Rising rates, falling prices deal a double blow to Hong Kong homeowners

Rising rates, falling prices deal a double blow to Hong Kong homeowners

Written by Claire Jim

HONG KONG (Reuters) – When Stephanie Cheung bought a tiny two-bedroom apartment for HK$7.7 million ($981,041) as an investment in April 2021, she posted a 6% gain by summer as Hong Kong’s property market boomed to historic levels.

The price hike was partly driven by optimism that Hong Kong’s borders will open after some of the world’s strictest COVID-19 measures over the past two and a half years.

Today, none of that has materialized.

Cheung’s 450-square-foot apartment is down 6% and his HK$16,300 rental income is no longer enough to cover mortgage payments after a monthly interest increase of HK$2,400 a few months ago.

“I made the purchase in the hope of retaining capital, but now I just wanted to use the shortest time and least loss to sell this apartment,” said Cheung, 40, who lives in a larger rented apartment with her family.

Cheung’s case is not an isolated case, as rising mortgage costs and a bleak economic outlook have deepened pessimism among homeowners.

This poses a major political problem for the city’s new leader, John Lee, who must balance the needs of different sectors of society. Lee gives his first political speech in October.

“John Lee needs to keep real estate prices at a grassroots and youthful level, while he cannot allow prices to collapse because that would jeopardize the wealth of the middle class,” said Dave Ma, chief operating officer of Hong Kong Real Estate Services. .

House prices in Hong Kong, the world’s most expensive market by income-to-home value ratio, are expected to fall by about 10% this year, the first decline since 2008.

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Cheung is now set to post an even bigger loss, after some banks on Thursday raised the interest rate by 12.5 basis points, the first increase in four years.

Mortgage stress

Hong Kong homebuyers have enjoyed years of very low rates and many mortgage schemes are tied to interbank floating rates, which largely remained below 1% in 2021, and through 2009-2016.

With interbank rates hitting a 28-month high in August, the effective mortgage rate rose to about 2.6% from just over 1% at the beginning of this year.

Interest rates in Hong Kong tend to move closely to US interest rates, as its currency is pegged to the US dollar, which puts upward pressure on interbank and mortgage rates.

Higher borrowing costs dampen homebuyer sentiment.

Home prices in the financial city fell 4.5% in the first seven months of December, while transaction volumes in the first nine months fell 40% year-on-year.

Real estate agents said prices have fallen more than 7% so far this year to levels not seen since the third quarter of 2018.

“Gains made over the past four years have been wiped out in four months,” the realtor said.

Many of the sellers are those who are leaving Hong Kong for good or residents who are forced to earn money to help struggling businesses.

The developers also reduce prices, some sell new projects at discounts of up to 20%.

Ma said the market could stabilize in the near term if the government lifts travel restrictions with mainland China and abroad, and eases stamp duties on second home purchases and foreign buyers.

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Momo (NASDAQ: :)) Chan, a 35-year-old government employee who bought a house last April before getting married, also said reopening borders is critical to supporting the housing market.

“I was expecting interest rates to go up and the market wouldn’t continue to go up, but I thought it would be stable, not a big drop like this in the past few months,” Chan said.

(1 dollar = 7.8488 Hong Kong dollars)

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