Stronger than expected economic performance should help bolster the property market but gloomy prospects for wage increases and the large supply of flats continue to overshadow sentiment, according to analysts and economists. The Government revealed 4.5 per cent year-on-year growth in gross domestic product for the third quarter, well above market forecasts of 3.1 to 3.5 per cent. The rate of deflation fell, adding to a more positive picture following the Disneyland project and the Sino-US World Trade Organisation agreement. Citibank senior economist Joe Lo said recent economic figures and positive news had already been reflected in capital inflows to the stock market and the interbank market. The Hong Kong interbank offered rate (Hibor) had fallen 70 basis points since the end of October and stock prices had been driven higher, he said. 'Capital inflow will help bolster the property market in the short term,' Mr Lo said, adding that cuts in mortgage interest rates were adding fuel to the market. He said although Hong Kong banks could follow the United States in lifting interest rates next year, the effect had already been offset by cuts in mortgage rates. However, property prices were not only dependent upon economic growth but also wage levels and supply. Pay freezes or a very moderate rise in salaries were expected while supply in the residential market was still large, Mr Lo said. Property prices would, therefore, improve only slowly in the longer term while transaction volume could return to higher levels, he said. Chesterton Petty research head Watson Chan said the better than expected economic figures would bolster the luxury residential market but their effect on the mass market would not be great. He said supply was still large for the mass market and developers remained cautious, holding back on their plans to release new projects. The luxury market lacked supply but its performance was lagging. Mr Chan believed more investors would start buying luxury homes. BNP Prime Peregrine research head Adrian Ngan said positive economic statistics would strengthen public confidence. He said home-affordability levels had improved substantially with the fall in property prices and lower mortgage interest rates after the recent price war between banks. Recent market developments should boost the confidence of home buyers who had been sidelined waiting for good news, he said. Mr Ngan expected property prices to start to pick up within a few months and rise 10 per cent to 15 per cent next year.