US Fed moves may spark falls in Hong Kong house prices

US Federal Reserve moves could spark falls in Hong Kong house prices in the next six months

PUBLISHED : Wednesday, 26 June, 2013, 12:00am
UPDATED : Wednesday, 26 June, 2013, 4:55am

Hong Kong house prices could fall at a faster pace with buyers sidelined by a signal from the US Federal Reserve that it is weighing an end to its bond-purchasing programme - a move that would close the liquidity tap in financial markets and trigger a rise in interest rates.

Prices could drop another 5 to 10 per cent over the next six months and transaction volumes could fall sharply as buyers withdraw from the market, say international property consultants and local agents.

"Market sentiment had been improving in recent weeks, with prices gradually stabilising. But the news of the Federal Reserve's plan to cut stimulus has dealt a blow to fragile sentiment," said Alva To Yu-hung, managing director in Hong Kong and head of consulting, north Asia, for property consultancy DTZ.

"Even though interest rates will not rise at a rapid pace in the wake of the US slowing its bond-purchasing, property buyers are concerned that interest rates will soon turn around. Psychologically this has hit buying interests."

He predicted that sales volumes would fall back to the level of about 4,000 achieved in March and April when the market was badly hit by a doubling of stamp duties announced by the government in February. He said prices for some projects had fallen 5 to 10 per cent since the beginning of the year and could go another 5 per cent before stabilising.

On June 20, Fed chairman Ben Bernanke said the US central bank may reduce the monetary stimulus that has so far helped spur fund inflows into global market assets. Financial Secretary John Tsang Chun-wah warned that interest rates in Hong Kong may rise faster than those of the US as an outflow of funds would lead banks to raise rates in Hong Kong.

"In view of rising concerns over an interest rate hike, many potential buyers have become more cautious and are adopting a wait-and-see approach," said BNP Paribas property analyst Patrick Wong Chi-leung. "We believe this may affect volume in the secondary market and new launches in the short term."

According to a study tracked by Ricacorp Properties, 132 secondary market flats were sold in the 50 housing estates it monitors over the week of June 17-23. That represented a drop of 44 per cent week-on-week.