Hong Kong Property Market Vulnerable to Rising US Interest Rates

Kevin Warsh, a key figure at the US Federal Reserve, has strengthened market conviction that borrowing costs in the world's largest economy are set to climb. This follows his statements at the central bank's yearly Jackson Hole gathering last month. Although the Fed left its benchmark rate unchanged at 3.5 to 3.75 percent during its July session, Warsh's insistence that more must be done to tame price pressures has amplified speculation of a policy tightening.

Analysts observed that numerous property markets show heightened vulnerability to rising US rates, while a few could actually gain. In Hong Kong, where the currency is tied to the US dollar within a band of HK$7.75 to HK$7.85, real estate professionals said any adjustment by the Fed would be automatically replicated by the Hong Kong Monetary Authority, which serves as the territory's central bank.

Pamela Ambler, who leads Asia-Pacific investor intelligence at JLL, explained that the HKMA's base rate moves in tandem with the Fed, and borrowing expenses tied to the Hong Kong interbank offered rate adjust accordingly. She further noted that as Hong Kong's financing costs climb, especially compared with mainland China's, the city becomes less appealing for capital flowing south from the mainland.

Mainland purchasers have recently represented 29 percent of Hong Kong's residential sales by volume and 37 percent by value, according to data calculated by JPMorgan Chase. During the April-to-June period this year, mainland investors ranked as the second-largest overseas buyers of commercial real estate in the city, spending HK$1.23 billion (US$157 million), while Singapore-based investors led with HK$3.37 billion, as reported by Colliers.