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<Research>Citi Anticipates Further Recovery in HK Property Mkt Next Yr w/ Home Prices Rising 3%
Recommend 7 Positive 10 Negative 6 |
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Citi has issued a report expressing optimism for the Hong Kong real estate market recovering further in 2026 after emerging from a trough in 2025 because of: (1) Housing prices entering an upward cycle: Improved new sales profit margins (currently 5-9%) and upside potential in net asset value; (2) Retail sales: Luxury goods outperform the market, with the mass market stabilizing from May 2025 and expected to steadily recover from 2H26; (3) Office space: After a record high completion in 2025, competition is expected to intensify in 2026, but Grade A offices in core areas are demonstrating solid performance; (4) Streamlined listed companies: Active capital recycling, reduced liabilities, and lower capital expenditure and financing costs should support growth with stable cash flow while stabilizing dividends; (5) Increased investment willingness; and (6) Smooth transition of some new strategies with chairman/ CEO changes. Citi also believes interest rates in Hong Kong (2026: HIBOR down 30 bps), the US (down 75 bps), and China (down 10 bps) may drop, which, if true, will serve as a boon for high-yield stocks. The broker is paying attention to catalysts like dividend/ EPS, luxury retail, large new projects, and REIT connect. Its top picks are HYSAN DEV (00014.HK), HANG LUNG PPT (00101.HK), SHK PPT (00016.HK), HENDERSON LAND (00012.HK), and LINK REIT (00823.HK). Regarding home prices, Citi envisions a 3% increase in 2026 home prices (3% growth expected in 2025) and a multi-year upcycle because of: (1) Land supply at a 14-year low and below sales volume; (2) Available supply reduced by 10,000 units within a year to 88,000 units by 3Q25; (3) Net absorption expected to be 21,000 new home sales starting 2026 (a new high since 2019), with completions at 20,000 units; (4) Non-local student visa approvals increasing by 10,000 annually to 90,000 by 2026, supporting the rental market and future demand; and (5) Rent rising by 5% (cumulative increase of 20% in 2023-25), with gross yield for units under 70 square meters at 3.5% and holding costs flat. It is also projected that new home sales in 2025 will hit a four-year high (listed companies up 3%) on the back of SHK PPT, NEW WORLD DEV (00017.HK), HENDERSON LAND, and SINO LAND (00083.HK). AAStocks Financial News |
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