Hong Kong’s monetary authority calls for borrower caution on interest rates despite forecast of Fed cuts

The warning follows a surge in property transactions since the Hong Kong government scrapped a set of decade-old curbs on February 28, withdrawing the stamp duty on home purchases for non-permanent residents and second-time homebuyers while also relaxing mortgage policies to allow buyers to borrow more.

The Fed might cut rates three times for a total of 75 basis points this year, according to the so-called dot plot released on Thursday after the Fed’s meeting. The dot plot records each Fed official’s projection for the central bank’s key short-term interest rate.

Despite this, the HKMA said, “the actual timing and the interest rate path thereafter remain uncertain” and “future interest-rate decisions will be dependent on incoming data, the evolving outlook and the balance of risks”.

More than 2,300 property transactions involving 106 residential projects were recorded between March 1 and 16, according to Louis Chan, vice-chairman and CEO (residential) for Asia-Pacific at Centaline Property Agency.

Hong Kong stocks jump after US Federal Reserve’s dovish signals

The HKMA earlier this month advised banks to take extra care when lending to property speculators, urging lenders that offer mortgage loans for confirmor transactions to put risk-management policies in place to manage the additional risks associated with such transactions.

A confirmor sale occurs when a purchaser, or confirmor, agrees to buy a property but sells it on to a sub-purchaser before completion. Such transactions usually involve speculators seeking short-term gains.

The Fed’s statement after its second meeting of 2024 was nearly identical to January’s, maintaining the guidance that rate cuts would not be appropriate until there is more confidence that US inflation is moving sustainably toward its 2 per cent target.

Hong Kong home sales double after curbs ditched but prices have yet to jump

Still, analysts believe the Fed may cut rates before reaching the 2 per cent target, indicating a cut to the key rate in June or July, while commercial banks in Hong Kong may start to cut the prime rate by the end of this year.

The Fed “may be quietly quitting their immediate goal of 2 per cent inflation with a willingness to tolerate higher inflation,” said Christian Hoffmann, portfolio manager of New Mexico-based Thornburg Investment Management with US$44 billion in client assets.

“Making big changes to monetary policy into a contentious election could present troubling optics,” he said, adding that stocks and bonds rallied after the Fed statements as the market considered the tone to be dovish.