Chung Yuan Mortgages: Hong Kong dollar interest rates expected to fall within the year, multiple favorable factors continue to solidify the rising trend of the Hong Kong property market.

The Federal Reserve announced the first interest rate decision of the year early in the morning, maintaining the federal funds rate at 3.5% to 3.75%, in line with market expectations. The landmark HSBC Bank announced that it would maintain the prime rate (P) at 5%, and it is expected that other banks will follow suit. Amy Wong, Managing Director of Prime Mortgage, stated that the prime rate in Hong Kong has returned to its pre-hike lowest level, and interest rates for regular savings accounts have also returned to zero levels. It is believed that the prime rate cycle of reducing P has been completed without unilateral reduction by banks. It is anticipated that the prime rate P will remain at its current lowest level this year. Although P remains unchanged, there is a chance of a decrease in the Hong Kong Interbank Offered Rate (HIBOR) within the year. In May, a new Chairman of the Federal Reserve will take office in the United States, and it is worth noting whether the successor will continue to push for a more accommodative policy to continue interest rate cuts. However, it is expected that there is still room for interest rate cuts in the United States this year. A decrease in US interest rates is beneficial for a further decline in Hong Kong's interbank rates, although the decline in interbank rates is expected to be moderate. The actual interest rates in Hong Kong, which are mainly based on HIBOR, will remain at a capped interest rate of 3.25% for a period of time. However, a decrease in interbank rates within the year will help relieve banks' funding costs, especially during a period when the property market is improving and banks are actively issuing mortgages, a decrease in interbank rates will help banks increase mortgage offerings. Amy Wong also pointed out that with interest rates remaining unchanged, the current interest rates are mainly maintained at 3.25%, which is 0.875% lower than the interest rates before the rate cuts in September 2024. The current level is lower than the 30-year average interest rate of about 3.78%, leading to a 10% decrease in monthly repayments. For homebuyers and property investors, the burden of owning property has been significantly reduced. In accordance with the current market plan, if the one-month interbank rate falls below 1.95%, interest rates will fall below the capped rate and further decrease. Following the three US interest rate cuts starting in September last year, the one-month interbank rate in Hong Kong fell from an average of 3.5% in October last year to a temporary average of 2.78% in January this year, and is now at 2.65%. Although there has been some decrease in Hong Kong's interbank rates, it is still a distance away from 1.95%. Unless there is a change in the flow of funds in Hong Kong, a further decrease in the interbank rates will depend on a decrease in US interest rates. Amy Wong further stated that based on the 2% cumulative decrease in interest rates in the current US rate-cutting cycle, US interest rates have now returned to a neutral level of over 3%. In addition, with the recent stability in US economic indicators, it is unlikely that the Federal Reserve will continue to cut interest rates in the near future, as the future adjustment of interest rates depends on employment and inflation data. However, after Chairman Powell's term expires in May this year, it remains to be seen if the successor will push for a more accommodative policy to support further interest rate cuts. Depending on the economic situation in the United States, it is expected that the US will continue to cut interest rates further this year, leaving space for interest rate cuts. In terms of the property market, Amy Wong expects that the property market will continue to develop positively this year, with the average rental return of buildings currently at 3.5%, higher than the interest rate of 3.25%. There is also great potential for property prices to rebound after falling, as well as the continued strength in the stock market driving an increased desire for stable returns from property investments. These favorable factors are expected to continue driving trading in the property market and to solidify its upward trajectory.