Citi Research has warned that if the USD/HKD exchange rate touches the 7.85 weak-side Convertibility Undertaking (CU), the Hong Kong Monetary Authority (HKMA) may need to step in by selling U.S. dollars to defend the currency peg. This move would withdraw an estimated USD 70 to 100 billion in liquidity from the financial system.
Such an intervention would tighten Hong Kong dollar (HKD) liquidity and push short-term interest rates higher. Citi projects that the Hong Kong Interbank Offered Rate (HIBOR) could rise to between 2% and 3%, helping to push the USD/HKD rate back toward 7.82–7.83.
According to Citi’s estimates, if HIBOR stabilizes above 2.2%, the effective mortgage rate for residential properties could rise to 3.5%. However, should HKD interest rates ease again, Hong Kong real estate developers could benefit from reduced borrowing costs. Citi forecasts that this could lift developers’ full-year profits by up to 3%.
Despite this potential profit boost, Citi is maintaining its forecast of a 3% decline in Hong Kong property prices for the year. The research noted that real estate investment trusts (REITs) and residential developers are better positioned to gain from recent market trends.
Based on current valuations and earnings forecasts, Citi named Hongkong Land, LINK REIT (00823.HK), and Sun Hung Kai Properties (00016.HK) as its top picks among Hong Kong-listed property firms. It expects these companies to consolidate at current levels in the near term.
