Market Watch: Hong Kong's interest rate reduction cycle begins, bringing positive support to the property market

According to the Zhitong Finance APP, the Federal Reserve announced a 50 basis point rate cut, marking the first rate cut since the benchmark interest rate has been at a high level for over 13 and a half months since July last year. HSBC Bank followed suit in announcing a rate cut, with the best rate (P) being reduced from 5.875% to 5.625%, effective on September 20th. Cao Deming, Chief Vice President of Mortgage Referral at Jingluo, stated that the market's prevailing ceiling rate for P planned and H planned is P-1.75% = 4.125% (P=5.875%), and with HSBC's current 0.25% reduction in P, the actual interest rate will be reduced to 3.875% (5.625%-1.75%). Cao Deming pointed out that all property owners can immediately save on interest expenses, and the income requirements for property buyers can also be reduced simultaneously. This will gradually restore market confidence, promote the recovery of the Hong Kong economy and the mortgage market. Currently, the average residential rental yield in Hong Kong is around 3.3%. When the mortgage interest rate is lower than the rental yield rate, it will drive more customers to gradually enter the market, providing positive support to the mortgage market. Cao Deming further mentioned that the latest U.S. Consumer Price Index (CPI) in August fell for the fifth consecutive month to 2.5%, hitting a new low since March 2021. Inflation has fallen to the target of 2%, and U.S. job growth has also slowed down. It is predicted that the Federal Reserve may have the opportunity to accumulate a 2% to 2.5% rate cut over the next year. As the U.S. begins to cut interest rates, the Hong Kong Interbank Offered Rate (HIBOR) for one month is expected to follow suit. Today, the one-month HIBOR is at 3.61%, having fallen for 6 consecutive working days, hitting a new low since May 3, 2023 (3.55%) by 16 and a half months. If the U.S. cuts rates by 2% to 2.5% over the next year, Hong Kong rates will follow suit, and HIBOR is expected to fall to 2%. Regarding the rate cut cycle, Cao Deming suggests that prospective property buyers consider using HIBOR, as HIBOR tends to decrease more rapidly and to a greater extent than the best rate P during a rate cut cycle. At the same time, it is advisable to compare offerings from different banks. As the rate cut cycle begins, some banks may adopt a more positive stance towards mortgage business and may adjust their mortgage business strategies irregularly. Their mortgage interest rates and incentives vary, so it is recommended for buyers to compare offerings from different banks and choose the most suitable one for mortgage financing