Earnings forecast for developers will be revised down 10 per cent this year as worsening unemployment and prolonged deflationary pressure probably will delay a recovery in home prices, according to SG Securities. The brokerage house also downgraded property investors Hysan Development and Hongkong Land to underweight in anticipation of much slower office rental growth next year and a 10 per cent decline in office rental in 2002. It expected the unemployment rate to reach an average 4.5 per cent this year, which would negatively affect home buying behaviour in the short run. It remained positive on a longer-term residential property outlook and expected to see a 15 per cent rise in prices next year. 'We continue to believe that the continued cheaper mortgage rate against renting yield will appeal to a lot of potential buyers, and that the interest rate down-cycle favours home investment,' it said. Rental yield in the luxury to mass-end sector ranged from an average of 4 per cent to 7 per cent per year, which was more attractive than receiving an annual 4 per cent from bank deposits, it said. Therefore, property prices were unlikely to fall significantly from present levels, it said. Falling interest rates and a much-reduced housing supply coming on stream over the next few years were positive developments acting against the unemployment and deflationary trends. SG Securities expected supply of completed units would revolve around 25,000 this year and 28,000 next year - lower than the Government's expectation of 28,000 units and 30,000 units over the same periods. As property firms' share prices have consolidated to show a 19 per cent weighted average sector discount to net asset value, SG Securities advised focusing on major developers. Cheung Kong (Holdings) was listed as its top pick, followed by Henderson Land Development and Sun Hung Kai Properties. In the office sector, SG Securities revised down the office rental growth forecast to 5 per cent from 20 per cent this year and predicted a 10 per cent decline next year. It downgraded Hongkong Land from buy to sell and Hysan from buy to hold, but it maintained a buy recommendation for Amoy Properties and Wharf (Holdings). It expected Amoy to deliver earnings growth well above its rivals in both property investment and development over the next few years, especially with its profit from Kowloon Station phase four. Wharf remains a buy as a result of increased value realisation from iCable, a significant reduction of debt levels and increasing contribution from property sales, the brokerage said.