Complete Property Market Updates of Singapore

June 21, 2008

HK home owners brace for interest rate hikes

Filed under: Financing,General,Hong Kong — Propertymarketupdates @ 6:17 pm

HONG KONG home owners are expecting interest rate hikes as banks in the city attempt to bolster earnings, ending a long run of cheap mortgage costs. But some market factors may militate against such a move.

Banks have been sounding the alarm bells as their margins feel the squeeze amid a succession of interest rate cuts. Last month, lenders failed to match a Hong Kong Monetary Authority (HKMA) interest rate cut, the first time since September that banks did not follow the de facto central bank.

Last week, senior bankers warned that an interest rate rise could be imminent. With competition for home financing fierce, no lender has yet to take the lead and raise interest rates.

Raymond Or, chief executive of Hang Seng Bank, spoke of the pressure facing lenders regarding raising interest rates.

Other bankers have cited an unfeasibly low interest rate for bankers to turn a profit, with home owners being loaned cash at between 2.5 and 2.8 per cent with cash rebates often thrown in. The Hong Kong interbank offered rate is, meanwhile, 1.7 per cent.

Meanwhile, record-high oil prices are unlikely to lead to a further cut in Federal Reserve key rates, from which the HKMA takes its cue as Hong Kong’s currency remains pegged to the greenback.

Banks have also not seen a huge uptake in mortgage financing as external factors bite into potential home owners’ appetites.

Despite low interest rates, property sales in the mass market have remained sluggish. This is partly because of a wait-and-see attitude buyers are taking amid global economic uncertainty.

According to the latest Land Registry figures, the total number of sale and purchase agreements in April was down 0.4 per cent from the previous month to 10,945. The total consideration for these deals was down 23.9 per cent from March, to HK$33.5 billion (S$5.8 billion).

Chief economist at Bank of East Asia Paul Tang, however, remains optimistic that home owners will not face a massive uptick in their financing costs in the next 12 months.

‘I think it really depends on the United States interest rate movements – and that’s a big uncertainty,’ he said.

‘There’s still a lot of room for it (interest rates) to go up and right now it’s at a very low level. The US economy will take one to two years before it recovers to a more healthy stage. Interest rates (in Hong Kong) should remain low despite inflationary pressure,’ he explained.

Developers likewise sounded a more bullish note, perhaps unsurprisingly as jitters about mortgage rate increases took a toll on their stocks last week.

On Thursday, shares in the main developers took a tumble as speculation that Hong Kong lenders would no longer slash interest rates began to spread.

Shares in Sun Hung Kai Properties, Cheung Kong (Holdings) and Hang Lung Properties all fell slightly on the rumours.

Tycoon Li Ka-shing, chairman of Cheung Kong (Holdings), said last week he expects the property market to remain steady amid low interest rates and relatively tight supply in the market.

Source  : Business Times – 26 May 2008

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