The days of rising cost of borrowing have finally arrived. Several major banks in town announced the adjustments of their mortgage rates by as much as 20 basis points on Wednesday, triggering a sell off of property stocks.
Banking sources estimate that the higher rates will raised the monthly payment of an average mortgage loan by about HK$500.
The amount may seem small. But the added burden will further stretch the already thin budget of many home owners who are already paying up to 80 percent of their average household incomes on mortgage repayments.
An increase in interest rates has been one of the most widely expect economic development in the past many months. But prospective home buyers were persuaded by developers and property agents to believe that there was sufficient liquidity in the market for banks to keep lending rates unchanged despite the rapid rise in their funding cost.
The latest rate hike has rudely awakened the eager home buyers to reality. Economists predicted that further increases will come in September after the much expected hike in US interest rates by the Federal Reserve.
It is not clear at this stage how far the rate increase will depress home demand in Hong Kong. But some major property developers are wasting no time to preparing for a downturn. As earlier reported, some developers lowered prices, for the first time in many years, to help expedite sales of apartments in their newly completed projects.
Some analysts have predicted a decline in home prices by as much as 10 percent in the remaining months of 2018. That would be the first decline for more than 26 months since average home price began to surge.
Interest rate increase, which is expected to be moderate, is not the major factor that has many analysts worried. Their main concern is shifted to the escalating trade war between the United States and the Chinese mainland. The projected downturn in trade between Hong Kong’s two largest markets could hit the local economy in multiple ways.
A sharp slowdown in economic growth could send the bubbling asset market into a tailspin.