Business | Bloomberg and Samantha Wong 4 May 2018
A higher prime rate, which sets the upper limits on mortgages, could dampen surging housing prices in the world's least-affordable real estate market.
Hong Kong property companies, such as Sun Hung Kai Properties (0016) and CK Asset Holdings (1113), are bracing for the first increase in the city's prime rate in more than a decade.
"Whenever a prime rate hike happens, it will cause the property market to rethink the sanity of paying HK$10 million for 200-square-foot apartments," said CLSA Ltd. analyst Nicole Wong.
"Interest rates in Hong Kong are all set to spike in the months ahead," DBS Bank Ltd. economist Samuel Tse wrote in a note to investors.
"The prime lending rate will likely reach 5.75 percent by end-2018 in anticipation of more rate hikes in the US this year," he added.
Ronald Man, a strategist at Bank of America Merrill Lynch in Hong Kong, says higher prime rates could end the bull run on house prices.
"Our house view is Hong Kong home prices will grow 5 percent this year, followed by a 15 percent correction in 2019-2020," he said.
To be sure, Hong Kong's property companies are probably better positioned than in the past to weather a prime increase, even if it does cool housing prices, which have already gained about 9 percent this year.
Hong Kong's biggest developers enjoy low debt levels and have so much liquidity that they are "capable of financing buyers themselves," if banks pull back, said Bloomberg Intelligence analyst Patrick Wong.
SHKP yesterday set at HK$6.31 million the minimum price for flats at its Mount Regency project.
The smallest unit in the project has a size of 304 square feet. The latest batch of 118 pre-sale flats at the project is being offered at an average price of about HK$19,302 per sq ft.
Meanwhile, an unidentified local developer won the government tender of a site at King Sau Lane in Tuen Mun with its HK$1.05 billion purchase offer or about HK$2,200 per sq ft in gross floor area.