Sparc Mortgage Income Fund Newsletter

Monetary Easing Creates Powerful Tailwinds

The Federal Reserve’s decision to trim its policy rate by 25 basis points to 4.00 – 4.25%—its first cut in nine months—was met almost immediately in Hong Kong. The HKMA lowered its base rate to 4.50%, and HSBC followed suit by reducing its prime lending rate by 12.5 basis points to 5.125%. This coordinated easing in Hong Kong banking system stands to invigorate property demand and drive a surge in mortgage origination.

Policy Address Spurs Structural Reform

Hong Kong’s Policy Address introduces reforms designed to stimulate investment and streamline development:

Capital Investment Entry: The minimum investment threshold for the Capital Investment Scheme has been lowered from HK$50 million to HK$30 million, unlocking access to properties valued at approximately HK$14 billion annually (around 1.2% of total transactions) and potentially boosting segment activity by 20%.

Northern Metropolis Framework: Moving away from a pure “highest-bidder” auction model, land parcels will now be awarded via a dual-envelope system favoring industry partnerships.

“Pay-for-What-You-Build” Premiums: Developers will benefit from reduced upfront land costs, paying premiums only upon completion of specified works.

Phased Development with Equity Participation: This structure provides multiple entry points for investors, while aligning incentives between the government and private-sector partners.

Student Housing Shortage Presents Attractive Opportunity

Expansion of the non-local student quota from 40% to 50% will bring roughly 7,400 additional students to Hong Kong’s universities. With only 44,000 hostel beds serving 192,000 students—a ratio of 3.4 students per bed—a shortfall of approximately 120,000 units is forecast by 2028. We anticipate rental yields to climb by 10 – 15% over the next two years, as neighborhoods around major campuses already report double-digit annual rent increases.

Robust Market Fundamentals

Primary Market Activity: From January through August 2025, primary property transactions reached 13,382—a near 29% year-over-year increase. New-launch premiums typically range from 2 – 5%, with premium projects commanding 10 – 30% above nearby comparables; for example, Kabitat in Tin Hau achieved 17 – 31% premiums.

Mortgage Originations: July approvals climbed 11.2% month-on-month to HK$30.6 billion. Primary financing grew 16.4% to HK$10.8 billion, while secondary-market loans rose 10.5% to HK$16.6 billion. Delinquency remains negligible at 0.13%, with rescheduled loans virtually eliminated. Average loan-to-value stands at a conservative 63.3%, and 95.7% of new mortgages are HIBOR-linked, providing robust collateral protection.

Demographic Tailwinds

The Top Talent Pass Scheme boasts a 55% renewal rate. Among pass holders, 95% earn above the city’s HK$20,000 median monthly income and half exceed HK$40,000. Seventy percent are under 40 years old, predominantly employed in financial services and technology—groups that will continue to fuel demand for quality housing.

2025 Outlook

Market now is expecting modest price gains of 0 – 5%, underpinned by lower borrowing costs. With an additional 50 basis points of Fed cuts likely by year-end, monetary easing should remain supportive.

Against this backdrop, narrowing mortgage spreads and rising origination volumes create an exceptional environment for Sparc Mortgage Income Fund.

— Sparc Capital Management Limited, 18 Sep 2025