Free money has never looked so expensive for Hong Kong

Free money is looking increasingly expensive. That might sound like a paradox, but it will surely ring true to anyone looking to buy or rent a home in Hong Kong. Since the United States Federal Reserve embraced near-zero interest rates in late 2008, in an attempt to support the ailing US economy, mortgages in Hong Kong have been available, if not exactly for free, then certainly very cheaply.

Even following recent increases in the premium over interbank rates that borrowers have to pay, mortgages are still being offered at interest rates as low as 1.1 per cent.

As a result, home prices in the city have soared, climbing 73 per cent since December 2008. With buyers required to put up ever greater down-payments, property ownership has been pushed out of the reach of many would-be buyers.

And where prices have led, rents have followed, driving up the cost of living for those who cannot afford to buy. For many of Hong Kong's inhabitants, cheap money comes with a painfully heavy price tag.

But free money has costs far greater and more widespread than the obvious ones we can see in the Hong Kong property market.

The Fed originally adopted its zero interest-rate policy in a bid to promote US growth and create jobs. But according to Charles Gave, chairman of research and fund management house GaveKal, ultra-low interest rates have precisely the opposite effect, suppressing economic growth and driving up unemployment.