Standard Chartered Bank

HK home sales at six-year low

PUBLISHED : Wednesday, 23 November, 2011, 12:00am
UPDATED : Wednesday, 23 November, 2011, 12:00am


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Home sales in Hong Kong fell to six-year lows last week following fears arising over a new round of mortgage rate rises when Standard Chartered Bank raised its home loan rates, with other lenders expected to do the same.

Standard Chartered said on Friday it would raise interest rates on its one-month home loans, based on the Hong Kong interbank offered rate (Hibor), by 50 basis points, or half a percentage point, from a range of 2 per cent to 2.5 per cent, to 2.5 to 3 per cent.

With one-month Hibor now at 0.22 per cent, the bank's move lifts its effective Hibor home loan rate to between 2.72 per cent and 3.22 per cent, depending on the loan size and applicants' financial background.

Hibor is a floating rate that can change daily, and one-month Hibor has steadily risen this year from a low of 0.15 per cent. It is expected to continue to rise.

Standard Chartered also increased the interest rate it charges on home loans, based on the prime lending rate, to a prime rate of 5.25 per cent minus 2 per cent to 2.4 per cent. The previous discount was 2.35 to 2.65 per cent. Though the rate increases appear small, they are a signal of more to come. This year, banks have increased their Hibor-based loan rates six times.

Other lenders are expected to follow Standard Chartered's rate rise, and some analysts expect further mortgage rate increases in the months ahead of up to one percentage point.

Secondary market sales for the week to Sunday felled 6 per cent to 124 in the 50 largest estates monitored by realtor Ricacorp Properties. That is down from 132 deals recorded in the previous week, amid concerns about rising home loan costs. Last week's deal volume was the lowest since October 2005.

In the primary market, just 75 flats were sold over the weekend, down from 218 deals in the previous weekend, Samsung Securities said. Most primary market investors typically borrow heavily to fund purchases.

Chinese Estates Group sold only 13 of the 70 flats it released over the weekend at its development One Wanchai. Likewise, Kerry Properties sold just five of the 13 flats it released in The Altitude in Happy Valley.

Ivy Wong Mei-fung, managing director of Centaline Mortgage Broker, said she expected other small and medium-sized banks would follow Standard Chartered's lead, while Ricacorp director David Chan Tai-wai said the increase in rates had hit the primary market. 'It kept many end-users and investors away from the market,' he said.

Samsung Securities analyst Lee Wee Liat said property deal volumes could be expected to continue to decline in the weeks ahead because more banks were expected to raise their mortgage rates soon.

GuocoCapital's head of research Eric Yuen Chi-fung said mortgage rates might rise by a further 50 to 100 basis points over the next few months. 'Home sales in the secondary market had already fallen to a low level since the fourth quarter of 2008 because of the new housing policies, increasing interest rates, and the poor economic performance,' he said. 'Investors will now hesitate to buy property after Standard Chartered Bank raised mortgage rates, and I believe property sales will decrease further.'

Yuen said prices had fallen by 3 per cent to 4 per cent from their peak in July because of the declining deal volumes and poor market sentiment. And property prices could fall by 10 to 15 per cent over the next few months.

Louis Chan Wing-kit, managing director for residential sales at Centaline Property Agency, said although effective mortgage rates remained comparatively low, the market sentiment had been hurt by the government's property cooling measures, the stock market volatility, and banks' tighter lending policies.