Hong Kong property boom poised to end as Fed preps for rate hike

Fri Mar 20, 2015 12:49pm EDT
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By Yimou Lee and James Zhang

HONG KONG (Reuters) - The U.S. Federal Reserve is likely to succeed in reining in home prices where Hong Kong's government has failed and property investors in one of the world's most expensive real estate markets are already bracing for a slump.

The Fed is expected to raise interest rates by June at the earliest, its first monetary tightening measure since 2006. If history is anything to go by, Hong Kong's monthly residential real estate sales could plunge more than three-fold when that happens.

Some industry experts forecast home prices to fall by over a third by end-2016, clouding the prospects of major developers CK Hutchison Holdings Ltd (0001.HK: Quote), owned by Asia's richest man Li Ka-shing, and Sun Hung Kai Properties Ltd (0016.HK: Quote).

An increase in U.S. rates would also trigger a rise in Hong Kong because the local currency is pegged to the U.S. dollar, paving the way for monthly mortgage repayments to jump nearly a fifth by the end of 2016 in a city where the household debt, by some measures, is at a record high.

"Don't buy. You have to wait for another two years," said Jacinto Tong, chief executive of property firm Gale Well Group which has investments exceeding HK$30 billion ($3.9 billion).

Hong Kong home prices have surged over 130 percent since 2008 when the Fed adopted its near-zero rate policy, due to low interest rates and a supply shortage, shrugging off a series of cooling measures and posing policy challenges to the government of embattled leader Leung Chun-ying.

In 2005, a mortgage rate hike drove monthly sales of private homes to fall by about three-quarters in eight months, and many fear a repeat performance when the Fed hikes rates.

A 50 basis point hike in mortgage rates by end-2015 would increase monthly repayments on a 20-year mortgage by 4.7 percent, said Barclays property analyst Paul Louie, using the latest official median Fed rate target forecasts.   Continued...

Property sales agents from one of the biggest agent companies in Hong Kong carry banners with a Chinese character "win", during the promotion of a property development in Hong Kong March 20, 2015. REUTERS/Bobby Yip