Fewer flats sold in HK as mortgage rates rise

HONG KONG: The number of residential flat transactions dropped over the weekend as the city's major banks began to lift mortgage rates.

Some analysts expect purchase sentiment to weaken further; others say the impact will be minimal.

Just 30 flats were sold in the primary market over the weekend,  according to data from Samsung Securities. That represented a 72.3% drop from the 112 flats sold over the previous weekend.

Twenty-six of the deals were at Cheung Kong (Holdings) and MTR's Festival City II project in Tai Wai.

In the secondary market, transactions in the 10 largest residential  estates in Hong Kong declined by 13.2%, to 46 flats from 53 flats done the previous weekend, property agency Centaline said.

"As banks announced increases in mortgage rates, buyers have  become more prudent and do not want to make quick decisions," said Louis Chan Wing-kit, managing director of Centaline's residential  department. "But for the moment, owners remain adamant about their asking prices," Chan said.

Major home lenders such as HSBC, Bank of China (Hong Kong) and Citibank began raising interest rates on mortgages based on the Hong Kong Interbank Offered Rate (Hibor) at the weekend.

Home loans priced off one-month Hibor previously ranged from close to Hibor plus 0.8% to  Hibor plus 1%, translating into an effective rate of less than 1%. But since the weekend, lenders have begun to adjust premiums  upwards, to between Hibor plus 0.9% and Hibor plus 1.3%. That raises the effective home loan rates on these products to between 1.14% and 1.54%, based on the one-month Hibor of 0.24% yesterday.

"In our view, this was not a coincidence and implies the bottoming of mortgage rates," Royal Bank of Scotland's analysts David Ng and Raymond Liu said.

Analysts are becoming more negative about the residential market and expect price growth to be limited. Others say the rate rises will remain modest and will have a minimal effect on demand.

"Property price growth of 62% in the past 24 months appears excessive," said an analyst who expected prices would begin to decline. Samsung Securities expects sentiment to weaken further. Developers are likely to speed up their launches and become more willing to offer incentives to buyers.

Samsung data showed that home affordability in Hong Kong — the ratio of mortgage payments to median household income for a mortgage on a 480 sq ft flat — stands at 44.7%. If mortgage rates rise by between 50 basis points and 150 basis points, the affordability rate will rise to 46.8% and 50.9% respectively.

"We expect affordability to peak at the levels of 50% to 60%," said Samsung analyst Lee Wee-liat.

Lee forecast that mortgage rates would rise to 2% in the next three to four months.

But Patrick Chow Moon-kit, Ricacorp's head of research, said recent rate rises were small and would not have much impact on the market.

Hang Seng Bank's senior economist Irina Fan Yuen-yee said it was still early to say if interest rates had entered a rising rate cycle. This was not likely to occur unless the United States began raising rates. — SCMP