Update | Brace for falling home prices as Hong Kong follows US in raising interest rate
Home prices will see downward pressure in next six to nine months before real interest rates return to positive ground by 2018, Colliers says
Hong Kong homebuyers can wave goodbye to negative real interest rates after the US Federal Reserve hiked interest rates by 25 basis points, with analysts expecting more increases to come.
While a small rise in the interest rate will not make mortgage rates in Hong Kong suddenly become unaffordable, home prices will see downward pressure when the city’s interest rate cycle is paving the way to positive from negative, according to property analysts.
Watch: US Fed increases interest rate by 25 basis points
Hong Kong Monetary Authority raised the base rate by 25 basis points to 1 per cent on Thursday morning, the first rise since December last year.
The local de facto central bank increased the base rate, the official interest rate set by the HKMA, after the US increased the interest rate by the same level, the first and only time US interest rates will rise this year.
“The fundamental question for us is when Hong Kong will return to an environment of positive real interest rates,” said Colliers International’s executive director of Asia research and advisory Andrew Haskins.
Hong Kong has benefitted from Asia’s most relaxed monetary conditions since the end of 2008, when the flood of easy money and negative real interest rates bolstered the city’s residential prices by almost 200 per cent during that period, Haskins said.
