Rising salaries offset squeeze

THE decision by the territory's large banks to lift mortgage rates by 50 basis points is expected to have only a slight impact on home buying sentiment, possibly slowing the recovery of the local housing market, say property analysts.

The territory's large banks announced a half point increase in the best lending rate yesterday, pushing standard mortgage rates up to 9.5 per cent per annum.

The changes will take effect next Monday.

However, property analysts said the rise would not have much effect on the property market, because the present downturn was mainly the result of banks' tightened mortgage lending policies and the Government's speculation dampening measures.

This sentiment was borne out by the mortgage lending figures released by the Hongkong Bank and Hang Seng Bank yesterday.

Paul Selway-Swift, executive director Hong Kong and China of the Hongkong and Shanghai Banking Corp, said yesterday that in terms of business volume, July was the quietest month for the bank since March last year.

His statement was echoed by Hang Seng Bank's managing director and chief executive officer Alexander Au.

Mr Au said Hang Seng Bank's mortgage lending business continued to be as quiet as it was in June this year.

June mortgages taken with Hongkong Bank fell by 34.5 per cent on a year-on year basis and fell by 30 per cent compared to May.

Hang Seng Bank said its mortgage lending business for new products dropped 27 per cent in June compared with May.

Sylvia Wong, Morgen Grenfell's property analyst, said: ''A 50 basis-point rise in mortgage rates will damage home-seekers' buying sentiment rather than their purchasing power.

''We expect to see recovery for the local property market by the end of the year. But the recovery period might be extended to the coming Lunar New Year,'' she said.

Michael Clarke, managing director at real estate consultants Chung Sen Surveyors, said the interest rate rise would have psychological rather than physical effects on the real estate market.

Mr Clarke said he expected to see a reduction in the number of market transactions over a short period of time.

He said Hong Kong had just seen some signs of recovery in the property market, but that the rate increase might cause people to wait a week or two to gauge what was happening.

However, he said the increase was not large enough to have a significant effect on property prices.

Franklin Lam, vice-president at Salomon Brothers, said the affordability of homes would not be hit by the increase in mortgage rates.

By the company's calculations, an annual salary increase of 10 per cent is equal to an increase of 130 basis points each year.

Theoretically, salary increases had offset the last three interest rate rises, Mr Lam said.

Therefore, he said, homeseekers could afford the anticipated rate rise next year because their purchasing power would increase after the annual salary review year-on-year.

Gillian Kong, property analyst with Sun Hung Kai Securities, said that to a certain extent buying sentiment would be damaged by the interest rate rise, and the ability to make mortgage repayments would also be hit by a rise in rates.