Hong Kong’s banks are finally raising mortgage rates. This won’t stem price gains in the world’s most expensive city for real estate.

Already up 14 percent this year, Hong Kong’s home prices now overshadow those of New York and London relative to incomes.

A key reason behind the unstoppable gains: The big banks, flush with liquidity, have held off passing on U.S. Federal Reserve rate rises, even though keeping the currency peg intact means the city’s de facto central bank has to mirror the U.S.

That changed on Monday. The triumvirate of HSBC Bank Plc, BOC Hong Kong (a unit of mainland behemoth Bank of China Ltd.), and Standard Chartered Plc will lift home loan rates to the highest levels in years. Those priced off the Hibor interbank rate, which have traditionally been cheapest, will be lifted to 2.35 percent, while those based off the core prime rate will be raised to 2.25 percent.

But if history is any guide, the only time Hong Kong’s real estate prices actually tank significantly is when external events strike, such as in the Asian financial crisis of 1998 and, briefly, during the 2008 financial crisis.

The government has employed plenty of measures to tamp real estate prices, such as limiting bank loans to as little as 50 percent for expensive apartments; imposing a 30 percent stamp duty on foreigners; and recently, imposing a vacancy tax to stop developers hoarding new homes . The trouble is, these solutions have had little effect.

That’s because easy money is just one part of the equation. Huge demand, especially from across the border, remains a key driver. Hong Kong has a reputation as a “super-tier-one city”, flanking a country where big urban centers like Beijing and Shanghai have benefited from turbocharged price gains in the past few years. And even after Beijing cracked down on capital outflows, buying continues from many Chinese citizens who are permanent Hong Kong residents and so pay lower stamp duties. The territory is the closest place to home for Chinese who want to park their money out sight of prying eyes in foreign currency. The falling yuan has only increased the allure of the greenback-pegged Hong Kong dollar.

Another attraction for Hong Kong real estate fans is plain-old undersupply. Just 6.9 percent of the territory’s 274,500 acres is used for housing.  Government data shows that the supply of new residential units over the ten years through 2016 has fallen by 57 percent when compared against the previous decade, says Denis Ma, head of research for Hong Kong at real estate consultancy Jones Lang LaSalle Inc.

Of course, a painful trade war that wreaks havoc on Hong Kong’s economy could be just the external shock to topple prices again. Analysts at UBS Group AG say a slump in international trade will hurt jobs in areas from transport to insurance, wreaking havoc on real estate. The Swiss brokerage is bearish on Hong Kong real estate prices, predicting declines between now and the end of 2019 of between 5 percent and 10 percent on the back of rate hikes.

That probably overdoes it. The trade war will have some impact – Chinese spending in Hong Kong will come down, for instance – but it’s unlikely to be too painful. Although it’s a middleman of trade, Hong Kong itself isn’t subject to tariffs. Retail sales remain strong and unemployment is at 20 year lows, and while Hong Kong reported lower-than-estimated second-quarter growth in gross domestic product Friday, the government is sticking to its 3 percent to 4 percent forecast for the full year.

That’s not to say there isn’t a pain point at which real estate investors in Hong Kong will be thinking twice.  Many speculators will drop out of the market if mortgage rates exceed 3 percent, given rental yields that are already a low 2.6 percent, according to Bloomberg Intelligence analyst Patrick Wong. 

Still, home-buyers are probably willing to bear high mortgage rates if the yields are better than those on alternative investments, such as U.S. Treasuries: In the 1990s, when mortgage rates were more than 10 percent, rental yields were about 7 percent.

That suggests that the doomsayers are going to be disappointed for now. Take the example of the city’s best real estate investor CK Asset Holdings Ltd., which Victor Li took over from his billionaire father Li Ka-shing in May. For years it and its sister-companies had been retreating from the city and ramping up in Europe and Australia. Last week, though, CK Asset made an estimated $4.6 billion bet on a plot of land above a subway station on the southern side of Hong Kong Island.

With that sort of vote of confidence, bears should take care. While the world’s other capitals are beginning to see price falls, this one has a way to go yet. There’s more to Hong Kong’s bubbly house prices than just loose money.

To contact the author of this story: Nisha Gopalan at ngopalan3@bloomberg.net

To contact the editor responsible for this story: David Fickling at dfickling@bloomberg.net

Note: There are two kinds of mortgage rates in Hong Kong: The one based purely on the prime rate (which is the benchmark lending rate, and has stood at 5 percent for nearly a decade), and another capped by the prime rate but based on Hibor.

The taxcan be easily evaded by turning the empty flats into short-term serviced apartments.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Nisha Gopalan is a Bloomberg Opinion columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

©2018 Bloomberg L.P.