What are the rising stocks in the Hong Kong property market? The market is most concerned about the downward adjustment of mortgage rates for existing homes, what does it mean?

Under the expectation of policies, the Hong Kong stock market has shown a slight rebound, with the market's attention focused on the real estate sector!

On Wednesday, August 30th, Hong Kong's property stocks maintained their upward momentum from the previous day's closing, with stocks such as Longfor Group, Greentown China, China Resources Land, and Beike all rising.

In terms of news, according to Securities Daily, several Chinese banks, including Agricultural Bank of China, China Construction Bank, CITIC Bank, and China Merchants Bank, have formulated plans to lower interest rates on existing home loans, and substantial progress may be made this week.

The screenshot of the "Notice on Holding a Meeting to Launch the Adjustment of Interest Rates for Individual Housing Loans" circulated in the market yesterday has been confirmed by 21st Century Business Herald as genuine. The meeting will be convened by Bank of Communications, one of the six major state-owned banks in China, and will be led by the Retail Credit Department of the bank.

At present, it is expected that the interest rate reduction on existing home loans in China will be implemented soon. Why is this adjustment necessary? What does it mean? Why is the market attaching such importance to this measure?

• What are the benefits of lowering interest rates on existing home loans?

From a macro perspective, analysts Ying Jianxian and Liang Zhonghua from Haitong Securities stated:

If the interest rates on existing home loans are adjusted, the most direct impact is to provide positive support for consumption. For the household sector, this is equivalent to reducing the cost of debt and reducing the monthly mortgage payment, which will have a certain stabilizing effect on consumption.

However, considering the impact on the profits of commercial banks, it is expected that there is also room for the adjustment of deposit rates in order to support the stable operation of banks. At the same time, the possibility of reserve requirement ratio cuts is also increasing.

The Xiongyuan team from Guosheng Securities also stated that the reduction of interest rates on existing home loans is an important supporting policy that helps stabilize confidence, reduce costs, stabilize the real estate market, and promote consumption.

• What do banking professionals think?

According to UBS's estimation, the reduction of interest rates on existing home loans will bring an additional 5-10 basis points of pressure on bank interest spreads by 2024.

However, Peng Jiawen, Assistant to the President and Secretary of the Board of China Merchants Bank, said at the China Merchants Bank 2023 Mid-Year Performance Communication Meeting that there is no need to only focus on the negative impact. The adjustment of interest rates on existing home loans also has positive effects:

First, the background of the interest rate reduction on existing home loans is that there is a relatively large amount of early repayment. With the reduction of interest rates on existing home loans, the factors of early repayment of the entire housing loan will be digested to a certain extent, which will in turn bring about an increase in housing loan volume;

Second, with the reduction of interest rates on existing home loans, customer stickiness will be enhanced to a certain extent, which will further deepen the bank's relationship with customers and be beneficial to the growth of retail business.

Therefore, it is not only about the adverse impact on short-term finances, but also has its favorable aspects in the long run. China Merchants Bank will implement it prudently.

Lin Li, Deputy President of Agricultural Bank of China, also stated that the adjustment of existing housing loan interest rates is beneficial for alleviating the financial burden of some existing loan customers, as well as for commercial banks to smoothly repay loans in advance and ensure stable operations.

• When will the reduction take place?

According to Peng Jiawen's disclosure at the performance meeting, "from the perspective of the central bank's statement, the change from 'encouragement and support' to 'guidance' indicates that the reduction of existing housing loan interest rates is an inevitable and highly probable event."

He also mentioned that China Merchants Bank has already formulated a contingency plan, but the final plan has not been determined yet. The bank has conducted calculations on the downward adjustment of existing housing loan interest rates under optimistic, neutral, and adverse scenarios. The overall impact is manageable based on the calculation results.

Yan Mei, Head of Financial Industry Research at UBS Greater China, stated that "from the recent trend of LPR reduction, the market believes that this is to create room for the reduction of existing housing loan interest rates. It is expected that the reduction will be implemented soon. The key lies in how to proceed in an orderly manner, ensure fairness and reasonableness for customers, and prevent deliberate competition among banks to attract customers."