U.S. rate cuts fuel Hong Kong property boom

By Susan Fenton

HONG KONG (Reuters) - When first-time buyer Judy Kwan heard a flat was for sale in a street she admired in Hong Kong's Wanchai district, she snapped it up within 24 hours without even seeing it, inheriting a tenant she had never met.

Now she wants to buy another as the property market surges from a strong economy and mortgages become cheap as local interest rates drop in line with rates cuts in the United States. Kwan hopes property investment will allow her to retire in five years' time, aged 50.

"The price was right and the market's going up," said Kwan, an accountant, who paid US$282,000 (143,300 pounds) for the boxing ring-sized flat in November.

The apartment's value has risen 10 percent since then and analysts predict that falling interest rates and rising salaries will propel prices back to a heady 1997 peak.

Hong Kong's economy is riding on the coat-tails of China's boom, but its currency peg with the U.S. dollar forces the territory to officially track U.S. interest rate cuts. Local banks have more leeway but have still slashed rates by 100 basis points in the past two weeks as the U.S. federal funds rate has fallen to 3 percent.

So the housing downturn and mortgage crisis that threatens the U.S. economy has indirectly bolstered Hong Kong property.

Monthly transactions for mass market housing in the final three months of last year were on average 63 percent higher than in the rest of 2007, hitting their highest level for a decade.

Real Hong Kong mortgage rates are now negative, below inflation of 3.8 percent and it has become cheaper to buy than rent, analysts say.