Home prices could fall 10% in second half as two major banks raise lending rates

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Home prices could fall 10% in second half as two major banks raise lending rates

According to Bloomberg Intelligence, the home prices could fall by as much as 10% in the second half, after two major banks raised mortgage rates for new homebuyers to the highest since 2008, according to Bloomberg Intelligence.

HSBC Holdings Plc and Standard Chartered Plc are raising the cap on Hong Kong residential mortgage rates by 25 basis points for the first time this year. In the second half, home prices could fall 5 to 10%, putting buyers purchasing power to the test, BI analysts Patrick Wong and Francis Chan said.

The Asian financial hub's property market is experiencing a lot of pain after four interest rate hikes by the central bank this year. The home values of Hong Kong have fallen more than 4%, according to Centaline, after an exodus of residents amid political tensions and one of the world's most restrictive quarantine policies.

HSBC held more than 20% of the market share in mortgages for used homes and new homes in July, according to mReferral Mortgage Brokerage Services. For a HK $5 million $637,250 30 year mortgage loan, monthly repayment will increase by HK $1,324 or 6.7% for the homeowner under HSBC's move, according to mReferral, which expects more local banks to follow.

There is a chance that the world's least affordable property market will be under pressure, with Goldman Sachs Group Inc predicted a 20% decline by the year 2025. The market is bracing for lenders to raise prime rates this year. All 12 economists surveyed by Bloomberg predicted that the prime rates will go up this year, some by as much as 100 basis points.

The benchmark rate of the Hong Kong Monetary Authority was raised four times this year, including a 75 basis points increase in June, in line with the Federal Reserve hawkish move. Monetary policy in the former British colony moves in lockstep with the U.S. given the Hong Kong dollar's peg with the dollar.

In July, 6.5% of the total used home transactions were sold at a loss, the highest since 2010 according to Ricacorp Properties. The company cites faster-than-expected rate hikes and emigration trend as factors hurt the market.

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