Hong Kong property prices may bottom as borrowing costs plunge: Jefferies

[HONG KONG] Declining interest rates in Hong Kong are increasing the chances the residential property market bottoms out, according to Jefferies, an investment banking and capital markets firm.

The one-month Hong Kong Interbank Offered Rate has plunged 205 basis points in the past four days, potentially bringing relief for a market hammered by high interest rates and slumping prices. Money markets are flushed after the monetary authority sold US$16.6 billion of local currency to stop it from strengthening past its pegged range.

“If the currency cannot appreciate, the upward pressure goes on local asset prices,” Christopher Wood, Jefferies’ global head of equity strategy, said in a note Thursday (May 8). “This has increased the odds that Hong Kong residential property may be on the point of bottoming.”

A gauge of home prices from Hong Kong property firm Centaline has dropped about 29 per cent from a peak in August 2021. The number of households in negative equity, meaning their properties are worth less than the loans they took out for the purchase, is the highest since 2003 as of the end of March.

The dollar has weakened against most Asian currencies since the US introduced tariffs as investors weigh the risks of the world’s largest economy going into recession. To be sure, a gauge of the dollar is up 0.4 per cent this week on hopes of trade deals.

While lower Hibor, which serves as a reference rate for mortgages, may ease funding cost pressures for developers and landlords, it could also squeeze profit margins for local banks, according to a separate note by Jefferies analysts Sam Wong and Shujin Chen. 

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“Hong Kong banks are likely fairly close to, if not already at, an earnings inflection point,” they said. “Net interest margin pressure persists and non-interest income momentum could fade toward the end of the second quarter and second half of 2025.” BLOOMBERG