Property

Factors Affecting The Local Property Market

Property markert

Following the 2008 financial crisis, the US Federal Reserve used quantitative easing measures to help boost the American economy; while expressing that once the economy was back on track, it would increase interest rates and adjust the quantitative easing policies.

However, it turned out that investors didn’t have enough confidence in the economic revival of the U.S., with part of the increased money supply flying into Hong Kong’s real estate market, leading to the skyrocketing property prices. Unfortunately, the local real estate economy didn’t benefit from this phenomenon, which means that most Hongkongers who didn’t see a big boost in salary levels became unable to afford property, while the wealthy became even richer as their properties started to gain value. Inevitably, this resulted in an even bigger disparity between wealth segments. In addition, the government put forward controlling measures in hopes of curbing soaring home prices, however, to little avail. With no substantial progress in increasing land supply and an unclear future of global economic recovery, investment in the real estate economy remained conservative with subsequently large amounts of funds continued to linger in the financial and property markets. 

Since taking office in January, U.S. President Donald Trump continues to promote his “America First” slogan, making this message the centre of his stance in military affairs, trade, foreign policy and other fields. Recently, the Republican Senate passed the tax reform bill, which can potentially attract overseas funds to return of the U.S. to boost the domestic real estate economy and create more jobs for Americans. To help accelerate the return of American funds, the Fed is starting to reduce its balance sheet while gradually increasing interests in an attempt to strengthen the U.S. dollar. This is why the government constantly warns the public about U.S. interest hikes, as they will lead to surges in Hong Kong mortgage interest rates.

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However, I think that there are a number of contributors to the rise and fall of local property prices, and interest hikes is just one of them. At present, mortgage loan applicants have to pass stress tests to be approved by the bank, and the current mortgage interest rate starts around 2.15%. If we use the more aggressive expert predictions of three to four interest hikes in the coming year, then the highest mortgage interest rate will rise to approximately 3.15%. Based on this calculation, for every HK$1 million during a 25-year mortgage loan, the monthly interest will increase by HK$833, which shouldn’t be a big problem for an average homeowner. But for those considering purchasing homes at a high LTV ratio, it’s important to reconsider the pros and cons of interest hikes.

In any case, the Fed’s priority is to adjust the interest rate to maximise the benefits for the U.S.; as whether it negatively impacts other countries, that’s not their main concern. Therefore, to stay on top of the 2018 property market situation, make sure to keep your finger on the pulse of the U.S. Dollar Index, as well as the progress of the U.S.’s economy and job market.The political instabilities arising and exacerbating in the Middle East and in particular, the Korean Peninsula, are likely to make a deeper and more lasting impact on the Hong Kong property market compared to mild interest rate increases.   

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