Property view will be clearer when cheap money goes out the door

HOW UNUSUAL WITH the Hong Kong economy well into recovery for a good deal more than a year that the interest rate you can negotiate with a bank for a new mortgage is still at a record low.

I make it an average of only 2.43 per cent in November (the latest data available) from breakdowns published by the Hong Kong Monetary Authority, which is 2.57 per cent below HSBC's best lending rate (BLR). We really shall have to rename this benchmark now as the WLR, for worst lending rate.

My figures may be off a little here but not by much and the story told by the first chart would not be affected. Mortgage rates initially went up with the onset of the Asian financial crisis in 1997 but by mid-1998 were trending down, dropped below the BLR in early 2000, and then plummeted to levels from which they show no immediate sign of rising.

It is a reflection of the general condition of excess liquidity in Hong Kong-dollar financial markets. The banks thought things might be starting to change back in September, which induced HSBC to raise its BLR by one-eighth of 1 per cent, but the increase held for only one month further and back down BLR went to 5 per cent again.

The loan-to-deposit ratio for Hong Kong dollars in our banking system is still barely 80 per cent and, to give you an idea of what that means, our bankers have almost $400 billion in deposits for which they cannot find borrowers.

Small wonder that the borrower has the upper hand in this market at the moment.

Meanwhile, our interbank rates are still about 200 basis points below their US-dollar equivalents and this certainly does not seem a sustainable difference with the Hong Kong dollar still firmly pegged to the greenback.