Hong Kong’s beleaguered real estate market looked set for some relief after the city cut its base interest rate for the first time since 2020, mirroring the US Federal Reserve’s policy easing.
The Hong Kong Monetary Authority (HKMA) lowered rates by a half percentage point to 5.25% on Thursday from the highest level since 2007. That move was widely anticipated as the city has a currency peg to the greenback and follows the Fed in lockstep.
“Tumbling housing prices may finally arrest their decline in 2025 as Fed rate cuts open a path to cheaper mortgage financing,” Bloomberg Intelligence analysts led by Patrick Wong wrote in a note.
The Hang Seng Index rose as much as 1.2%, with the tech and property gauges advancing more than 2%.
The finance hub’s de facto central bank’s decision echoed the Fed’s own move hours earlier to cut rates, though Chairman Jerome Powell cautioned against assuming the half-point reduction set a pace that policymakers would continue.
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High borrowing costs have weighed on the former British colony’s economy and housing market in recent years, with home prices falling to the lowest since 2016. The Fed pivot could bring some much-needed respite at a time when Hong Kong developers’ stocks are trading at all-time low valuations.
“When interest rates in the United States and Hong Kong are lowered, it will be beneficial to the operations of Hong Kong enterprises and have a positive impact on the asset market,” Financial Secretary Paul Chan said.
Potential rate cuts of 2 percentage points could trigger more purchases of property as rental yields rise above mortgage rates, according to Raymond Cheng, head of China property research at CGS International Securities Hong Kong.
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HSBC Holdings, the city’s largest lender, and peers usually announce their best lending rate later in the day following the HKMA rate decision. If the bank cuts, it would be the first policy easing from HSBC since 2019.
Howard Lee, acting chief executive of HKMA, said at a Thursday briefing that there was room for market interest rates to ease, although he said interest rates will remain relatively high in the foreseeable future.
“The public should carefully assess and continue to manage the interest rate risk while making property purchase, mortgage or other lending decisions,” Lee told reporters.
With the Fed rate cut freeing up space for Asia’s central banks, the focus now shifts to how much and how quickly the region’s rate setters will move, or in some cases whether they ease policy at all.
Hong Kong’s Chan cautioned that the city’s rate decisions “may not necessarily follow the trend” because they also depend on factors including local capital flows and market condition.
Places such as India and the Philippines face inflationary risks, while South Korea may prioritize financial stability. The Bank of Japan is expected to keep borrowing costs unchanged on Friday.
Chart: Bloomberg
