As far as pivotal weeks in global markets go, last week was one of the most consequential since the eruption of the pandemic. The US Federal Reserve, the world’s most influential central bank, cut its benchmark interest rate
by half a percentage point for the first time in more than four years on September 18.
The Fed also signalled that more reductions would follow as it attempts to forestall a sharper slowdown in the US economy. The aggressive policy shift marks the beginning of a full-blown global monetary easing cycle as worries about inflation give way to concerns about growth.
The Fed’s bold move had a direct and immediate impact on Asian markets. The Hong Kong Monetary Authority, the city’s de facto central bank which moves in lockstep with the Fed to preserve the
currency peg to the US dollar,
lowered its main rate by a quarter percentage point. This prompted several Hong Kong banks to
reduce their prime rates, paving the way for cheaper loans to households and
small businesses.
The interest rate-sensitive property industry is seen as a prime beneficiary of the easing in monetary policy. Morgan Stanley said Hong Kong “is uniquely positioned to benefit from lower US rates”. Yet despite its relatively upbeat view of the city’s residential market, it expects house prices to grow just 5 per cent in 2025 following a projected decline of 8 per cent this year.
It is telling that there is this cautious view of the recovery in one of the Asian property markets that stands to gain the most from lower borrowing costs. It is in part an attestation of the numerous factors determining the performance of the real estate sector, both in markets facing acute challenges as well as in those that have proved resilient.
Hong Kong and
Singapore – two markets whose performance in the past several years
has differed starkly – are perfect illustrations of this.
In Hong Kong, the steep rise in borrowing costs is just one of several shocks the city has endured since the
US-China trade war erupted. Even as expectations of lower interest rates rose this year – the main reason for the sharp drop in one-month Hibor, a benchmark for mortgage loans, from 5.2 per cent at the end of 2023 to
3.6 per cent – house prices
continued their decline. Meanwhile, sales resumed their
month-on-month fall following a brief revival after the government scrapped property cooling measures in February.
