CAITONG SECURITIES·2026-01-26 04:30Investment Rating - The report maintains a "Positive" investment rating for the Hong Kong real estate sector [1]. Core Insights - The Hong Kong residential market is stabilizing and showing signs of recovery, with new home sales volume approaching the peak levels of 2019, and second-hand home transactions reaching a new high since 2022. The inventory de-stocking cycle has significantly reduced from 125 months to 61 months [1][8]. - The retail property market is still under pressure, but rental declines are narrowing, and vacancy rates in core areas are decreasing. Office rents and occupancy rates are under pressure, with significant regional market differentiation [1][19][25]. - The residential market is expected to continue its upward trend in 2026, driven by lower mortgage rates and an increase in rental yields. Over 80% of residential properties are projected to achieve a balance between supply and rental demand [1][34][40]. Summary by Sections 1. Hong Kong Real Estate Market Review - Residential transaction volumes are increasing, with new home sales reaching 21,000 units in 2025, a 99.1% increase from the cycle's bottom [8][12]. - The inventory pressure has eased, with the de-stocking cycle for new homes dropping significantly [16]. - Retail property rents are still adjusting, but the rate of decline is slowing, and some core areas are showing signs of recovery [19][21]. - Office rents have decreased by 21.1% since their peak in June 2019, with rising vacancy rates [25][26]. 2. Outlook for the Hong Kong Real Estate Market - The residential market is expected to continue its recovery, with structural differentiation being a key feature [34]. - The ongoing Federal Reserve rate cuts are likely to support the Hong Kong real estate market's recovery [34][37]. - The proportion of properties achieving a balance between supply and rental demand is expected to increase, enhancing home buying demand [39][40]. - Talent attraction policies are anticipated to boost potential home buying demand as more skilled individuals move to Hong Kong [44][50]. 3. Valuation Elasticity of Hong Kong Property Companies - Current valuations of major Hong Kong property companies are at historically low levels, indicating potential for recovery [1][3]. - Companies with a higher proportion of development business and land reserves are expected to exhibit greater valuation elasticity [1][3]. - The top three property companies in terms of sales in 2025 are Sun Hung Kai Properties, Henderson Land Development, and Sino Land, with significant year-on-year sales growth for Henderson and Sino [1][3].