Key points:
◆ HSBC announced on November 7 it is cutting its prime lending rate by 25bp to 5%, the first reduction since March this year. We expect other banks will follow suit to cut their lending rates soon. However, while the rate cut should help ease the debt-servicing burden of existing mortgage loan borrowers as their lending rates are mostly linked to the prime rate, it provides no help to the housing market since banks have recently tightened their lending policies.
◆ Local interbank rates have eased back to their normal levels in recent days, but banks had been reluctant to cut their prime lending rate before now. The reduction in HIBORs has been brought about by declining LIBORs and liquidity injections by the HKMA. Meanwhile, the spreads between the prime lending rate and HIBORs have returned to their normal ranges.
◆ We believe there is very limited room for further rate cuts, as the prime rate is already at its lowest level of 5% since Hong Kong’s adoption of the linked exchange rate in 1983. In addition, the savings deposit rate is already at virtually zero. Further rate cuts may have a negative impact on banks’ interest margins.
◆ Despite the rate cut, the mortgage market is getting tighter as downside risks to the housing market have increased. Banks have recently tightened their loan policies by raising mortgage rates and reducing the loan-to-value ratio, and have become more conservative on property valuations and cautious on borrowers’ repayment capacities. This has left some homebuyers unable to obtain sufficient mortgage loans to finance the acquisition of property and has dragged property prices further down.
◆ As banks’ prudent lending policies have gravely worsened housing market prospects, we now look for another 25% decline in residential property prices between now and June 2010, or a 37% fall from the last peak in March this year. We expect the decline in home prices will be shaper in the coming months and more noticeable for high-end properties. Moreover, we maintain our views that home prices will start to recover in 2010.
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发表于 2008-11-10 16:15
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