Recent US Rate Hike Changes Hong Kong's 2016 Property Market

The US Federal Reserve has finally raised the benchmark interest rate from 0.25% to 0.50% and property markets are taking suit like Hong Kong, Epoch Times reports.

"With the economy performing well and expected to continue to do so, the committee judges that a modest increase in the federal funds rate is appropriate," Janet Yellen, Fed chair, said in a stamen after the announcement of the decision.

As a response to US federal funds rate hike, the Base Rate in Hong Kong will be adjusted to 0.75%, a 25 basis points increase, the Hong Kong Monetary Authority (HKMA) announced on December 17. This will take immediate effect and is expected to raise borrowing costs for banks through the Discount Window.

For decades, it has been expensive for most people in Hong Kong to afford high property prices, and they are looking forward to see how the interest hike will affect the property market.

The local property market has constantly been rising since Centa-City Leading Index, a property price variation indicator, suffered a setback in 2008. In Sept. 2015, the property market reached 146.92 points which is 1.74 times above the same period in 2010, when salaries within that period have only increase by 25%.

But aside from the fed increase, there are other several factors contributing to Hong Kong's housing prices inflation which makes it the most expensive in the world. The demand from mainland China investors who are looking to invest offshore, a shortage of supply and manipulation by developers and speculators are all factors.

It has been a very sluggish market since the rate hike, with only 3 private housing estate transactions over the last weekend.

With the expected rise of mortgage costs and supply, the market will continue to feel the downward pressure on house prices for the next 2 to 3 years.

In the first half of 2016, home prices are predicted to see a drop within 5 percent, while mass home prices sees 5% to 10% drop next year, according to Thomas Lam who is the head of valuation and consultancy at Knight Frank.