By Cheryl Arcibal

Copyright scmp

The resumption of a policy easing cycle following the US Federal Reserve’s quarter-point interest-rate reduction is likely to spur more investments into property globally, according to analysts.
For mainland China and Hong Kong, however, the impact could be less significant owing to fundamental and geopolitical strains, they added.
“Rarely do central banks do ‘one and done’,” said Pamela Ambler, head of capital markets research for Asia-Pacific at JLL. “This [Fed] cut is likely to kick off a series of reductions to base rates. We have already seen capital rotate back into property investments.”
JLL’s proprietary global bid intensity index, which gauges direct investment market competitiveness, recorded an uptick in the third quarter of the year. It was the first time the index had improved since Donald Trump returned to the White House in January, indicating that bidding intensity was getting competitive again after a period of challenges due to macroeconomic uncertainty in the second quarter, which was triggered by Trump’s tariffs on America’s trading partners.

The index showed that investors were focusing on segments such as residential or multi-housing, industrial and logistics, retail and prime offices in gateway cities, which JLL did not identify.
The Fed cut its target rate by 25 basis points to a range of 4 to 4.25 per cent during the sixth meeting of the Federal Open Market Committee last week. The Fed’s easing was widely expected and is seen as the start of a rate-cut cycle that is likely to extend into next year.
“Further interest-rate cuts should support investment activity in commercial property markets, by reducing the cost of financing new acquisitions and the hurdle rate for many institutions, which benchmark investments against the prevailing ‘risk-free’ rate of return such as government bond yields,” said Oliver Salmon, director for capital markets at Savills world research.
The Hong Kong Monetary Authority followed the Fed, cutting the city’s base rate by a quarter point to 4.5 per cent – the lowest since December 2022.
Despite this, the commercial property markets in Hong Kong and the mainland could see little gain.
In Asia-Pacific, commercial real estate volumes declined by about a fifth from a year ago to US$31.8 billion in the second quarter, according to MSCI. Hong Kong and mainland China were the weakest among the top 10 markets tracked by the US-based market data researcher.
In Hong Kong, volume fell 45 per cent to US$900 million in the April to June quarter, the lowest since the 2008 global financial crisis. Meanwhile, property investment on the mainland declined 46 per cent to US$4.5 billion in the same period, the MSCI data showed.
“Lower financing costs and capitalisation rates should mildly boost commercial property transactions in Hong Kong in the coming months, but the oversupply of offices is likely to pressure asset prices,” said Jeff Zhang, an equity analyst at Morningstar. “Some investors may take the opportunity to deploy more capital to Hong Kong, but China’s interest rate policies are relatively independent, with capital flow controls remaining prohibitive.”
The lower interest rates “clearly alleviate” some of the concerns facing Hong Kong and mainland China’s property sectors, but they may not be a panacea for the wider structural issues in the market, and so institutional investors will remain cautious, said Savills’ Salmon.
On the other hand, with capital values and pricing of assets in the two markets having already adjusted to weak demand and excess supply, the latest rate cut could trigger investors to make acquisitions now.
“That is the question they are pondering,” JLL’s Ambler said. “They are analysing comparisons of current day rents versus pre and post-global financial crisis, which suggests they are sharpening their pens.”