Property prices here may drop 5% when Fed acts
INVESTORS seeking to buy property in Singapore or Hong Kong this year may be better off listening to United States Federal Reserve chairman Janet Yellen than a real estate agent.
The Fed is widely expected to raise interest rates some time in the second half of this year, as the US economy improves and inflation remains benign.
As interest rates rise, property prices in Singapore and Hong Kong may fall by as much as 5 per cent this year, according to a report on prime residential real estate in the region by property consultancy Knight Frank.
In Singapore, the three-month Singapore Interbank Offered Rate (Sibor), commonly used to set mortgage rates, has already soared ahead of the expected Fed move. This month, Sibor rose to levels not seen since 2010.
In Hong Kong, where the local dollar is pegged to the greenback, a rate hike would lift floating mortgage rates, pressuring property prices.
"A lot, however, will depend on how the Fed manages this - as inflation doesn't seem to be an issue at the moment - but one could speculate that this could happen around the third quarter this year," Nicholas Holt, head of Asia-Pacific research at Knight Frank, told Reuters.
He said a fall in real estate prices could spur the governments of Singapore and Hong Kong to ease their stringent property market cooling measures.
In contrast, prices in Sydney - which, with Singapore and Hong Kong, were the Asia-Pacific locations where foreigners bought the most property in the fourth quarter of last year - are likely to rise by up to 5 per cent, buoyed by a weaker Australian dollar.