Hong Kong property market gets reprieve on rates, but position remains precarious

Hong Kong's property market avoided an immediate impact from the Federal Reserve's recent rate hike, with local banks maintaining unchanged prime rates. However, further rate increases could undermine the fragile market recovery, according to industry experts. Joseph Tsang, chairman of JLL Hong Kong, noted that while the latest Fed decision should not immediately affect the local market, continued US rate hikes would raise concerns.

Higher mortgage costs would burden homebuyers and increase developers' financing expenses, potentially forcing them to expedite sales and reduce their appetite for acquiring land. Developers have begun setting prices higher; State Residence, owned by Chow Tai Fook, increased the price of its first batch of flats by over 10 percent compared to neighbouring State Pavilia's 2025 launch.

The second-hand market has also shown signs of weakening, with some sellers narrowing discounts. In North Point, negotiating margins narrowed to 1 to 2 percent from 3 to 4 percent immediately after HSBC announced it would not raise its rate, while viewing appointments rose by 20 percent. Property investors are also showing interest in "bargain opportunities" if further rate hikes lead to distressed sales.

Funding costs are already on the rise, with the one-month Hibor nearing 2.8 to 2.9 percent and potentially surpassing 3 percent in the near term. If the Fed raises rates again by year-end, local banks could increase prime rates by up to a quarter point. This would prompt banks to withdraw popular fixed-rate mortgage plans by the end of the year.

At the higher end of the market, sellers remain cautious, with many opting to wait for better market conditions rather than setting asking prices. Despite a decline in residential transactions in August, Colliers expects residential prices to rise between 8 and 10 percent this year, provided borrowing costs remain elevated. However, prolonged high borrowing costs could divert capital to alternative investments offering competitive returns.

Commercial property market may face greater pressure if rate increases persist, as buyers demand higher rental yields, potentially prompting property owners to lower asking prices to attract buyers.