Hong Kong banks raised their prime rates with effect from Monday as local firms braced themselves for more aggressive rises.

Despite the Hong Kong dollar's peg to the greenback, excessive liquidity in the banking system has spared Hong Kong the worst of recent US rate rises. But the tide has turned over recent months as net fund flows recede, putting increased pressure on Hong Kong banks to raise rates.

Kerry Properties has joined HSBC to offer a mortgage plan that exempts repayment of interest and monthly instalments in the first year for buyers of the remaining 12 flats in its Tsuen Wan project, the Cliveden.

Units there range from 983 to 1,488 square feet in size and are selling at an average of $5,200 per square foot. Buyers can borrow more than 90 per cent of the property's value at an interest rate 2.775 percentage points lower than the prime rate for the entire repayment period.

The prime rate now stands at 5.25 per cent following Monday's rise of 0.25 point.

Semy Ng Mai-shan, an assistant marketing manager at Kerry Real Estate Agency, said the subsidy in the first year was worth about 3 per cent of the property's price.

'It is a genuine subsidy as we have not raised the selling price of these 12 units,' said Ms Ng, adding the plan would be available from now until April 18.

Cheung Kong (Holdings) and ICBC (Asia) are offering buyers at Carmel Cove, a new block in Cheung Kong's Caribbean Coast in Tung Chung, a fixed mortgage rate of 1.5 per cent for the first 12 months and a subsequent rate of 2.8 percentage points below prime.

Under the plan - available from March 25 to 28 - buyers can choose to start paying interest and instalments in the fifth month.

William Kwok Tze-wai, a sales manager at Cheung Kong, said his company wanted to assure potential buyers property was still affordable, despite the spectre of rising interest rates.

Mr Kwok said there were about 300 flats available at Carmel Cove, ranging in size from 600 to 1,200 sqft at an average of about $4,000 per square foot.

Shirley Wong Wai-ching, the head of personal loans at ICBC, said the bank was taking an aggressive approach to reach more customers.

Midland Realty (Holdings) yesterday teamed up with its mortgage brokerage unit, mReferral, to offer second-hand home buyers a mortgage rate at 3.5 percentage points below prime for the first year. Then they will charge buyers 2.8125 percentage points below prime for the entire repayment period. This compares with the average of 2.75 to 2.8 percentage points below prime now available in the market.

Midland executive director Vincent Chan Kwan-hing said rising interest rates would eventually cool property prices because sellers would have less bargaining power. 'A 25-basis-point interest-rate rise is unlikely to slow down buyers' sentiment for now. But the impact will gradually show when the rate goes up by one percentage point in the future,' Mr Chan said.

He said a short-term pullback in the property market would be healthy for its long-term development.