Rate rise relief for soaring housing cost
Prices could fall by as much as 20 per cent in the next two years after lenders including HSBC, Hong Kong's biggest by assets, and Standard Chartered raise home loan rates by 25 basis points in response to tighter risk rules, Deutsche Bank said.
The Hong Kong dollar's peg to the US currency has kept interest rates at near record lows, underpinning a more than 110 per cent rise in home prices since the start of 2009.
Repeated attempts by the government since 2010 to stymie escalating housing values, alongside an outcry about affordability, have failed due to low mortgage costs and a property buying spree driven by Chinese from the mainland.
"You have this pile of measures plus higher interest rates; this will be a big challenge for the market," said Buggle Lau, chief analyst at Midland Holdings, the city's biggest publicly traded real estate agent, which predicts as many as a third of real estate agent branches in Hong Kong will close.
Head of government Leung Chun-ying has already doubled stamp duty on all property transactions of more than $HK2 million ($246,600). The Hong Kong Monetary Authority has told banks to maintain the risk weighting for new home loans at a minimum of 15 per cent to help protect them against a drop in home values.
HSBC was the first among Hong Kong's lenders to increase rates from March 14. Its mortgages linked to the best lending rate rose to between 2.85 per cent and 3.15 per cent; Standard Chartered's are between 3.1 per cent and 3.5 per cent.
The rate rises may finally dampen house prices, which have risen by 16 per cent since Leung was sworn in on July 1 last year, an index compiled by Centaline Property Agency shows.
"With the new government measures, the potential further rises in mortgage rates, and the expected increases in new supply in the medium term, we expect property prices to show larger corrections," the Deutsche analysts wrote in a report on March 13.
An average-sized apartment on Hong Kong Island costs about $HK7.5 million ($925,000) on average. An equivalent one in Manhattan would cost about $670,500.
Bloomberg
Frequently Asked Questions about this Article…
Hong Kong mortgage rates rose after the Monetary Authority instructed banks to tighten risk rules for new home loans. Lenders responded by raising mortgage pricing — HSBC was first to increase rates from March 14, and Standard Chartered also raised its home loan rates. Deutsche Bank reported lenders raised rates by about 25 basis points in response to the tighter rules.
Deutsche Bank warned that house prices could fall by as much as 20% over the next two years as higher mortgage costs combine with new government measures and expected increases in supply.
According to the article, HSBC’s mortgages linked to the best lending rate rose to between 2.85% and 3.15%, while Standard Chartered’s comparable home loan rates are between 3.1% and 3.5%.
The government doubled stamp duty on property transactions above HK$2 million, making purchases more expensive for buyers. The Hong Kong Monetary Authority also told banks to keep risk-weighting for new home loans at a minimum 15% to protect lenders against a drop in home values. These policy moves, together with higher mortgage rates, are expected to cool price growth.
The article says the Hong Kong dollar’s peg to the US dollar kept interest rates near record lows, which — along with low mortgage costs and strong buying by mainland Chinese buyers — helped push home prices up more than 110% since the start of 2009.
Midland Holdings’ chief analyst Buggle Lau warned that the combined effect of policy measures and higher interest rates will be a big challenge for the market; Midland predicts as many as a third of real estate agent branches in Hong Kong could close. Overall, analysts expect larger price corrections and pressure on market activity.
The article notes an average-sized apartment on Hong Kong Island costs about HK$7.5 million (roughly US$925,000), while an equivalent unit in Manhattan would cost about US$670,500. For investors, this highlights Hong Kong’s high price levels and why potential corrections or policy shifts can have significant market and affordability implications.
Investors should watch mortgage-rate moves from major lenders (HSBC, Standard Chartered), policy announcements like stamp duty or HKMA risk-weighting guidance, signs of increased new housing supply, and property-price indexes such as the Centaline index. These factors, highlighted by Deutsche Bank and market participants, will influence price momentum and market risk.
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