HONG KONG (Reuters) -- Hong Kong private home prices fell for the first time in 29 months in August and are expected to soften further as interest rates rise and the Sino-U.S. trade war clouds the outlook for the city's economy.
Prices eased 0.076 percent last month from July, government data showed. While slight, it marked first decline since March 2016, a cooling sign for one of the world's more expensive property markets.
Still, prices have surged 11.7 percent so far this year, and rocketed 16 percent year-on-year, according to Reuters' calculations based on an index compiled by Hong Kong's Rating and Valuation Department.
Ultra low interest rates, limited housing supply and large flows of capital from mainland Chinese buyers helped push housing prices up 165 percent over a decade, prompting repeated warnings from authorities about the risks of an asset bubble.
Soaring real estate prices have angered many Hong Kong residents and prompted the city's government to set aside plots of land for public housing and propose a vacancy tax on empty new homes to discourage developers from hoarding.
The latest UBS Global Real Estate Bubble Index published on Thursday ranked Hong Kong as the city with the greatest bubble risk.
People who earn the average annual income in the highly skilled service sector would need to work 22 years to afford a 60 square metre (646 sq ft) flat, surging from 12 years required 10 years ago, the study showed.
A flat of that size on Hong Kong Island cost an average of HK$10.8 million ($1.38 million) in August, according to official data.
But the days of cheap money are coming to an end.
Hong Kong commercial banks raised their benchmark lending rates on Thursday for the first time in 12 years, increasing the cost of home mortgage repayments. More hikes are expected into 2019.
Increasingly, potential home buyers have stayed on the sidelines.
According to a survey published by realtor Hong Kong Property Services last week, 33 percent of the 379 respondents said they were considering buying an apartment in the next 12 months, less than the 36 percent surveyed in the second quarter and 64 percent in the first quarter.
Data from another realtor Centaline showed total housing transaction volume in September was expected to shrink to the lowest since July 2017.
To lure buyers, developers were selling new flats at prices closer to the secondary market, with premiums dropping to 5.3 percent in the third quarter to the lowest in seven quarters, according to Midland Realty data. The premium was 20.7 percent in the second quarter.
Many investment banks and realtors revised their forecasts on Hong Kong property prices in the last few week, predicting a 10 to 15 percent correction in the next 12 months.
"But a sharp correction seems unlikely, given the pent-up investment demand and ongoing low mortgage rates," UBS said in a report.