Jufu Ray: Hong Kong borrowing costs fall, real estate market may have bottomed out

Jefferies said that the continuously declining interest rates in Hong Kong are increasing the possibility of the residential real estate market hitting bottom. Over the past four days, the Hong Kong Interbank Offered Rate (Hibor) for one-month period has dropped significantly by 205 basis points. This is undoubtedly a glimmer of hope for the real estate market that has been hit hard by high interest rates and plunging property prices. Previously, in order to prevent the Hong Kong dollar from rising above its pegged range with the US dollar, the Hong Kong Monetary Authority sold HK$129.4 billion (approximately US$16.6 billion) and injected a large amount of Hong Kong dollars into the market, significantly boosting liquidity in the currency market. Christopher Wood, Global Equity Strategist at Jefferies, stated in a report released on Thursday, "If the Hong Kong dollar cannot appreciate, then local asset prices will face upward pressure. This further increases the likelihood of the Hong Kong residential real estate market hitting bottom." According to the property price index compiled by Centaline, a real estate agency in Hong Kong, current housing prices have fallen by approximately 29% from their peak in August 2021. By the end of March, the number of households with negative equity (meaning that the value of their properties is lower than the amount of their mortgage loans) reached the highest level since 2003. Since the imposition of tariffs by the United States, the US dollar has weakened against most Asian currencies, as investors have begun to worry about the risk of the world's largest economy entering a recession. However, due to market expectations for a trade agreement, the US dollar index has risen by 0.4% this week. Analysts Sam Wong and Shujin Chen from Jefferies pointed out in another report that although the decline in Hibor, which serves as the reference rate for mortgage loans, may alleviate financing cost pressures for developers and landlords, it could also squeeze the profit margins of local banks. They stated, "The turning point in profitability for the Hong Kong banking sector may not be here yet, but it may be on the horizon. Net interest margin pressures continue to exist, and the momentum of non-interest income growth may weaken by the second quarter of 2025 and the second half of the year."