Hong Kong Follows US with 'Big Cut'... "Expectations for Real Estate Recovery"

Hong Kong Dollar Operates Linked to the US Dollar

Hong Kong financial authorities, which operate the Hong Kong dollar linked to the US dollar, have lowered interest rates for the first time in four years in line with the US Federal Reserve's (Fed) rate cut. There is growing anticipation that the Hong Kong real estate market, which has shown signs of stagnation due to prolonged high interest rates, may revive.

The Hong Kong Monetary Authority (HKMA) announced on the 19th that it lowered Hong Kong's interest rate by 0.5 percentage points to 5.25%, reflecting the Fed's rate cut. This is the first time HKMA has cut its base rate since June 2020, four years ago. HKMA had raised the base rate 11 times since 2022 in response to the Fed's aggressive tightening policies aimed at curbing inflation triggered after COVID-19. Prior to this, Hong Kong's interest rate was at its highest level since 2007, at 5.75% per annum.

Bloomberg reported that Hong Kong's interest rate policy is aligned with the Fed, so the move was widely expected. Hong Kong has adopted a currency peg system (fixed exchange rate system) linking its currency value to the US dollar since 1983.

Following the rate cut, there are expectations that Hong Kong's economy could gain momentum, leading to a significant rise in the stock market. Both the Hang Seng Index and the Hong Kong H-Share Index rose more than 2%. Pan Jai, Chief Economist at the ASEAN+3 Macroeconomic Research Office, said, "High interest rates and the strength of the Hong Kong dollar have been the biggest pressures on Hong Kong's economy," adding, "This Fed rate cut is expected to be a great help to Hong Kong's economy."

The real estate index rose by 2.6%. Investors expect Hong Kong real estate companies to rebound following the rate cut. Since 2022, the real estate market has struggled due to 11 consecutive base rate hikes. Housing prices have fallen to their lowest level since 2016, and the stock prices of Hong Kong real estate developers are at record lows.

Paul Chan, Hong Kong's Financial Secretary, forecasted, "If interest rates in the US and Hong Kong are lowered, it will help the operations of Hong Kong companies and have a positive impact on the asset market." Raymond Cheng, Head of China Real Estate Research at CGS International Securities, said, "More aggressive rate cuts by the Fed will help stimulate the real estate market," adding, "If the Fed lowers rates by 200 basis points (1bp = 0.01 percentage points) by next year, real estate rental yields will exceed Hong Kong mortgage rates, making housing investment more attractive."