Hong Kong’s residential prices will rise by as much as 5 per cent this year, US rating agency S&P Global Ratings said on Wednesday. The agency said buoyant housing demand, a chronic shortage of land and housing supply, as well as a consistently low interest rate environment will support price rises. It joins a chorus of industry observers, which has forecast that Hong Kong residential prices will rise this year. “During the past two decades, Hong Kong property prices have tended to bottom out when the jobless rate has or is about to peak. This will underpin developers’ residential development margins,” S&P Global said. It said that Hong Kong’s unemployment rate seems to have come off a peak of 7.2 per cent in February to 6.8 per cent in March, while its economy grew by 7.8 per cent in the first quarter. These developments will, ironically, hurt many Hongkongers’ hopes of owning their own homes, as a revival in the city’s economy and falling unemployment could lift flat prices in the world’s most expensive real estate market. Hong Kong property sales hit two-year high in April, Centaline estimates Hong Kong property, with the exception of offices , will start to shake off the effects of the coronavirus pandemic this year, S&P Global said. Retail landlords too will reduce the rental concessions they have been offering as shopper footfall improves across the city. Last month, the number of property transactions, including those involving homes, shops, industrial units and car parks, soared to a 23-month high , according to Land Registry data. A total of 9,150 deals worth HK$85.1 billion (US$10.9 billion) were recorded in April. The value of deals was up by 9 per cent month on month, while the number of deals had risen 0.9 per cent. “We have seen both home sales volumes and values rebound, as buyers turn bullish about the property market after an easing in the pandemic,” said Derek Chan, head of research at Ricacorp Properties. Ricacorp has forecast that Hong Kong home prices will rise by 10 per cent this year. The average price for a new flat rose 19 per cent to HK$15.5 million in April from a month earlier, its highest monthly level in the past 16 months, Chan said. The prices of lived-in homes also rose, by 6 per cent on average to HK$9.2 million, he added. Hong Kong economy rebounds sharply, posting 7.8 per cent growth “The sales of homes worth more than HK$10 million have improved recently, as new Hongkongers from mainland China enter the market,” Chan said. These are residents who have recently acquired permanent residency in the city, which allows them to purchase their first homes without the need to pay a 30 per cent property tax. Their property purchases are helping to offset a slowdown in home prices caused by increased emigration, which contributed to more supply and kept prices from rising fast. The low interest rate environment has boosted sales of new projects, with investors shifting their money from stock markets to fixed assets. “Hong Kong interest rates will remain low for the next three years,” said Eric Tso, chief vice-president at mReferral Mortgage Brokerage Services. He played down recent comments by Janet Yellen, the US Treasury Secretary, who said the Federal Reserve might at some point have to raise interest rates to cool off an economy growing too quickly. Hong Kong homebuyers to switch to cheaper Hibor-linked mortgages Fewer Hongkongers have mortgages linked to banks’ prime lending rate, which is affected by changes in the US rates environment. As of February, 96 per cent of new mortgage loans were priced with reference to the one-month Hong Kong interbank offered interest rate (Hibor), which is currently at 0.08 per cent, its lowest level in 11 years. Hibor-linked mortgage plans were introduced only in 2007. Homeowners whose mortgage plans are linked to the Hibor are being charged at 1.38 per cent this month. Only 2 per cent of new mortgages were based on the prime rate. Those whose mortgages are linked to the prime rate are being charged at 2.5 per cent, according to mReferral. JLL, however, held a more conservative view and forecast that home prices will remain flat this year. “The Hong Kong economy has not yet fully climbed out of Covid-19’s economic fallout. Major sectors like travel and aviation are still severely hit by the pandemic, with tourist arrivals plunging significantly. We have seen a number of big brands scaling down their retail network in the city,” said Joseph Tsang, the chairman of JLL in Hong Kong.