Hong Kong’s housing market has survived political changes and the COVID pandemic to remain the most expensive in the world.
But there’s one thing it can’t escape: rising interest rates.
House prices in Hong Kong, long the world’s most expensive housing market, could fall 30% by the end of 2023 from 2021 levels, Goldman Sachs analysts predicted in a note on Tuesday. According to the investment bank, apartment prices have already dropped by 8% this year.
Other operators in the city’s real estate sector warn against the bill. Centaline Property Agency, one of the city’s largest real estate agents, warned on Tuesday that real estate sales in 2022 could be at their lowest level in the last 27 years.
Hong Kong is currently struggling with the recession. The city is already in a technical depression, and the city government anticipates economic growth of between -0.5% and 0.5% for the year.
Rising Interest rates:
Goldman Sachs blames the rapid decline on a faster-than-expected increase in the Hong Kong Interbank Offered Rate (HIBOR), which is linked to 90% of municipal mortgages.
Hong Kong raises interest rates to match the US Fed’s. The Hong Kong Monetary Authority, the city’s de facto central bank, raised the benchmark interest rate to 3.5 percent on September 22, the morning after the US Federal Reserve also raised interest rates.
HIBOR set by banks is also on the rise, with three-month HIBOR at a 14-year high of 3.6%.
Hong Kong was forced to raise interest rates to match the central bank’s offer to protect the currency level of the Hong Kong dollar against the US dollar. The exchange rate of the Hong Kong dollar against the US dollar is 7.75–7.85.
But when Hong Kong interest rates are lower than the US, traders can borrow money in Hong Kong dollars, convert it to US dollars, and invest in the US to take advantage of its higher interest rates. If left unchecked, traders selling the local currency would weaken the Hong Kong dollar, threaten the peg and force the HKMA to intervene.
The city maintained its position as the most expensive housing market in the world even during the social unrest and the COVID pandemic of 2019. In 2021, Hong Kong’s average housing price was 23.2 times the average income, according to the think tanks of the Urban Reform Institute and Border Center for Public Policy. The city has been the most affordable place to live in the world for 12 years running.
That’s a far cry from Sydney’s more expensive second housing market, with an average house price to income ratio of 15.3.
According to the think tank’s report, the most affordable market in the United States is San Jose, with a median home price-to-income ratio of 12.6, making it the fourth most affordable housing market overall.