Hong Kong’s property market is likely to face downward pressure when the US Federal Reserve increases interest rates for the first time in a decade, the Hong Kong Monetary Authority warns.
The Fed is widely expected to start the process of normalizing US interest rates next week.
“The US economy will continue to grow at a moderate pace, and the US dollar should remain strong for a period of time,” Norman Chan Tak-lam, chief executive of the HKMA, said in a speech Monday at the Hong Kong Economic Summit 2016.
“A period of difficult adjustment lies ahead for emerging market economies (EMEs).
“Energy and commodity prices will continue to be suppressed. EMEs will continue to witness capital outflows, currency depreciation, economic slowdown and downward pressure on their asset markets.
“Hong Kong will not be immune. We should be prepared to face a period of capital outflows, rising interest rates and slower growth.”
The city’s asset markets, including the property market, will face downward pressure, Chan said.
The Hong Kong dollar, which is pegged to the US dollar, will appreciate alongside the greenback, weakening the competitiveness of the city’s economy, in particular the tourism industry, and dealing a blow to the wobbly retail and tourism sectors, he said.
In the third quarter of this year, prices for jewelry, clocks and watches fell 8.2 percent, while the average room rate at hotels fell 15.3 percent, which more than offset the effects of a stronger Hong Kong dollar.
He said the HKMA has prepared over the past few years for the coming changes by introducing seven rounds of countercyclical macroprudential measures regarding property mortgages to enhance the resilience of the Hong Kong banking system.
However, Chan said, it is hard to predict how interest rates, bond yields, fund flows and asset markets will react as the world is again entering uncharted waters, much the same as when quantitative easing was first launched.
He said economies interact with each other and respond to external factors differently.
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