Residential prices dropped an average 8 per cent in the second quarter of this year, compared with a 1 per cent increase in the first quarter. On average, flat rentals held stable in the second quarter, after falling 1 per cent in the earlier term, government figures show. For the first half, flat prices declined 7 per cent and rentals edged down 1 per cent. Compared with their peaks in the third quarter of 1997, prices and rentals were still down by an average 47 and 30 per cent respectively. Meanwhile, FPDSavills estimated the fall in mass residential prices at 4.4 per cent in the second quarter, with average values marginally higher than the trough in the third quarter of 1998. The company said luxury residential property prices on Hong Kong Island performed better during the period, rising 0.5 per cent on average. Prices in Happy Valley and Jardine's Lookout recorded the largest increase, at 2.9 per cent, while those in Pokfulam fell 3.1 per cent, it said. Given limited supply and continued demand from overseas investors, FPDSavills expected the growth rate to rise to 5-10 per cent by the end of the year. The consultant said luxury rents on Hong Kong Island edged up 0.1 of a per cent in the second quarter. Rents had risen 2.9 per cent this year and 5.9 per cent from the second quarter of last year, it said. The relatively stable rental environment was a result of rising rents in higher-quality buildings, balanced by falling rents in lower-quality projects, it said. The consultant expected luxury rents to rise a further 10 per cent in the second half. The Government said office rents rose in the first half as the vacancy rate fell. But sales of office space were subdued. Retail rents bottomed out in the first half as retailing picked up, but space sales remained sluggish. Rents of industrial property edged up on surging demand.