Hong Kong is expected to experience a series of interest rate increases in the coming months, but analysts suggest that the city’s property market may not endure the severe declines witnessed in the 2022-2023 cycle. Despite the US Federal Reserve’s recent benchmark rate hike in September, major local banks have so far kept their lending rates steady. However, further tightening by the Fed later this year is likely to prompt local lenders to raise rates as well.

Morgan Stanley noted that the dual pressures of anticipated US rate hikes and weakening demand from mainland China have rekindled concerns reminiscent of the sharp property price declines seen over the last two years. During that period, Hong Kong’s property values fell by double-digit percentages. Nonetheless, analysts emphasize that the current conditions differ significantly from those that prevailed during the previous rate-tightening cycle.

A key factor is the financial health of banks, which now hold greater deposits relative to loans, leaving them less dependent on wholesale funding. Morgan Stanley highlighted that Hong Kong’s loan-to-deposit ratio has dropped to its lowest point in 19 years, tempering the potential transmission of US interest rate rises into the local mortgage market. The bank projects a modest increase in the one-month Hong Kong Interbank Offered Rate (Hibor) by around 0.5 percentage points to 3.5% by March, and a limited hike of 0.125 percentage points in prime lending rates.

CBRE senior director Angus Luk echoed this more optimistic outlook, stating that the severe market adjustments in 2022 and 2023 were driven by a sustained and rapid sequence of rate hikes. In contrast, the current tightening phase is expected to be shorter and shallower. Data from CBRE show that primary property market transactions in the first quarter of 2026 rose by 38.2% compared with 2023 levels, while secondary market activity also increased by 13.4%. Additionally, rents have climbed 10.6% since 2023, and median monthly incomes for two-person households have risen 10% to HK$33,000, supporting ongoing demand.

However, Luk cautioned that price adjustments should still be anticipated. He predicted a period of consolidation with slower transaction volumes and wider margins for negotiation in the secondary market. Developers are likely to rely on targeted discounts and financing incentives, rather than widespread price cuts.

Morgan Stanley forecasts that property prices will remain largely stable in the fourth quarter of this year before increasing by 5% in 2027. The bank also noted that continued inflows of talent to Hong Kong are sustaining housing demand. It suggested prices could climb as much as 10% next year and return to their 2018 peak if geopolitical tensions in the Middle East ease, oil prices stabilize, and mainland China accelerates its economic rebalancing.

UBS offered a more cautious perspective, highlighting limited interest from mainland investors in Hong Kong’s property market. UBS anticipates a moderate price correction in the fourth quarter, resulting in full-year 2026 price growth of between 5% and 10%, which would be below the 12% gain recorded earlier in the year.