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Developers are lining up to offload luxury residential developments, with buyers snapping up 26 of the first batch of 38 units at Sun Hung Kai Properties' Ultima in Ho Man Tin (above) yesterday. The most expensive unit went for HK$97 million.

New | Hong Kong home prices may peak in 2016 amid rate rises

Current run began in 2003 and will top out in 2016 amid rate rises, says analyst

If history is any guide to the Hong Kong housing market cycle, home prices will peak next year, halting when the US starts raising interest rates.

"Hong Kong property prices are approaching the peak of the cycle as we enter the 12th year of surge," said Raymond Ngai, the head of Greater China property research at Bank of America Merrill Lynch.

Ngai said the last cycle lasted 13 years from 1984 to 1997 while the current cycle began in 2003. If history repeated itself, this cycle would peak next year, he said.

"Home prices have been jumping a lot. An interest rate rise may cause the market to peak out."

Bank of America Merrill Lynch expects the Federal Reserve to start raising rates in September at the earliest, with possibly two increases this year and four next year. Every increase, it expects, will be of 25 basis points.

Ngai said interest rate increases would slow price growth but the impact on the housing market would depend on the extent of the increases.

Most Hong Kong investment properties generate a rental yield of 2.7 per cent, compared with a mortgage rate of 2 per cent. That provides natural support to Hong Kong's housing market.

If Hong Kong's mortgage rates rose more than 60 basis points from the current levels, the picture would change and in turn affect investment demand, he said.

Home prices in Hong Kong this year, however, would continue to rise 10 per cent before peaking, backed by low interest rates and limited supply, Ngai said.

Growth will slow next year, with prices predicted to move up or down 5 per cent, according to the investment bank.

Developers are lining up to offload luxury residential developments, with buyers snapping up 26 of the first batch of 38 units at Sun Hung Kai Properties' Ultima in Ho Man Tin yesterday. The most expensive unit went for HK$97 million.

Wing Tai Properties said it sold eight of the 15 units at Homantin Hillside that it put on the market on Wednesday.

This article appeared in the South China Morning Post print edition as: HK housing cycle seen peaking next year
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