Home sellers trim prices as Hong Kong’s decade of cheap money ends with higher interest rates

Homeowners are bracing for a hit in the pocket as Hong Kong’s lenders raise their prime rates for the first time in over a decade

Reading Time:3 minutes

An applicant for the Sale of Home Ownership Scheme (HOS) at the Lok Fu Housing Authority office on 26 September 2018. Hong Kong’s property market will have to prepare for a slowdown as the higher rate will add to mortgage payments. Photo: SCMP/Edward Wong

Published: 7:15am, 27 Sep 2018Updated: 10:13am, 28 Sep 2018

Some Hong Kong homeowners are discounting the prices of their lived-in flats by up to 16 per cent in the secondary sales market, hours after 11 of the city’s banks raised their lending rates for the first time in more than a decade.

HSBC, Standard Chartered, Hang Seng Bank and other lenders increased their lending and local currency savings rates effective Friday , after Hong Kong’s de facto central bank increased its base lending rate in lockstep with a move by the US Federal Reserve, formally ending 12 years of unchanged rates in the city.

The base lending rate was raised by 25 basis points to 2.5 per cent, the Hong Kong Monetary Authority (HKMA) said on its website. That paved the way for commercial banks to raise their so-called prime rates, hitting homeowners in the pocket.

“This will put an end to an era of extremely cheap lending, and is set to bring volatility to the investment and property markets,” the HKMA’s Chief Executive Officer Norman Chan Tak-lam said . “It would be unrealistic to expect property prices to only go up. The public will need to be aware of the risks related to asset-price changes caused by the interest rate [increase].”

The latest move by the US Fed – the third in 2018, and the eighth since the end of so-called quantitative easing in December 2015 – immediately caused reactions in Hong Kong, as the city runs its monetary policy in step with the US to maintain the Hong Kong dollar’s peg to the US dollar.