THE affordability ratio for residential flats in the New Territories has reached its record high, suggesting the market is more vulnerable than ever to unforeseen surprises, according to a report by S. G. Warburg. The ratio for the New Territories stands at 82 per cent, while that for all the areas are at an 11-year high which coincides with the bottom of the interest rate cycle. The ratio for the New Territories is the most appropriate measure because it represents a large proportion of the first-time buyer market. Warburg said the figures showed the residential market was approaching a peak beyond which rises were likely to be a function of domestic household income level rises, which in turn would be discounted by interest rate increases. Warburg forecast that affordability was likely to stay at current levels this year even given a 10 per cent rise in prices. If interest rates increased by more than one per cent during the year or residential prices rose by more than 10 per cent, affordability would deteriorate below the sustainable level of the local population. Warburg said recent residential price increases had been driven by the inflow of mainland capital and Chinese New Year bonuses coinciding with bumper bonuses for financial and trading companies.