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Hong Kong's HIBOR - drives mortgage rates


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#1 DrBubb

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Posted 21 September 2011 - 07:06 AM

Hong Kong's HIBOR - drives mortgage rates
Link and Historical rates / GEI-Hibor
================================

Posted Image : Updated 3mo Hibor on Bloomberg

More charts
Historical Hibor vs Libor
Posted Image

OTHER LINKS
=====
AXpat Forum :: http://hongkong.asia...-kong-property/
Centaline-Data :: http://hk.centadata.com/cci/cci_e.htm
Mortgage Calc. :: http://bank.hangseng...link-calculator
The market is "bipolar", swinging back and forth from a focus on Inflation to Deflation. Bet on swings; and stay flexible. What are bipolar markets? See: http://tinyurl.com/GEI-Manix

#2 DrBubb

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Posted 21 September 2011 - 07:20 AM

RATE CALCULATIONS

RATES : Hibor : Min. = HSBC : Max. = HSBC
- Feb : 0.19% :+1.80 = 1.99%:+2.30 = 2.49%
- Sep : 0.28% :+2.30 = 2.58%:+2.70 = 2.98%
======
=Rise :+0.09% : Min. + 0.59%: Max. + 0.49%

HIBOR RATES
Period : Rate(%)
1 Day-- : 0.05
1 Week- : 0.06
1 Month : 0.21
2 Mos.- : 0.25
3 Mos.- : 0.28
6 Mos.- : 0.36
/source: http://iportal.infoc...or.asp?LangId=1


Rise in rates sends prices, sales tumbling
Home seekers back off because of higher cost of borrowing and shaky state of global economy

Peggy Sito and Sandy Li .. Sep 21, 2011 - SCMP

A spate of bad news on the home front, including another rise in interest rates, has sent Hong Kong home prices and deal numbers tumbling.
The latest blow to market confidence came on Friday when the city's two biggest home lenders, HSBC and Bank of China (Hong Kong), raised their mortgage interest rates.

Despite price discounting in the secondary market of up to 7 per cent by anxious sellers, just 15 flats were sold in the city's 10 biggest estates at the weekend, with zero deals recorded in five of them. The sales were down by more than half from the 33 deals done in the 10 large estates over the previous weekend and compare with an average of nearly 40 deals per weekend in the year's first half.

Just six new flats sold over the weekend of September 17-18, the lowest weekend total for the year and down from eight the previous weekend, the regional head of property research at Samsung Securities (Asia), Lee Wee Liat, said. In the first half of the year an average of 100 new flats were sold each weekend.

The cause of the latest declines was Friday's increase in rates, the fifth for the year, agents said. The higher borrowing costs come on top of uncertainty about the global economic outlook, nervous bidding at recent land auctions, falling stock prices and the release by developers of new projects at prices that are close to, and in some cases lower than, prices in the secondary market.

HSBC increased the interest rate on mortgages based on the Hong Kong interbank offered rate (Hibor) from Hibor plus 1.8-2.3 per cent, to Hibor plus 2.3-2.7 per cent. Hibor is the rate banks charge for lending to other local banks.

HSBC also raised its prime-based rates from prime minus 2.7 per cent to prime minus 2.1-2.4 per cent. The new rates took effect on Monday.

Bank of China (HK) raised its Hibor-based rates to Hibor plus 2.0-2.5 per cent from Hibor plus 1.8-2.3 per cent. More local banks are expected to follow the market leaders.

"The new round of mortgage rate hikes initiated by HSBC last Friday dampened secondary-market sentiment," Samsung Securities' Lee said. "Some homeowners lowered their prices, but potential buyers maintained their wait-and-see attitude."

The senior sales director at Hong Kong Property's Whampoa Garden branch, May Chan, said only one flat changed hands on the estate over the weekend, after the owner cut his asking price by 7 per cent from HK$3.8 million to HK$3.58 million.

"Half of the eight appointments we made on behalf of buyers were cancelled over the weekend after the higher mortgage rates were announced. Sales had already begun slowing, but the news of another increase in home loan rates turned the market sentiment from bad to worse," she said.

/source: http://hongkong.asia...roperty-prices/
The market is "bipolar", swinging back and forth from a focus on Inflation to Deflation. Bet on swings; and stay flexible. What are bipolar markets? See: http://tinyurl.com/GEI-Manix

#3 DrBubb

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Posted 21 September 2011 - 07:40 AM

A SPIKE IN RATES caused the late 2008 HK Property crash

Posted Image

3 months Hibor doubled from 2.25% to 4.50% (briefly)
The market is "bipolar", swinging back and forth from a focus on Inflation to Deflation. Bet on swings; and stay flexible. What are bipolar markets? See: http://tinyurl.com/GEI-Manix

#4 DrBubb

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Posted 21 September 2011 - 08:11 AM

Some people have made some highly exaggerated predictions about what rising rates will do to
Hong Kong property prices. If you look at the rate rises thus far, their impact on the market
should not be huge - maybe something like -3%

RATE CALCULATIONS

RATES : Hibor : Min. = HSBC : Max. = HSBC
- Feb : 0.19% :+1.80 = 1.99%:+2.30 = 2.49%
- Sep : 0.28% :+2.30 = 2.58%:+2.70 = 2.98%
======
=Rise :+0.09% : Min. + 0.59%: Max. + 0.49%

Compare - for a HK$ 5 Million Loan

(assume: 20 years repayment)
Rate : Monthly Payment
2.20%: HKD 25,770
2.80%: HKD 27,232

To bring the Monthly payment back down to HKD 25,770,
then the Loan would need to be reduced by HKD $0.270 million

In Case
A: $9.00 million = $4mn Equity + $5.00 mn Loan = HKD 25,770 at 2.20%
A: $8.73 million = $4mn Equity + $4.73 mn Loan = HKD 25,770 at 2.80%

For the Buyer to be in the same place, the Property needs
to be reduced 3.00% to $8.73 million - which assumes in a "Buyers
Market", that the vendor takes the "whole hit" on rising rates.
In practice, the pain may be shared in some fashion.
The market is "bipolar", swinging back and forth from a focus on Inflation to Deflation. Bet on swings; and stay flexible. What are bipolar markets? See: http://tinyurl.com/GEI-Manix

#5 DrBubb

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Posted 18 October 2011 - 11:35 AM

HIBOR, Lending Spreads, and "Competitive pressures"
==============
(posts from AX : http://hongkong.asia...perty-market-(3)/ )

(1)
by OffThePeak (8 hrs ago)

Bing2. You said, "however, remember in 2008 when lehman collapsed? hong kong also had very solid internal property condition just like today's. but the market collapsed for 30% because of external problem from wall street meltdown. "

Memories are short here !

There are important differences between now and the market in 2008 prior to the collapse.

They say that rents are a "lagging indicator", but that was not the case in 2008. Rents began to sag early in the year, while property prices held up (much as they are doing now.) In mid-2008, we owned multiple flats in Caribbean Coast Tung Chung. About the time of the Lehmans collapse, one of the agents was talking to me about the rental market, and he let slip that there were 300 vacant 3BR flats in CC. I must have turned white because he suddenly stopped talking. I then asked him, what was a normal number of vacant flats. He said, "usually about 100." I knew at that point that the market was in for some very tough times.

Within a few weeks, banks started cutting their valuations, and tightening their lending criteria. And Centaline's index started falling at 1-2% (or more!) per week. I hadn't lived in HK during a downturn before, so such a rapid descent was rather shocking - a 1% per month drop is a big deal in countries like the UK or the UK.

The rapid decline lasted only about 10-12 weeks, but it truly cleaned out the market. Does anyone here think we are set for that? The only thing that I think could do it would be a sharp jump in rates. Instead, I think there is some possibility that ratesmay come lower as we head into next year. By then, banks may find they have to compete for business and the spread widening that they have tried to make stick may start to fade. This seems to be a seasonal pattern.

(2)
by twincm3 (8 hrs ago)

Do we have bankers here in treasury dept ? I am on the loan side, but I see that funding costs are getting higher these days. With higher funding costs, banks will charge higher interest rate to the customers. Quite unlikely interest rate will be lowered.

According to HKMA, the HKD deposits are not growing as HKD depositors are switching into RMB deposits and other RMB denominated investment instruments. However, HKD loans are increasing rapidly, resulting in the HKD loan-to-deposit ratio rising further to 85.9% in Aug – funding risks are mounting.

Currently, many of the European and Asian lenders are already selling assets aggressively in the secondary market in a bid to get back USD funds. The capability to underwrite and/or to take on new assets is extremely restrictive. This will force banks to re-calibrate their returns and preserve liquidity to key clients back in their regions. The lending landscape has changed drastically in the recent months.

(3)
by OffThePeak (3 hrs ago)

Am I wrong?
I see HIBOR as follows:
3 Months 0.28
6 Months 0.38


So most of the increase in Mortgage rates has been HK banks pushing up their spreads. This is a competitive thing.

(I also note that many banks have been paying much higher rates for "new" deposits, and then maybe burying the cost in their Mortgage portfolio. At some stage, banks may start competing again for loans, rather than deposits.)
The market is "bipolar", swinging back and forth from a focus on Inflation to Deflation. Bet on swings; and stay flexible. What are bipolar markets? See: http://tinyurl.com/GEI-Manix

#6 DrBubb

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Posted 18 October 2011 - 11:36 AM

(4)
by twincm3 (3 hrs ago)

OffThePeak, Again, as I said I need bankers in treasury dept to answer this question.

But according to my understanding, HKD Hibor should go hand in hand with USD Libor. If Fed does not have rate hike, Hibor should remain unchanged.

For HKD lending, the all-in price for banks = Hibor + loan spread
Banks could adjust loan spread in order to justify perceived risks, i.e. that’s why we could see recent adjustments in home mortgage loan.


As loan-to-deposit ratio is high, banks are actually trying to increase deposit (denominator) and/or decrease loan (numerator), so as to lower the ratio. Corporate borrowers also understand the current situation, so they tended to delay the financing plan, or to accept a higher pricing proposed by banks. Now, it is a seller market, where banks have a bigger voice than clients.

(5)
by elsdon (2 hrs ago)

Just to build off of what OffThePeak is saying, in this industry competitors often meet for round tables and general discussions about what is going on in the market.

Is this simply a risk exercise like what twincm3 is saying and banks across Hong Kong are trying to decrease their loan-to-deposit ratio or could this be linked to a bottom line exercise as banks in concert increase their spread to try and increase their returns on mortgages?

(6)
Posted by elsdon (2 hrs ago)

The rise in LIBOR/HIBOR is negligible compared to the rise in the spreads.. We're talking mortgages previously at H+0.7 (12-18 months ago) to now.. H+1.5 or H+2.0?

Actual rates have moved from 0.1 to 0.2-0.3 in that same period? We haven't actually seen much movement in real HIBOR yet based off operation twist.. It's interesting. Maybe, yet to come?
The market is "bipolar", swinging back and forth from a focus on Inflation to Deflation. Bet on swings; and stay flexible. What are bipolar markets? See: http://tinyurl.com/GEI-Manix

#7 DrBubb

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Posted 18 October 2011 - 11:58 AM

(7)
by twincm3 (2 hrs ago)

I just talked to our treasury dept. Colleague said the “twist” operation has only mild impact on LIBOR / HIBOR (they only increase for a few basis points), basically they did not move. However, the rise in spread is more prominent.

As far as our bank is concerned, we will cherry-pick deals very selectively ; will only look at lucrative deals and will keep funds for key relationship clients.


(8)
by OffThePeak (11 mins ago)

"Is this simply a risk exercise like what twincm3 is saying and banks across Hong Kong are trying to decrease their loan-to-deposit ratio or could this be linked to a bottom line exercise as banks in concert increase their spread to try and increase their returns on mortgages?"

My experience has shown me that HK banks try to increase the spread around this time of year - and the push up this year was particularly big. But by the time January rolls around, competitive pressures begin to force spreads back down.

Therefore, if this is a "seasonal spread grab", it may get clawed back within a few months as competitive pressures mount. I am watching this matter closely since I have a property to sell. And I believe that narrower spreads, combined with some ongoing increase in rents may bring buyers back into the market within a few months.

Of course, if confidence is undermined by an ongoing global stock market crash, that may not happen. Experience tells me that prices rarely fall straight down for long, and even if stocks are lower before the end of next year, we may have some periods were HK property prices rise. Perhaps we will see one much sooner than the pundits think.

(9)
by OffThePeak (2 mins ago)

Twin, your:
"As far as our bank is concerned, we will cherry-pick deals very selectively..."

I am sure that is true with respect to Corporate Lending (I myself was once a Lending officer with one of the largest global banks - so I have some experience with that.) But I think that HK's Mortgage lending banks cannot afford to be too picky for too long, or their profitable mortgage portfolios will begin to run off.

In 2011 they had a great first half, and so could afford to get picky by September - they had already made their budget for the year. But when the start off the new year with a clean slate, and mortgage loans do not come rolling in, they will need to become increasingly competitive, and that is when you will see the spreads coming down.

My opinion is that the spreads they are getting now reflect some element of "profiteering greed." And they are only getting away with it, because some of the mainland Chinese banks have gone into a "bunker mentality", and for the time being are more concerned about credit quality THAN business volume. If losses start to mount, they will stay in the bunker. But no one is losing money right now on HK mortgage loans, so these will be seen to be a "safe asset" once again, and the competitive forces will return.
The market is "bipolar", swinging back and forth from a focus on Inflation to Deflation. Bet on swings; and stay flexible. What are bipolar markets? See: http://tinyurl.com/GEI-Manix




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