US Federal Reserve Rate Rise Expectations and Impact on Property Markets

Comments by US Federal Reserve chairman Kevin Warsh at its annual economic policy symposium in Jackson Hole last month have reinforced expectations of an impending interest rate rise in the world’s largest economy, which would have significant impacts on assets and investors around the world.

In the wake of Warsh’s comments, analysts said several property markets were more sensitive to higher interest rates in the United States and some stood to benefit.

Hong Kong

With the local currency pegged to the US dollar in a trading band of HK$7.75 to HK$7.85, property agents said any Fed movement would be mirrored by the Hong Kong Monetary Authority (HKMA), the city’s de facto central bank.

“The HKMA’s base rate tracks the Fed’s moves and borrowing costs linked to Hibor [the Hong Kong interbank offered rate] follow suit,” said Pamela Ambler, head of Asia-Pacific investor intelligence at consultancy JLL. “With Hong Kong’s debt costs rising in contrast to China’s … that makes Hong Kong less attractive to southbound capital from mainland China.”

Based on the frequency of pinyin surnames in purchase records, US-based investment bank JPMorgan Chase has estimated that mainland buyers have, in recent times, accounted for 29 per cent of home sales volumes in Hong Kong and 37 per cent of their value.

And in the second quarter of this year, mainland-based investors were the second-largest non-local buyers of commercial property assets in the city, with purchases worth HK$1.23 billion (US$157 million), behind Singapore-based investors’ HK$3.37 billion, according to Colliers.