Lower borrowing costs are a shot in the arm to the Hong Kong residential market, but overall prices will remain under pressure in the short-term
The U.S. Federal Reserve announced a 50 basis point cut on September 18, 2024, marking its first reduction since March 2020. In response, the Hong Kong Monetary Authority (HKMA) lowered its base rate by 50 basis points to 5.25%, aligning with the Fed’s aggressive move earlier that day. This represents the first rate reduction in four years and is part of a broader strategy to stimulate the local economy.
In light of the Fed’s action, several major banks in Hong Kong, including HSBC, Bank of China (Hong Kong), and Hang Seng Bank, have adjusted their prime lending rates downwards by 0.25% to 5.625%. As a result, a typical HK$5 million mortgage loan over 30 years will see a fall in monthly payments of approximately HK$720.
In early September, major banks in Hong Kong resumed offering cash rebates on mortgage financing packages, following their suspension in April 2024. Some lenders are also now providing cash rebates ranging from 0.1% to 0.25%, depending on the loan amount and the borrower’s creditworthiness. This move has intensified competition among lenders, to the benefit of prospective first-time home buyers as well as existing owners looking to upgrade.
New Fixed-Rate Mortgage Plans to Benefit Borrowers
On September 24, 2024, HSBC introduced fixed-rate mortgage plans for the initial three and five years of the loan tenure, with interest rates fixed at 3.25% and 3.15%, respectively. The current average mortgage interest rate is 3.875%. Borrowers opting for these new plans will immediately benefit from fixed rates of 0.625% and 0.725% below the prevailing rate. After this initial period, interest rates will be determined using the P-1.25% method.
This development may serve as an indication of the onset of a cycle of interest rate cuts. We anticipate that other banks will soon introduce a range of similar fixed-rate mortgage products to meet the growing demand from consumers.
Previously, HSBC launched a similar fixed-rate mortgage plan in August 2022. As a result, borrowers were able to save money, effectively “winning the gamble on the mortgage rate” over the entire period. This one-year fixed-rate mortgage plan provided customers with the option of predictable monthly repayments during the fixed-rate term. Borrowers could secure a fixed rate of 2.75%, compared to the typical mortgage interest rate of 3.125% at that time. Notably, the average mortgage rate rose from 3.125% in August 2022 to 3.625% in August 2023.
Hong Kong Residential Market Buyer Interest on the Rise
There is no doubt that we are witnessing the beginning of a cycle of interest rate cuts. The latest Federal Reserve dot plot suggests that officials anticipate further reductions in the coming years. In the Hong Kong residential market, buyer interest is rising as lower borrowing costs make home purchases more appealing. Cushman & Wakefield’s latest Hong Kong Property Markets Review and Outlook for Q3 2024 expects residential market sentiment and transaction numbers to further strengthen in Q4, with Rosanna Tang, Executive Director and Head of Research, Hong Kong, opining that the rate cut, if combined with a sustained stock market comeback, could generate a wealth effect to bring renewed confidence to Hong Kong’s residential market.
This revival of market enthusiasm is certainly welcomed. However, we must remember that Hong Kong home prices are still under pressure due to high inventory levels, with numbers of unsold properties now reaching a 20-year high. In response, developers are offering substantial discounts on new projects to attract buyers. Although we saw a surge in transactions earlier this year, the market is now stabilizing, and future recovery will hinge on balancing buyer demand with ongoing economic uncertainties. Overall, while the Hong Kong residential market is set for gradual improvement, challenges do remain.
Cushman & Wakefield’s Greater China Valuation & Advisory Services platform offers a comprehensive range of services including real estate and asset valuation, business valuation, SOE asset services, valuation and advisory of non-performing financial assets, deal due diligence advisory, financial and tax advisory services and ESG advisory. For your views or questions on this post, or to discuss your business requirements, please contact me at devin.sy.hung@cushwake.com.
