Strong sales of luxury apartments have led the residential market rally since the start of the year on sustained demand from investors and end users. And property consultants and developers expect to see further price increases, with super-deluxe homes outperforming other sectors. The first quarter was characterised by active primary sales with new projects like The Legend in Jardine's Lookout and The Vineyard in Yuen Long. Better than expected government auctions of residential sites have also lifted buying and investing sentiment. Simon Wong, director of research with CBRichard Ellis, says positive buyer sentiment has consolidated a rising trend in the luxury sector, which saw average prices rise 3.3 per cent and rents rise 4.7 per cent in the first quarter, compared to the preceding quarter. That followed a 7.8 per cent price rise and a 15 per cent rental increment for the full year of 2006. 'The strength of luxury residential properties has continued and there are no signs of it slowing down,' Mr Wong says. 'We forecast luxury property prices could achieve a further 10 to 12 per cent increment this year, while the rents will likely follow, growing at a rate of 10 to 15 per cent.' But the mass residential sector would lag behind, with a price increase of only 5 to 10 per cent during the year and rents would edge up 5 per cent or less, he says. Given Hong Kong's continued development as a key international financial centre, Mr Wong says many reputable international companies are coming to the territory to set up their regional headquarters, which will fuel demand for luxury apartments. Scarce supply is also driving up luxury prices and rents. According to CB Richard Ellis, only 250 luxury flats are expected to be completed in the traditional luxury districts on Hong Kong Island this year. The supply will be 897 units next year and 683 units in 2009. Ricky Poon, director of residential sales at Colliers International, says buyers of luxury homes are willing to pay more if they find a good property, given the tight supply. Buying interest has been especially strong from professionals in the investment banking sector for quality homes in well-established districts such as The Peak and Island South. He forecasts that the residential market's growth momentum will be sustained, marked by moderate price increases rather than dramatic upswings. 'It's a very healthy development for the overall market,' Mr Poon says. 'New project sales will continue to be the focus of attention in coming months but secondary sales transactions will also pick up.' Cheung Kong (Holdings) has recorded encouraging sales responses to its new projects so far this year. A luxury penthouse at The Legend, developed by the company, was sold for HK$123 million in March, representing an average price of about HK$33,000 per square foot. Cheung Kong's deputy chief manager for sales, Francis Wong, says the group has sold about 1,100 units, generating total revenue of HK$6 billion in the first quarter of this year. Other projects include the Oceanus phase of its Sausalito development in Ma On Shan and The Apex in Kwai Chung. 'Market sentiment has been positive and we have achieved satisfactory prices in the sales of our luxury and mass residential projects. Transactions for the mass sector have picked up while super-deluxe homes registered sharp price increases as a result of limited supply,' Mr Wong says. The Legend's luxury flats sold at an average price of more than HK$18,500 per sqft, he says. The average price for the recent sale of Oceanus ranged from HK$4,900 to more than HK$6,000 per sqft, while The Apex fetched more than HK$4,000 per sqft. Mr Wong is optimistic and expects overall property prices to rise steadily on brisk trade. 'Buyers are financially strong and the wealth effect of the stock market boom has given a further boost to sentiment,' he says. 'Continued economic growth, political stability and improved job market conditions will all contribute to stronger home purchase demand as people feel more confident about the future. We expect luxury home prices to rise more than 15 per cent and the mass sector to grow by 5 to 10 per cent this year.' Mr Wong says Cheung Kong intends to release 4,000 units for sale this year, subject to the approval process of pre-sale consents. One of the upcoming projects is the phase one development of Central Park Towers in Tin Shui Wai, comprising more than 1,800 units. A luxury development in Ho Man Tin is scheduled for sale in the second half of the year, while the first phase flats of the Dream City project in Tseung KwanO are likely to be launched in the fourth quarter. Sun Hung Kai Properties (SHKP), one of the biggest developers, also marketed its projects in the first quarter, including The Vineyard in Yuen Long and Manhattan Hill in Lai Chi Kok. SHKP's Harbour Green project in Tai Kok Tsui created a buzz, thanks to Giorgio Armani, who designed the development's penthouses. The Italian fashion designer issued a statement, saying: 'We are delighted to collaborate with a large property developer like Sun Hung Kai Properties. I am always looking to create a tasteful environment for our customers, and designing the penthouses for Harbour Green allowed me to extend my creativity to one of the world's most cosmopolitan and sophisticated cities, Hong Kong.' The collaboration between Harbour Green and Armani will see each large unit sold come with his and hers luxurious Armani/Casa Penelope range bath sets, including bathrobes and other accessories worth HK$10,000. Anita Chan, sales director of Sun Hung Kai Real Estate Agency, says 97 per cent of the 160 houses at The Vineyard were sold soon after its launch this year. Prices ranged from HK$5,900 to HK$9,500 per sqft. 'Our prices reflected the market demand for luxury flats. The positive economic outlook and current interest rate environment are supporting the homebuying market. Limited supply is driving up the luxury sector,' she says. The general housing market will also benefit from the recent reduction of stamp duty for property transactions valued between HK$1 million and HK$2 million, as well as the tax rebate for middle-class families. Sino Group has recorded strong buyer interest in its luxury low-density residential project, The Royal Oaks in Fanling. Fifteen houses were sold within two weeks of its launch at the end of March. A company spokesman says cash-rich buyers are seeking large houses in the New Territories and many are entrepreneurs with mainland operations. The houses at The Royal Oaks, ranging in size from 4,230 sqft to 7,643 sqft, sold for HK$25 million to HK$62.5 million each, representing an average price of about HK$7,000 per sq ft, the spokeswoman says. 'Luxury home prices are expected to rise by 10 to 20 per cent this year. Large houses could even register a stronger growth of 15 to 20 per cent in price due to their scarcity,' she says. Capitalising on the luxury market boom, Sino Group is offering a three-level penthouse called Silver Dream at its One SilverSea development in Tai Kok Tsui for sale by an international public tender in May. The penthouse measures 3,300 sqft and has a 2,825 sqft sky garden and a swimming pool. Simon Lo, director of research and consultancy at Colliers International, says: 'Prices of super deluxe homes have already exceeded the 1997 market peak levels and reached an uncharted territory. 'They are also supported by strong rentals and there are no signs of a market consolidation.'