Hong Kong lowers extra fees by 0.5% to match U.S. monetary decisions.
Lower mortgage taxes aim to stabilize Hong Kong's falling land prices.
Banks like HSBC reduce lending cost, helping homebuyers and boosting the economy.
Hong Kong’s main bank has lowered its interest velocity by 0.5%, following the U.S. Federal Reserve’s recent cuts. This is the first reduction since 2020, bringing the base rate back to 5.25%. The decision aligns with the municipality's peg to the U.S. dollar, which requires the city to track United States monetary policy closely.
Impact on the Housing Market
Hong Kong’s building sector has struggled with high borrowing costs. House prices have dropped to their lowest percentage since 2016. However, the recent interest rate removal is expected to provide some relief. Analysts believe that cheaper borrowing levels could help stabilize property prices by 2025.
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With lower mortgage expenses, homebuyers may now be encouraged to return to the sales. This could offer a much-needed boost to the economy, as the property trade plays a large role in the city’s financial health.
Is this rate cut enough to reverse the ongoing decline in housing prices?
Banks Follow the Lead
In response to the price deduction, major financial institutions have adjusted their lending rates. HSBC lowered its best lending rate to 5.625% starting September 20. Similarly, the Bank of China deducted its prime pricing to 5.625% starting September 23.
The lower rates should make borrowing more affordable and may lead to higher demand for mortgages. The reductions are expected to support the economy by encouraging consumer spending and investment.
Tied to U.S. Policy
Hong Kong’s exchange adjustments are directly influenced by U.S. monetary policy due to the city's Dollar’s peg to the U.S. Dollar. The peg forces the city to align its interest charges with those in the U.S. If Hong Kong’s rates were too high compared to U.S. rates, capital inflows would likely increase, disrupting the currency peg. Lower expenses could result in capital outflows, weakening the peg.
With the U.S. Federal Reserve likely to continue cutting fee into 2024, Hong Kong may follow suit. The Federal Reserve has indicated that another 50 basis points of reductions may occur next year.
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