Hong Kong’s Plunging Borrowing Rates May Lift Property Market

Hong Kong’s property market, long a barometer of regional economic health, is navigating a crossroads in 2025. While residential prices have slumped to levels not seen since 2016 and overhangs of unsold inventory loom large, a critical tailwind is emerging: borrowing costs are plummeting to multi-year lows. This shift, driven by structural capital flows and monetary policy, could rekindle demand in a market starved for optimism.

The Borrowing Rate Breakthrough

Hong Kong’s interbank lending rates—the Hong Kong Interbank Offered Rate (Hibor)—have been in freefall. The one-month Hibor, which underpins most mortgages, dropped to 2.09% by late April 2024, its lowest since September 2022. By early 2025, this trend persisted, with the Hong Kong Monetary Authority (HKMA) injecting liquidity via HK$129.4 billion ($16.7 billion) in currency sales to defend the linked exchange rate. These interventions, aimed at preventing the Hong Kong dollar from appreciating beyond its trading band, have kept borrowing costs artificially depressed.

HKMA Chief Eddie Yue noted that capital inflows—from mega-IPOs like CATL’s $5 billion offering and de-dollarization trends in Asia—are likely to sustain this dynamic. With 40,741 households in negative equity as of late 2024, lower rates offer breathing room for overleveraged homeowners.

Property Market: A Fragile Rebound?

The data paints a mixed picture. Residential transaction volumes are rising, with secondary market loans up 6.2% in March 2025, while primary market sales fell 16.8%—a sign buyers are favoring affordability over new developments. The 2025 outlook projects ~60,000 total transactions, a 10% year-on-year increase, driven by government policy tweaks like reduced stamp duties on properties under HK$4 million.

Prices, however, remain under pressure. The private domestic price index fell to 284.7 points in February 2025, a 0.87% monthly drop and 28.5% below the 2021 peak. Yet analysts see a “soft landing” ahead: stabilization in newer properties (under 20 years old) and a 0–5% price recovery for luxury units after 2024’s distressed sales. Meanwhile, rentals are rising ~5% annually, fueled by talent influx and student demand.

The Elephant in the Room: Supply and Stress

The market’s optimism is tempered by grim realities. Over 28,000 unsold new homes linger on developers’ books, with another 77,000 units set to complete by 2028. This oversupply threatens to swamp a demand-driven recovery.

Mortgage stress indicators also hint at fragility: 40,741 households remain in negative equity, and while delinquency rates are low (0.13%), the stock of new homes and loan-to-deposit ratios falling toward 70% signal lenders’ caution.

The Investment Crossroads

For investors, the calculus hinges on weighing tailwinds and headwinds. Lower borrowing costs and policy support (e.g., stamp duty cuts) are boosting affordability, while rentals provide steady returns. But the 28,000-unit inventory overhang and negative equity traps could prolong stagnation.

Key data points to watch:
- Transaction volumes: A sustained rise above 60,000 could signal demand resilience.
- Price declines: A narrowing of monthly drops below 0.5% would mark stabilization.
- Mortgage applications: The 29.3% March surge suggests buyer interest is growing.

Conclusion: Cautious Optimism, But Risks Remain

Hong Kong’s property market is at a pivotal juncture. Plunging borrowing costs and policy nudges are creating opportunities for buyers, particularly in affordable segments and rental-focused assets. The ~5% rental growth and 10% transaction volume increase underscore latent demand. However, the 28,000-unit supply glut and 40,741 households in negative equity highlight unresolved structural issues.

Investors should focus on newer, well-located developments (under 20 years old) and small-to-medium units (Classes A–C), which saw stronger rental growth. Avoid speculative plays in overvalued luxury markets until price normalization is complete.

In short, 2025 offers a cautious green light—not for a boom, but for a tentative stabilization. The market’s fate now hinges on whether capital inflows and policy support can outweigh the weight of excess supply. The data suggests the pendulum is swinging slowly upward—but the path remains narrow.