Looming interest rate rises will not hit Hong Kong as hard as 2022: analysts
Hong Kong looks set to be hit by a wave of interest rate rises in the coming months, but the city’s property market is unlikely to suffer the same level of damage as during the last rate cycle in 2022-2023, according to analysts. Though major Hong Kong banks have so far held rates steady despite the US Federal Reserve raising its benchmark rate earlier this month, they are widely expected to…
Hong Kong's property market is expected to weather the upcoming wave of interest rate hikes more resiliently than during the turbulence of 2022-2023, according to financial analysts. While major banks in the city have maintained steady interest rates following the US Federal Reserve's recent benchmark rate increase, they are anticipated to follow suit if the Fed continues its tightening stance.
Morgan Stanley cautioned that the looming rate hikes, combined with reduced demand from mainland China, could trigger "uncomfortable memories" of the double-digit drops in Hong Kong property prices seen in 2022-2023. However, analysts believe the current market is in a more robust position to absorb the impact. Banks possess greater deposits and steady talent inflows, bolstering local demand.
Furthermore, the forthcoming rate increase cycle is expected to be shorter and milder than the previous cycle, with the Federal Reserve only likely to raise rates by 0.75 percentage points over the next six months. Additionally, Hong Kong's loan-to-deposit ratio has dropped to a 19-year low, reducing banks' reliance on external funding.
Consequently, the pass-through effect to local borrowing costs is projected to be less severe. Despite these factors, analysts anticipate a period of price consolidation, slower transactions, and wider negotiation margins in the secondary market, with developers relying more on discounts and financing incentives than on broad price cuts.
Morgan Stanley projects Hong Kong property prices to remain flat in the fourth quarter before experiencing a 5% rise in 2027.
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