HK banks cast pall over property by raising rates

By BLOOMBERG

HONG KONG • Hong Kong banks began closing the chapter on a decade of ultralow borrowing costs, casting a pall over a property rally that made the city one of the world’s most expensive places to buy a home.

HSBC Holdings plc, Standard Chartered plc and Hang Seng Bank Ltd are among banks that boosted their best lending rates yesterday, hours after the Hong Kong Monetary Authority (HKMA) raised its benchmark interest rate by 25 basis points (bps), in line with the US Federal Reserve (Fed).

The increases in the prime rates, effective today, are the first since March 2006.

Hong Kong’s economy and property market are bracing for further increases as the US central bank normalises policy. Because the city’s currency is pegged to the dollar, the Asian financial hub moves in step with the Fed.

Higher rates threaten gains in home prices that have been on a bull run for most of the past 15 years.

Hong Kong is the major city at the biggest risk of a property bubble worldwide, a report showed.

“Higher interest rates will add to the burden of homeowners with mortgages,” Hong Kong Financial Secretary Paul Chan told reporters.

The HKMA yesterday raised its base rate to 2.5% from 2.25%, following a 25bps move in Washington.

Existing home prices have climbed 13% this year and almost 487% from their 2003 trough.

The Hong Kong dollar was little changed at 7.8129 against the greenback yesterday.