HKMA Chief Executive Norman Chan Speaks To Reporters...Norman Chan, chief executive of the Hong Kong Monetary Authority (HKMA), speaks to reporters in Beijing, China, on Tuesday, Nov. 30, 2010. The China Securities Regulatory Commission will speed up the implementation of mini-Qualified Foreign Institutional Investor plan in Hong Kong, Chan said at a briefing in Beijing today. Photographer: Doug Kanter/Bloomberg
Reality bites: Norman Chan said there were signs pointing to a downturn in the Hong Kong property market © Bloomberg

The head of Hong Kong’s de facto central bank has warned that it could take measures to support the local property market if it finds evidence of a price downturn, as the city raises interest rates in lockstep with the US Federal Reserve.

The Hong Kong Monetary Authority increased its interest rate to 2.75 per cent on Thursday morning, following a move by the Fed on Wednesday to boost short-term rates by another quarter point.

Equity markets in Asia dipped on Thursday in the wake of a sharp sell-off in the US, stoked by concerns about a slowdown in economic growth following the Fed’s decision.

The rise in interest rates would put pressure on Hong Kong, the world’s least affordable property market, by boosting the cost of borrowing and servicing household debt, analysts said.

Speaking at a press conference, Norman Chan, chief executive of HKMA, said that more time and data were needed to monitor whether the local property market was entering a downward price cycle.

He said that if there were signs pointing to a downturn, HKMA would consider revising “macro-prudential tools”, such as the level of deposits needed to secure a mortgage. Mr Chan also warned that the global macroeconomic environment was “facing a lot of uncertainties”, including the trade dispute between China and the US.

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Property prices in Hong Kong have started to decline over the past few months, while property valuations have been revised downward, according to Nicole Wong, an analyst at CLSA.

Home prices in the secondary market have fallen 1.43 per cent from last month, according to the Centaline property index. Share prices of local property developers have also dropped this year, affecting large companies such as Henderson Land and Sun Hung Kai, which are down 16 per cent and 13 per cent respectively.

“If I look at shop windows in Hong Kong today, I see price cuts in real estate agents’ windows, which I didn’t see three months ago, on both the rental side and sales side,” said Dwyfor Evans, head of Asia-Pacific macro for State Street.

“We look now to be at a phase in the housing cycle where a certain amount of discounting is going on, and I haven’t seen much of that in the past 10 years.” He said part of the price dip stems from rising interest rates, but also points to a slowdown in capital flows from China.

Other asset classes face greater pressure following comments from the Fed. Mr Evans said that the US nearing the end of its tightening cycle implied a slowdown in US economic growth.

He said that this was “not good for Asia” because it could impact Asian exporters. “A lot depends on Chinese stimulus,” he added. “There is scope in China to do more in fiscal policy; in the context of trade war and the slowdown in global activity, China needs to support local corporates and local households.”

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