncertainty during the last quarter of 1992, according to Richard Ellis director Mr Christopher Thrift. This was particularly apparent at the top end of the luxury market, he said. Residential property sales had reached almost negligible levels as potential buyers became increasingly wary of committing themselves to a market in a state of flux. Richard Ellis manager Ms Jan McNally blamed the 70 per cent mortgage cap for also inhibiting sales. ''People react to political tensions but will come back into the market,'' she said. ''However the 70 per cent cap has affected first-home buyers and the average person wanting to own his own home.'' Although successful in taking the heat out of the market, Mr Thrift said the cap had forced many would-be buyers into rental accommodation. ''It's up to the Government and developers to work out a solution which will enable these people to buy,'' he said. It would take time for residential prices to increase even if mortgage restrictions were lifted because buyers were expected to take up vacant accommodation. The Land and Building Advisory Committee reported that in the second half of 1992 the number of property sales in the urban area decreased by 25.9 per cent compared with the first half of the year. The average drop in the New Territories for the same period was 7.9 per cent. Despite the slow down in residential sales, Mrs McNally said tenants could expect an increase in 1993 as rental prices caught up to sale prices. ''This is good for the investor because it will increase yields which were only earning between 6.5 and seven per cent last year.'' The remainder of the property market during this period cooled while investors and tenants waited cautiously for signs of greater political stability. This wait-and-see attitude was compounded by the traditionally quiet time of the year during the months straddling Christmas and the Lunar New Year holidays. But in the past two weeks, there has been an improvement, according to Richard Ellis director Mr Dominic Leung. He said the recent climate of uncertainty was generally seen as a short-term problem by investors familiar with the volatility of Hongkong markets. In investment circles, Mr Leung said there was a general view that a fresh injection of interest had come from local, regional and international investors, who still saw Hongkong as a good investment. ''There has been a gradual increase in demand because they know that Hongkong's economy can perform strongly,'' he said. The shift away from the Hongkong property market coincided with a surge of investment in the Chinese real estate market. Mr Leung said over the last 15 months there were fewer opportunities in Hongkong. Because of this there was a big increase in the involvement of Hongkong investors in the mainland real estate market. This was the reason construction costs had increased a massive 150 per cent during that period. The lack of progress in Sino-British relations had been far less damaging on the commercial office market which, according to Mr Leung, had recently been performing well with a number of significant transactions. The demand for Grade A office space was likely to continue with the current surplus in Wan Chai and Causeway Bay dragging the overall vacancy rate down to about 8.5 per cent. But during the next two and a half years, this was expected to drop to the traditional vacancy rate of four per cent. The fall in the vacancy rate would cause rents increase. In its review of 1992, the Land and Building Advisory Committee predicted that the surplus in secondary office locations would continue for some time.