Hong Kong's runaway property market may be heading for a fall

[HONG KONG] Runaway price growth in the world's least-affordable housing market may be near an end.

Residential property prices will fall 13 per cent next year, wiping out all of this year's gain, as mortgage rates rise, according to Joyce Kwock, head of Hong Kong property research at Nomura International (HK) Ltd.

"Remember what happened in late 2015 -- prices dropped about 13 per cent in only six months, and the trigger was the Fed's rate hike," Kwock said in a briefing in Shanghai on Tuesday. "The entirely same situation may repeat again."

Hong Kong lenders last month started to finally follow the US Federal Reserve in increasing mortgage rates, with the biggest jump in home loan rates in five years.

HSBC Holdings Plc, BOC Hong Kong Holdings Ltd. and Standard Chartered Plc lifted the cap for mortgages linked to the city's interbank rates to effectively 2.35 per cent, while prime rate-based mortgages will rise to 2.25 per cent.

Prices in the city have surged 14 per cent this year, defying years of attempts by authorities to improve affordability, rolling out a series of curbs, including hefty stamp duties on foreign buyers, and lending restrictions.

Housing minister Stanley Ying said Monday the government may consider imposing further curbs, the Hong Kong Economic Journal reported.

Responding to concerns foreigners could avoid a 30 per cent stamp duty by using a trust to buy property, Permanent Secretary for Transport and Housing Stanley Ying said transactions by non-locals and companies accounted for only 1.2 per cent of total purchases in the first half.

"Government will keep on monitoring the situation, and will roll out measures when necessary without notice," the journal cited Ying as saying.

The Hang Seng Property index fell for a fourth day Tuesday, and is down 16 per cent from its January peak.

BLOOMBERG