Is the end near for Hong Kong's red hot property market?

A looming prime rate hike is set to dampen housing demand.

Bloomberg reports that the stage is set for a looming prime rate hike which can effectively halt Hong Kong’s protracted property boom as major property companies like Sun Hung Kai Properties and CK Assets Holdings are reportedly bracing for the impact of softening housing demand.

“Whenever a prime rate hike happens, it will cause the property market to rethink the sanity of paying HK$10 million ($1.3 million) for 200 square-foot apartments,” said CLSA Ltd. analyst Nicole Wong.

Also read: Banks lift time-deposit rates amidst expected rate hikes

A Fed rate hike may prompt banks to respond by lifting prime rates as was seen in the last cycle of higher rates in 2005. This means that higher prime rates may finally end the bull run on house prices which rose for the 23rd consecutive month last March.

Moreover, tightening domestic conditions also provide prime conditions for a rate hike as the Hong Kong Monetary Authority stepped in to defend the currency peg after it fell to the weak end of the trading band at $7.85. This entails less liquidity in the system that has partly fueled the housing boom and put pressure on borrowing costs as Hibor steadily climbs.

Also read: Steeper mortgages loom as HIBOR extends climb to 1.32%

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