Hong Kong property developers are likely to see a boost in share prices as the backdrop of lower borrowing costs, in light of the US Federal Reserve’s decision to hold interest rates steady and signal a possible move towards lower rates in 2024.
Historically, the Hong Kong Monetary Authority (HKMA) has mirrored the interest rate policies of the US Federal Reserve in order to maintain the peg of the local currency to the US dollar, a linkage that has been in place since 1983.
There is a probability that the US Federal Reserve will implement its first rate cut in March of next year, with market expectations currently pointing to a 75 basis points rate cut in 2024.
However, some experts caution that the anticipated rate cut may not materialize fully due to concerns about potential inflation. Chau Kwong-wing, director of the Ronald Coase Centre for Property Rights Research at the University of Hong Kong, notes that the lingering issue of inflation in the US, especially in light of trade tensions with China, may lead to prolonged higher interest rates in the coming years.
In light of the uncertainties around US interest rate cuts and the likelihood of sustained higher interest rates in Hong Kong, property prices in the city, which have already seen a 20% drop from their historical peak in 2021, are unlikely to rebound in the near future.
Despite the potential for US interest rate cuts next year, Hong Kong’s prime rates are likely to remain stable, with local banks hesitating to follow any immediate cuts by the US Federal Reserve.
Industry analysts and banks are urging caution, emphasizing that the public should carefully assess and manage the risks involved in property purchases and mortgages, given the high interest rate environment.
The consensus among property agencies is for Hong Kong’s home prices to continue falling in the next year, with predictions ranging from a 5% to a 10% drop due to factors such as high interest rates and an oversupply of housing.
While property agencies remain optimistic about a potential rebound in prices, developers are adjusting to challenging conditions by offering discounts and pricing new residential projects at six-year lows. Primary transactions are expected to account for a significant portion of overall property transactions in the coming year, with developers likely to offer greater discounts on new homes, exerting further pressure on the secondary market.
Overall, the outlook for Hong Kong’s property market in the coming year remains uncertain, with the lingering impact of higher interest rates and an oversupply of housing contributing to a general prediction of falling home prices.
