UBS Group released research reports, stating that the United States has officially entered an interest rate cut cycle. As a result, Hong Kong banks announced to follow the rate cut trend and lowered the Hong Kong dollar's prime rate by 25 basis points. This unexpected move became a 'Mid-Autumn Festival gift' for the Hong Kong property market, bringing positive news. The interest rate for new first-hand residential mortgages will be reduced from 4.125% to 3.88%, which will help narrow the negative interest rate differential with rental return rate.

Based on the market's expectations of interest rate cuts in the United States for the next two years, UBS Group currently predicts that the interest rate for new mortgages in Hong Kong can be lowered to 2.9% by the end of next year, which is a further decrease of 97 basis points compared to the current rate of 3.88%. Assuming the Hong Kong dollar's prime rate can be further reduced by 25 basis points this year, and the rental return rate remains at 3.5%, the bank predicts that Hong Kong's residential market will be roughly at a neutral level by the end of this year, which will provide support for property trading.

Since the interest rate hike starting from the third quarter of 2022, an estimated 0.037 million local property demand has been postponed. UBS Group reiterates its prediction of a 5% decline in Hong Kong property prices this year. In other words, for the remaining time this year, property prices will stabilize or have a slight rebound. The bank is bullish on companies such as Henderson Land Development (00012.HK), Kerry Properties (00683.HK), and New World Development (00016.HK) as they can benefit from this unexpected rate cut.

UBS Group also points out that the interest rate cut in the United States can reduce developers' interest costs. However, factors such as an increase in office supply in the market, outbound travel leading to consumer spending moving abroad, and weak recovery in mainland tourists' spending will still pose challenges to Hong Kong's house rental companies. Therefore, the bank prefers developers over house rental companies, with Henderson Land, Kerry, and Swire Properties (01972.HK) as its top picks. Please refer to the table for target prices and the latest ratings.