As the Federal Reserve convenes for its policy meeting this week, market pricing suggests roughly a 90% probability of an interest rate hike. UBS Senior Asia and China Economist Duncan Tang Wei-shen noted in an interview that the gradual decline in rates over recent quarters has been a key pillar supporting the recovery of Hong Kong's property market. Should rates rise anew, and if local borrowing costs track the US dollar to remain perched at high levels, the property sector would confront significantly greater headwinds, though the broader financial and economic framework is still expected to stay resilient.

Tang indicated that the UBS US economics team has already projected two additional rate increases over the coming months. He pointed out that during the previous cycle characterized by elevated rates and sluggish growth, Hong Kong's macroeconomic and financial systems retained overall stability. Looking ahead, he expects the upcoming cycle to feature more favorable conditions for economic growth, inflation, and interest rates compared with the last one. Consequently, even if the US proceeds with further tightening, Hong Kong's financial system and macroeconomic fundamentals should be well-positioned to maintain their stability.

Tang forecasts that over the next several quarters, Hong Kong will continue to benefit from an uptrend in high-value-added trade linked to artificial intelligence. Financial market activity is projected to remain robust, local investment is set to improve, and private consumption should expand steadily, all of which point to a sustained economic recovery. However, given the high comparison base established this year, the year-on-year growth rate for next year may moderate slightly. Tang projects GDP growth of 3% for 2027, which would still exceed the consensus forecast of 2.7%. Moreover, the three-year average growth rate for the economy is expected to keep climbing to one of the better levels seen in recent years, underscoring that this recovery reflects a structural improvement rather than a transient uptick.

Earlier, UBS revised its 2026 GDP growth forecast for Hong Kong upward to 4.5%, outpacing the market consensus of 3.5%. Tang cautioned that the most significant downside risk to Hong Kong's economy in the coming quarters would arise if multiple adverse factors converge simultaneously. On one hand, interest rates could remain elevated for an extended period; on the other, trade and financial cycles are inherently volatile. Given that this year's growth momentum has been largely driven by AI-related high-value-added trade and financial market activities, a scenario where both of these risks materialize at once would leave Hong Kong facing a combination of high borrowing costs and downward pressure on its primary growth engines. In such a case, the macroeconomic environment would become considerably more challenging, a development that warrants close monitoring.

Property prices have already posted double-digit gains this year, and transaction volumes in the first half marked one of the strongest six-month periods in a decade. UBS anticipates full-year price appreciation of 5% to 10%. Tang believes that if US rates remain elevated and Hong Kong follows suit, sectors that are sensitive to borrowing costs and have been fueled by momentum-driven trading would face greater strain, with real estate among the most exposed. Considering the possibility that rates may exceed expectations, alongside tighter liquidity and reduced capital supply, he expects property prices to remain broadly flat next year.