The relaxation of mortgages for more expensive flats in Hong Kong will propel sales in the short term only, as an imminent interest rate hike will keep potential buyers away, industry insiders said. The sales of lived-in homes worth between HK$10.01 million (US$1.3 million) and HK$12 million jumped by 57 per cent to 199 deals in March, according to Ricacorp Properties data, after Financial Secretary Paul Chan Mo-po on February 23 allowed loan-to-value ratios of 80 per cent for mortgages of homes worth up to HK$12 million from the previous HK$10 million limit. Following his intervention, the down payment for a home worth HK$12 million dropped to HK$2.4 million from HK$6 million previously. The number of deals for this price category registered its best monthly performance in March, the data shows. “But the impact of the latest easing in home loans will not be as strong as previous instances, as the city is heading for an interest rate rise, which is likely to increase borrowing costs,” said Joseph Tsang, chairman of JLL in Hong Kong. The fifth wave of the coronavirus pandemic, which has devastated Hong Kong’s economy, could also hurt sentiment, he added. Is it time Hong Kong allowed property deals to be completed online? The city’s economy most likely contracted in the first quarter of this year, Financial Secretary Chan said in March, with the jobless rate for the three-month period ending in February rising to 4.5 per cent, its highest level in about five months. Also, the retail and catering sectors were hit particularly hard by the city’s strictest social distancing curbs since the pandemic began two years ago. An increase in interest rates by the US Federal Reserve on March 16 could further dilute the affect of the relaxation of mortgages. The Fed has suggested it could lift rates six more times, up to a total of 100 basis points, this year. At even a 50 basis points increase, borrowers with a HK$9.6 million home loan on a 30-year term will pay at an effective interest rate of 3 per cent, up from 2.5 per cent, and see their monthly payments increase by HK$3,180 to HK$59,180, according to mReferral Mortgage Brokerage Services. This is assuming that their mortgage loan is linked to the Hong Kong Interbank Offered Interest Rate (Hibor) , mReferral said. Such a buyer must also have a minimum monthly salary of HK$93,000 to be able to get such a high home loan, the brokerage added. “The sales momentum for bigger flats will slow down in the coming months, repeating a pattern that we have seen during the relaxation in home loan rules in October 2019,” said Derek Chan, head of research at Ricacorp. Hong Kong nano flats sales ebb as buyers shift focus to bigger homes In November 2019, the number of deals for lived-in homes worth between HK$8 million and HK$10 million, for which first-time buyers could borrow up to 90 per cent of a property’s value, up to a maximum of HK$8 million from HK$4 million previously, advanced 98 per cent to 506 deals from October the same year, the Ricacorp data shows. But sales retreated to 335 in December 2019 and further down to 303 in January 2020. They rebounded to 451 deals only last month. “The market, however, will stabilise once Covid-19 recedes,” said Ricacorp’s Chan.