Rate rise expectations mount in Hong Kong property market following Fed chief’s comments

But property consultancy Knight Frank says likelihood of near-term rise in prime rate by city’s note-issuing banks remains low

Following Warsh’s comments at the Jackson Hole economic symposium on Friday, the CME FedWatch tool, which tracks Fed funds futures contracts, indicated that expectations of a rate rise in the United States this month had doubled, with markets pricing in a 60 per cent likelihood.

However global property consultancy Knight Frank said in a news release that the likelihood of note-issuing banks in Hong Kong raising the prime rate in the near term was low – projecting it would remain unchanged or rise by a maximum of an eighth of a percentage point.

In Hong Kong, the prime lending rate – the lowest rate of interest that banks charge commercial borrowers – remains a key reference rate for mortgage pricing and borrowing costs. Analysts said more homebuyers were now tending to opt for fixed-rate mortgages, with interest rates that remained unchanged even if the Hong Kong interbank offered rate ( Hibor) or the prime rate rose.

“Market consensus suggests that local banks are only likely to follow with a prime rate hike after back-to-back Fed rate increases or a significant rise in funding costs,” Esther Liu, director and head of Greater China research and consultancy at Knight Frank, said.

“Because the prime rate directly governs the effective mortgage rate cap, which is currently at 3.25 per cent, actual mortgage financing costs are expected to remain broadly stable,” she added, even if some banks increased their fixed-rate mortgage plans by a fifth of a percentage point to 2.93 per cent.