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

Hong Kong's property market experienced a brief reprieve from the Federal Reserve's recent rate hike on Thursday, as major local banks retained their prime rates unchanged. However, industry insiders warn that another increase could severely impact the fragile recovery. HSBC and other prominent banks did not raise their prime rates in response to the US Federal Reserve's quarter-point benchmark rate increase earlier in the week.

Joseph Tsang, chairman of JLL Hong Kong, stated that while the immediate impact on the local market would be minimal, further US rate hikes could raise mortgage costs for homebuyers and increase developers' financing expenses. This, in turn, may prompt developers to accelerate sales, reducing their appetite for land and potentially dampening property prices.

Developers have already started pricing flats higher, with Chow Tai Fook-owned State Residence increasing its first batch of flats by over 10 percent compared to neighboring State Pavilia's 2025 launch. In the second-hand market, some sellers are already narrowing discounts, with negotiating margins in North Point dropping from 3 to 4 percent to 1 to 2 percent immediately after HSBC announced it would not raise its rate.

Homeowners, such as a Tsang selling her 807-square-foot flat, have raised their minimum prices due to stable rates and promotional mortgages. While residential transactions declined in August compared to June, Colliers expects residential prices to rise between 8 and 10 percent this year, assuming borrowing costs remain elevated.

However, if rate increases persist, some capital could be diverted to alternative investments offering competitive returns, and the commercial property market may face greater pressure, with buyers demanding higher rental yields and property owners potentially lowering asking prices.