Home price growth to slow amidst rising supply and borrowing costs

As the Fed is expected to hike rates in 2018, mortgage costs may also rise.

Residential property prices are expected to slow down in the world’s least affordable city to own a home as various market headwinds attempt to curb the overvaluation of Hong Kong’s heated property market.

BMI Research believes that the domestic housing market is set for a gradual moderation as data from the Rating and Valuation Department show that the growth of home prices slowed in November (13.1% YoY) compared to the highs registered in the prior month of June (21.6% YoY).

The research agency attributes the slowdown to rising borrowing costs as the region’s linked currency system with the US is likely to lead higher prime rates and possibly higher mortgage costs amidst expectations that the Fed is set to raise its rate by another three times to a range of 2-2.25% in 2018.

“Indeed, mortgage schemes that are linked to the floating Hong Kong Interbank Overnight Rate (HIBOR) are widely popular, and in our view, the city's banks are set to raise its prime rate for the first time since more than a decade ago. Given that the prime rate caps the HIBOR that banks can charge to mortgage borrowers, an increase in the prime rate would result in a bigger increase in mortgage costs,” said BMI Research in its report.

Moreover, property prices are weighed down as housing supply catches up thanks to various initiatives by the administration to plug the housing gap.

BMI Research expects an average of 20,300 residential units in construction for the next five years in addition to 4,000 public housing units in the pipeline as part of the Green Form Subsidised Home Ownership Pilot Scheme.