Rentals and sales prices in the luxury residential market have dipped slightly in the past two months, despite falling interest rates. The decline has caused investors to be increasingly cautious in the ailing property market, while last week's terrorist attacks in the United States cast a further shadow on leasing demands of luxury property in Hong Kong. Overall rentals experienced a decline during the past two months because of a cut in staffing levels at many financial institutions, Cushman & Wakefield said. It said some tenants were asking for lower rents when renewing leases, while break-leases also were common in some areas, including Mid-Levels. Average rental on The Peak was HK$41.19 per square foot and that on Southside was HK$32.20 per sq ft. Both areas suffered a 1.6 per cent drop from the rental levels in July. In Mid-Levels, rents for mid-range apartments were down 0.2 per cent to HK$40.60 per sq ft and those for high-end flats fell 1.2 per cent to HK$54.82. Many multi-national corporations were putting expansions on hold because of the global economic downturn, causing less demand in the luxury leasing sector. Karim Azar, director of the residential department at DTZ Debenham Tie Leung, said transactions in the luxury market had been slow over the past few months despite falling interest rates. 'There are many foreign funds and investors looking for the right properties in the market. But they will not rush into the market at the moment in the wake of the gloomy economic environment,' Mr Azar said. He said improved buying confidence in the mass market following the Government's sales suspension of subsidised flats had been vaguely felt in the luxury sector, but he expected to see a quiet luxury market with low activity as most investors anticipated an economic recession following the terror attacks in the US. Mr Azar said the leasing sector also was quiet, with a modest increase in demand. Average rentals on The Peak and Southside had declined in the latest quarter. FPDSavills said leasing activity at the top-end of the market dropped last month because of weak sentiment. Many landlords had become more flexible in negotiating lease terms to keep existing occupancy levels. The property consultant said expatriate arrivals in Hong Kong dropped last month, while those that came were middle management, resulting in less demand for high-budget leases. Southside and Mid-level apartments were popular with a budget of HK$40,000 to HK$70,000 per month. FPDSavills said many potential tenants had approached the serviced-apartment market because of its shorter and more flexible leasing arrangements. It said Gateway Apartments and New World Apartments in Tsim Sha Tsui, and The Atrium and Parkside in Admiralty, had maintained high activity levels in recent months, with average rentals of about HK$45 per sq ft per month. FPDSavills estimated luxury residential rents on Hong Kong Island had dipped by 0.7 per cent in the second quarter. By district, rents in Pokfulam recorded the largest decrease of 3.7 per cent, followed by Happy Valley's 2.8 per cent. Rents on The Peak dropped 1.4 per cent while those in Mid-Levels lost 1.2 per cent. Centaline Property Agency said leasing activity in the mass market had slowed. Its research report showed a downward trend in average rentals last month for some of the most popular housing estates - Taikoo Shing in Quarry Bay, Laguna City in Kwun Tong and Kingswood Villas in Tin Shui Wai - compared with a year ago.