The Hong Kong exchange rate continued to run. The HKMA received 5.888 billion yuan in Asian trading hours, the largest single capital run in this round. Although the Hong Kong dollar interest rate (HIBOR) is still at a low level, the UBS report pointed out that if funds continue to flow, HIBOR Mortgage and H mortgage will continue to rise, and there is even a chance that the interest rate linked mortgage (H mortgage) will reach the cap rate. The bank estimates that if the mortgage interest rate rises by 1%, it will increase the pressure on housing supply and cause property prices to fall by 10%.
H is expected to add P after 3 months of capped interest
Since last Wednesday (11th), Hong Kong exchange has successively encountered weak-side exchange guarantees. The HKMA has passively undertaken 5 Hong Kong dollar sell orders, involving a total capital of 17.585 billion yuan. Taking into account the one-time receipt of money in the Asian session yesterday, the bank after T plus 2 settlement The system balance will drop to 319.999 billion yuan on Wednesday (18th).
As Hong Kong’s liquidity is still quite abundant, HIBOR continued to remain at a low level after several capital moves. Compared with the first time the weak-side convertibility guarantee was touched, the overnight interest rate dropped slightly to 0.04333% yesterday, a one-month interest rate linked to real estate mortgages. It rose about 0.02% to 0.19173%, and also rose 0.02% on a daily basis.
UBS believes that the U.S. interest rate hike and balance sheet reduction have made the Hong Kong-U.S. interest rate spread flat from the beginning of the year and widened to about 0.7% now. After the cap rate, that is, the level of 2.5%, is maintained for 3 to 6 months, the Bank of Hong Kong will have a greater incentive to raise the prime rate (P), and the increase is estimated to be at least 0.125%.
Based on the current interest rate of H plus 1.3% offered by banks in general, HIBOR will rise to 1.2% when the cap rate is reached, which is an increase of about 1% compared with the current level. UBS explained that it is calculated based on the affordability of contributions. If interest rates rise by 1%, property prices will fall by 10%.
Lin Junhong, head of Shanghai Commercial Research Department, believes that with the current widening of the Hong Kong-US interest rate differential and the speed of the Hong Kong dollar’s capital investment, it is estimated that HIBOR has a chance to climb to 1.2% or higher in one month in the third quarter.
With reference to the last interest rate hike cycle, the US Federal Reserve raised interest rates for the first time in December 2015. It took nearly two years for the one-month HIBOR to rise by 1% in December 2017.
Property market quiets down, property stocks continue to be under pressure
The rise in interest rates is not good for property prices, and there are signs of a slowdown in property market sales recently. UBS mentioned that the recent sale of Park Long I, Kam Sheung Road project in Yuen Long, was nearly sold out, probably because its price was lower than that of another new property in the same area. About 10%, coupled with the effect of the northern metropolitan area, but the performance of new projects in the urban area is obviously inferior, such as Henderson Land (00012) Tai Kok Tsui real estate Leofang. The sales of THE HENLEY II, a new property in EST and Kowloon East in Kai Tak, was slow, with only 40% and 12% sold. The second round of sales of Wheelock Kai Tak MONACO MARINE also sold only 27%, compared with the first round of sales. 76% plummeted.
As the supply of public and private housing is expected to increase in the future, coupled with the government’s acquisition of agricultural land for building properties, UBS believes that the valuation of Hong Kong property stocks will continue to be under pressure, maintaining a “prudent” view of the industry.
