Prudence needed as lenders raise rates
Hong Kong banks once able to resist increases by the US Federal Reserve are putting up their mortgage costs, and those buying homes had better be careful
To the certainties of death and taxes you can add another – that cheap mortgage rates will not last forever. And when they begin an upwards trend that feeds into home loans they can introduce uncertainty to the property market and personal finances. We are reminded of this by the rise in bank interest rates, after a decade of abnormally low interest levels.
The rises were expected sooner or later once the US Federal Reserve began its current tightening cycle. The Hong Kong Monetary Authority has been responding under the dollar peg regime by raising its base interest rate but, thanks to ample liquidity, the banks were able to resist following suit until now.
The rises and the prospect of more have prompted the usual warnings to those thinking about entering the soaring property market to weigh carefully their ability to sustain commitments that may grow at an unpredictable pace.
While interest rate cycles are common, there are special factors that set this one apart. One, of course, is the trade war unleashed by the United States, a threat to economic growth and stability to which Hong Kong is exposed by its externally oriented economy and import and re-export trade.
Another is a distortion of supply and demand that could support unrealistically high property prices. The city has become a haven for parking capital outside the mainland, as the yuan slides in value under pressure from some soft economic data and uncertainty about the impact of the trade war on an economy which remains a key driver of global growth.
This is an additional factor keeping prices high, with cashed-up mainlanders undeterred by cooling measures.
It remains to be seen whether recent government measures make housing more affordable to ordinary Hongkongers. The difficulties are illustrated by loopholes, such as the ability of developers to get around the new tax on vacant flats by leasing whole buildings as serviced flats until putting them on the market at a time of their choosing. Amid such volatile pressures on the market, buyers need to keep prudence at the top of their checklists.