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Hong Kong Home Prices Expected to Drop as Major Lenders Raise Mortgage Rates

In a significant development for Hong Kong's property market, analysts are predicting a potential 5 percent decline in home prices by the end of this year. This forecast follows the decision by seven major lenders, including HSBC, Standard Chartered Bank, and Bank of China (Hong Kong), to raise their mortgage rates. The move is set to take effect as early as Monday, signifying a notable shift in the local real estate landscape.

Hong Kong Home Prices Expected to Drop as Major Lenders Raise Mortgage Rates

The three leading banks, along with Hang Seng Bank and Bank of East Asia, will implement a 50 basis point increase in mortgage rates for new loan applications starting Monday. Citibank is also set to follow suit with a similar increase on Wednesday. These banks collectively control a substantial 80 percent of Hong Kong's mortgage market. As a result, the effective mortgage rate for new loans from these institutions will rise from 3.625 percent to 4.125 percent. It's essential to note that existing home loans will remain unaffected by this change.

This mortgage rate adjustment translates into tangible financial implications for prospective homebuyers. For instance, on a typical HK$5 million (US$643,000) mortgage spanning 30 years, borrowers will face a 6 percent increase in monthly payments. This amounts to an additional HK$1,430 per month, bringing the total monthly payment to HK$24,232.

China Construction Bank (Asia) has taken an even more aggressive stance by planning a 1.5 percentage point increase in mortgage rates for new loans. If realized, this would elevate the rate from 3.625 percent to 5.125 percent. Although this bank holds a relatively modest 0.3 percent share in Hong Kong's mortgage market, this move underscores the broader trend of rising borrowing costs.

The collective decision to raise mortgage rates has raised concerns within Hong Kong's property market. Louis Chan Wing-kit, CEO of the residential division at Centaline Property Agency, observes, "The mortgage rate rise is going to further hit the already weak property market in Hong Kong. High borrowing costs will discourage people from buying new homes at the moment." He predicts a potential 3 to 5 percent decline in home prices over the next few months.

This news comes against the backdrop of a challenging period for Hong Kong's property market. Home prices have been declining for three consecutive months, reaching a six-month low in July with a 1.1 percent month-on-month drop, according to the Rating and Valuation Department's index. Additionally, property transactions, including both new and second-hand homes, commercial buildings, and car parks, have declined for four consecutive months, reaching a seven-month low of 4,777 in July.

Goldman Sachs (Asia) analysts anticipate continued affordability challenges driven by a prolonged high-interest rate environment, slow income growth in Hong Kong, and falling property prices in mainland China. They have revised their outlook, switching from an earlier prediction of a 5 percent increase in home prices this year to a flat outcome.

These developments coincide with the upcoming U.S. Federal Reserve meeting, where analysts anticipate a pause in the rate rising campaign. However, the Hong Kong Monetary Authority had already raised the city's base rate 11 times in the past 17 months, mirroring the Federal Reserve's actions.

As Hong Kong grapples with rising interest rates and the potential impact on its property market, it remains to be seen how these factors will influence the city's real estate landscape in the coming months. Investors, homeowners, and prospective buyers will be closely monitoring these developments, seeking to navigate a shifting market environment.


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