Kerry Properties expects to see a 10 per cent increase in rents and prices of luxury residential properties this year, while the mass market stays flat. Chu Ip-pui, executive director of Kerry Real Estate Agency, Kerry's marketing arm, said investors were being drawn to the luxury residential market after a series of interest rate cuts last year. He said the expected 10 per cent rise in rents and prices of luxury properties would be due to short supply. Mr Chu expected to see growing activity in the low-end market but said prices in the mass residential sector would remain flat because of an abundant supply. He said Kerry Properties hoped to realise more than HK$3 billion from the sale this year of three residential developments in Tai Po, North Point and Tsuen Wan. Mr Chu said the 286-unit Constellation Cove low-rise development in Tai Po would be available for sale and lease in time for the Lunar New Year holiday. Fifty detached houses in the project will be reserved for lease at a targeted monthly average rent of HK$30 per square foot. About 104 apartments will be reserved for long-term investment at a projected rent of HK$25 per square foot. The remaining apartments will go for public sale at about HK$5,000 per square foot. Mr Chu expected Kerry's annual rental income to be about HK$450 million. Its rental portfolio includes luxury leasing properties in Mid-Levels, car parking spaces in Tsim Sha Tsui and retail spaces in Olympian City in Tai Kok Tsui. Meanwhile, property consultant Nicholas Brooke predicted residential prices in urban areas would remain stable in the first half but increase by 5 per cent to 10 per cent in the second half. There would be an increasingly marked distinction between the price performances of urban areas and the New Territories, he said. Mr Brooke, a consultant at Insignia Brooke, said New Territories prices were likely to drop a further 5 per cent in the first half before recovering in the second half by a similar margin. He said the large amount of unsold stock would limit the chances of price increases this year, particularly in the New Territories. Nevertheless, the market is supported by mortgage rates at historic low levels, which means the cost of borrowing is now significantly less than the rent payable for a comparable unit. This makes buying an attractive proposition for those with secure jobs and certain incomes, helping stimulate demand. However, Mr Brooke said it was unlikely that many buyers would be tempted back into the market until there were certain signs of recovery in the global economy - particularly in the United States - and positive economic growth in Hong Kong. He believed acquisition numbers would also increase, either through land applications or land premium negotiations. Insignia Brooke said prices for small- to medium-sized flats dropped 16 per cent last year, while those for small units fell 13 per cent and 7 per cent for large flats. Sino Land expected that grade-B office rents would face downward pressure this year due to an abundant supply. Chan Cheong-kit, general manager of Sino Land's leasing department, said prime office rents would remain stable due to expansion by overseas companies but the global economic downturn would have an impact on grade-B rents in non-core areas. Mr Chan said Sino Land's rental properties, totalling about 13 million square feet, could generate HK$2 billion in income this financial year, an increase of 5 per cent on the previous year.