Hang Seng Index

Hong Kong property shares touch one-month lows as interest rate worries grow

Sun Hung Kai, CK Asset and Henderson Land among those falling on view that higher borrowing costs are coming and will hurt home buying

PUBLISHED : Thursday, 23 August, 2018, 2:56pm
UPDATED : Thursday, 23 August, 2018, 8:42pm

Property shares in Hong Kong slid to one-month lows on Thursday as strong US economic data added to fears of an interest rate rise next month that would weigh on home prices by nmaking mortgages more expensive.

The declines follow recent reports by three investment banks predicting a drop in home prices in the world’s least affordable home market. Home prices have risen for 27 straight months, but CLSA predicts they will drop 15 per cent over the next 12 months.

Three makes a trend, as CLSA becomes third bank to forecast Hong Kong’s home prices to drop

Sun Hung Kai Properties, Hong Kong’s biggest developer in terms of market value, fell to HK$116.20, its lowest level since mid-July, before closing at HK$116.80, down 1.1 per cent. CK Asset Holdings, chaired by Victor Li Tzar-kuoi and the city’s second-biggest developer by market value, ended at a one-month low of HK$54.55, down 2.24 per cent.

Henderson Land Development also fell to a one-month low, closing at HK$40.80. It reported a jump in core earnings by 52 per cent in the first half of the year after the market closed.

New World Development, chaired by tycoon Henry Cheng Kar-shun, recovered some ground to finish 1.2 per cent lower at HK$10.36, after falling to as low as HK$10.32 during the session. Hang Lung Properties dropped by 1.27 per cent to HK$15.56 while Country Garden fell 1.47 per cent to HK$12.06.

The declines came after the US Federal Reserve released minutes from its last meeting signalling broad support for another increase in its key benchmark rate next month amid continued strong growth in the US economy, despite concerns about fallout from the US-China trade war.

Hongkongers will feel the squeeze as mortgage rates gain momentum

“Many participants suggested that if incoming data continued to support their current economic outlook, it would likely soon be appropriate to take another step in removing policy accommodation,” according to the minutes.

Analysts said the minutes prompted the slide in developers’ shares by increasing pressure on Hong Kong’s banks to raise the prime rate, which has not risen for 12 years.

“The minutes made Hong Kong’s market [players] more worried about a rise in the prime rate [next month],” said Lung Siu-fung, analyst at China Merchants Securities International. “The US has increased its interest rate for several times. When it increases again next month, [local banks] must increase [the prime rate].”

Mortgages in Hong Kong are either linked to Hibor, the Hong Kong interbank offering rate, or to the prime rate. A rise in either would increase mortgage repayments.

Lung said the minutes would dampen the home buying sentiment of people who have stretched their budgets to buy a home.

The Hang Seng Index, Hong Kong’s benchmark index, fell 0.5 per cent, or 137.12 points, to close at 27,790.46.