Is Hong Kong's heated property market finally heading for a crash?

Residential property prices may fall 13% in 2019.

Bloomberg reports that the heated uptrend of home prices in the world’s most expensive property market may soon be a coming to a close with analysts expecting residential property prices to crash 13% in 2019.

Home prices in Hong Kong rose for the 27th straight month in June although the market appears to be showing some signs of slowing down as growth has moderated slightly from peak levels in 2017 on the back of the government’s earlier cooling measures. In fact, the growth of residential property prices have tapered off from 21.6% in June 2017 to 14.7% in May, according to BMI Research.  

Also read: Government unveils new initiatives to ease housing crunch

The expected price decline will wipe out all of this year’s property gains, which have surged 14% so far, as banks hike mortgage rates across the board in tandem with the US Federal Reserve, added Nomura.

“Remember what happened in late 2015 -- prices dropped about 13 percent in only six months, and the trigger was the Fed’s rate hike,” Joyce Kwock, head of Hong Kong property research at Nomura International (HK) Ltd. said in a briefing in Shanghai on Tuesday. “The entirely same situation may repeat again.”

Also read: Hong Kong banks can withstand another housing crash

In a move signaling the end of the city’s ultra low interest rate environment, the city’s top mortgage banks - HSBC, Bank of China (Hong Kong) and Hang Seng Bank - have hiked their mortgage rates by 10 basis points (bp) in August. This means that new mortgage borrowers from these banks will have to shell out an additional $50 per month for every $1m of loan for a 30-year tenure, according to South China Morning Post. 

Citibank, Standard Chartered, Wing Lung Bank and China Construction Bank (Asia) have also followed suit in the mortgage rate hike. 

Major lenders like Bank of East Asia, ICBC, HSBC and BOC (Hong Kong) have already scrapped their fixed-rate mortgage plans in April as they bear with higher cost burden brought about by surging interbank lending rates.

“We should not expect that the ultra-low interest rate environment will continue unabated. We must carefully consider whether it is possible to cope with the increase in interest expense on loans, and we must also pay attention to the increase in interest rates to asset prices,” Financial Secretary Paul Chan said in an earlier blog post. 

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