STRONG earnings growth from swift land price rises and steep rental increases last year should combine with expansion in price/earnings ratios to continue inflating the value of property stocks, according to a report by Salomon Brothers.
Property shares should increase by a ''modest'' 18 per cent this year. This should rise to 23 per cent in 1995 and 26 per cent in 1996, the report said.
It added that property stocks would outperform the rest of the market this year.
The wide profit margins generated by the pre-sale of residential units late last year and the high price levels set during the fourth quarter will be reflected in 1995 returns.
The report noted that since many developments in Hong Kong were pre-sold 12 to 18 months ahead of completion, profits recorded in any one financial year did not reflect price increases made in that year.
Therefore, a property developer's 1994 earnings would not reflect true profitability, which would, by then, be enlarged by the significant profit increases of the fourth quarter of 1993.